Lower Middle Market

Axial transaction diligence

Published · Reviewed by The Diligence Standard Team · Updated

Expect more institutional materials and larger companies, but raise, not lower, the diligence standard. Focus on QoE, NWC peg, debt-like items, management depth, customer concentration, contracts, rollover and financing.

Diligence focus

  • Quality of earnings
  • Net working capital peg
  • Debt-like items
  • Management depth
  • Enterprise customer concentration
  • Rollover / retained equity
  • Earn-outs
  • Financing and transaction structure

First evidence requests

  • QoE or monthly trial balance package
  • Revenue/customer cohort or contract detail
  • NWC history
  • Debt-like item schedule
  • Management org chart
  • CapEx history/forecast
  • Tax/legal entity chart
  • LOI and financing assumptions

Warning signals

  • Adjusted EBITDA outruns source support
  • Working capital is discussed only at a year-end snapshot
  • Debt-like items are deferred to legal drafting
  • Management rollover is assumed
  • Customer contracts contain control/assignment issues