Financial Institutions Mergers & Acquisitions Frequently Asked Questions
What types of financial institution transactions may require valuation or due diligence?
Transactions may include mergers and acquisitions, reorganizations, bankruptcies, spinoffs, divestitures, and joint ventures. Depending on the transaction, the work may include business valuation, financial and compliance due diligence, and a quality of earnings assessment.
What should due diligence examine in a financial institution transaction?
Due diligence should examine financial, compliance, and operational details that may affect transaction risk and opportunity. The work also can extend to tax compliance, entity structure, tax risk, information technology, and real estate when the scope calls for expanded review.
What does a quality of earnings (QoE) assessment examine?
A quality of earnings assessment may include quality of revenue, payroll reconciliation, non-recurring expense analysis, cash-to-accrual expense adjustments, and net working capital normalizations. The broader purpose is to understand the sustainability, deterioration, or improvement of historically reported operating results and financial position.
Can financial due diligence be scaled to the transaction?
Yes. The scope can range from a limited quality of revenue review through quality of earnings, tax due diligence, and expanded review of regulatory compliance, information technology, and real estate. The work plan can be customized to the institution’s specific needs and desired level of due diligence investment.
Why should regulatory expectations and market forces be considered in financial institution M&A?
Financial institution transactions are shaped by regulatory expectations and market forces. Those factors provide context for the financial, compliance, and operational details reviewed during valuation and due diligence.
