𝐖𝐡𝐚𝐭 𝐢𝐬 ‘𝐅𝐢𝐧𝐚𝐧𝐜𝐢𝐚𝐥 𝐃𝐮𝐞 𝐃𝐢𝐥𝐢𝐠𝐞𝐧𝐜𝐞’ popularly abbreviated as (𝐅𝐃𝐃)?
FDD is a part of "Transaction Services" or "Deals Advisory Services" offered by (accounting & auditing) consulting firms. The most popular ones are ‘Big 4’ firms: EY, Deloitte, PwC, KPMG.
FDD is performed majorly on private limited companies. Listed companies are tracked by Stock Exchanges/Market Regulators/Large Mutual funds & have disclosures to comply and investment can be timed at any point so there is hardly a need for FDD.
FDD is basically a detailed and systematic analysis of the financial data of the target company to obtain an overall picture of the company before the acquirer completes an 𝐌&𝐀 𝐝𝐞𝐚𝐥.
If investors (PE/VC firms basically acquirers, do it) it is called 𝐛𝐮𝐲-𝐬𝐢𝐝𝐞 & if any company, do it to increase its creditability beyond audit report it is called vendor due diligence.
This field 𝐢𝐬 𝐝𝐨𝐦𝐢𝐧𝐚𝐭𝐞𝐝 𝐛𝐲 𝐂𝐀/𝐂𝐏𝐀𝐬 as it is a mix of financial analysis and requires a good grasp of the regulatory framework. However, fresher undergrads and MBA freshers can get into this job profile.
The key job is assessing the sustainability of the target’s growth and profitability, understand the cash flow and asset quality of the company, identify hidden liabilities and contingencies etc.
𝐓𝐲𝐩𝐢𝐜𝐚𝐥 𝐃𝐚𝐲/𝐓𝐚𝐬𝐤: Let’s say revenue analysis. They make a lot of cuts, like revenue by clients (concentration risk), revenue by location (geography risk), is another revenue a big chunk of total revenue? Revenue by Products? Are GAAP/IFRS norms followed in spirit etc? Is EBITDA computed correctly? Is there any risky covenant in Debt acquired?
It's a very good profile for Statutory auditors and Internal Auditors. They get easy entry. 𝐄𝐱𝐢𝐭 𝐨𝐩𝐩𝐨𝐫𝐭𝐮𝐧𝐢𝐭𝐢𝐞𝐬 from this role would be IB PE/VC or Corporate Finance.
Analyst/Associate are entry-level roles. They become senior consultants/senior associates in 3-4 years post that one becomes Managers/Senior Managers.
FDD consultants are generally tied to a 𝐬𝐩𝐞𝐜𝐢𝐟𝐢𝐜 𝐬𝐞𝐜𝐭𝐨𝐫 & 𝐠𝐞𝐨𝐠𝐫𝐚𝐩𝐡𝐲 (like real estate in India), so they tend to develop that expertise.
𝐓𝐡𝐞 𝐢𝐧𝐭𝐞𝐫𝐯𝐢𝐞𝐰 𝐩𝐫𝐨𝐜𝐞𝐬𝐬 will involve grilling on financial concepts, especially financial statement questions around EBITDA vs Net Income, Accounting Standards. Since a lot of number crunching is required Excel case study is part of the interviews. Also, the ability to quickly grasp information (SWOT analysis of a company) is tested via case studies.
You are expected to 𝐰𝐨𝐫𝐤 𝐚𝐫𝐨𝐮𝐧𝐝 50-60 𝐡𝐨𝐮𝐫𝐬 𝐩𝐞𝐫 𝐰𝐞𝐞𝐤. Weekend working is quite common in this role as the nature of the M&A industry.
In a nutshell, it is a very good role to break into the world of finance.