The value of FDD: a Q&A with Duncan Thorburn of Foresight Group

In private equity investments, getting under the bonnet of a business before committing capital is everything. Financial due diligence sits right at the heart of that process. To explore why it matters, Consilium’s Corporate Finance Partner, Linzi Wilson, sat down with Foresight Group Investment Manager, Duncan Thorburn, to consider the realities of financial due diligence in fast-moving deals and what investors really look for in their advisors.

Linzi: Let’s kick off with the basics, Duncan. As an Investment Manager at a private equity firm, how important is financial due diligence?

Duncan: It’s absolutely crucial. Financial and tax diligence are always the starting point. If we are going to commit significant capital, we want to make an informed decision. FDD is a lot like looking under the bonnet of a car before you buy it; you need to assess the mechanics of the business and how well it’s going to run.

Linzi: To carry on your analogy, what does Foresight want to know about a business when it looks under the bonnet?

Duncan: We need to understand the risks and the control environment of a business. Before the FDD process, we only have limited access to the financials. That’s why we move quickly to start due diligence. It helps us identify any discrepancies early on and provides a much clearer picture.

Linzi: We’ve collaborated on deals and FDD projects for nearly a decade now, Duncan. Some people might wonder why PE firms like Foresight bring in external advisors rather than keeping the work in-house. What’s your take?

Duncan: There are two reasons why we do this. First, external specialists like yourself can ask the technical questions and benchmark the business against others in the sector. Often, there is sector-specific knowledge as well, which offers a deeper understanding of what issues might be unique to the industry or unique to the business. Those insights are invaluable.

Second, it frees up our team to focus on relationship-building with the management team we might invest in.

Linzi: Consilium has enjoyed a long relationship with Foresight. How important is that relationship between the investor and advisor?

Duncan: It’s everything. We want to work with advisors who know what issues and risks matter to us. We also want to work with people who we can rely on. Over the years, we’ve built trust in you and the Consilium team, and that collective ability to deliver every time.

I think it is also about the feedback. It’s not just about the raw numbers; it’s the story behind the numbers. Consilium always provides us with honest feedback on the target’s management. That kind of context isn’t always written into the scope of the due diligence, but it is a value-added element of your approach.

Linzi: Let’s talk a bit about how the deal stage influences the FDD process. Are there differences in the scope and style of due diligence?

Duncan: Definitely. For early-stage investments, our focus is mostly on potential. Broadly, that means we want to stress-test forecasts and drill down into the assumptions made by the management team. In later-stage investments, we are thinking more about validation of the data. That influences the valuation and the deal structure. Each stage needs a different approach.

Linzi: Given the success of Foresight, you undoubtedly have a clear idea of what makes the difference between an average financial due diligence report and a great one. What’s in the FDD secret sauce?  

Duncan: You’ll be pleased to know that your FDD reports fall into the latter category! As I mentioned, it is the context that is key. A great FDD report doesn’t just say ‘this balance moved from X to Y’; it explains the implications, the knock-on effects and why it matters to our investment. That’s the big difference.

Again, there is also that element of being able to trust the team to get on with it. We know Consilium will get on with the job. We’re often managing several live deals at a time, plus our existing portfolio, so we need to know that we have advisors who are on it.

Linzi: You mentioned the pressure to juggle multiple live deals. That often leads to very tight timescales. Where does Consilium stack up in that area?

Duncan: Very well. If your team say it can be done, we trust it will be. An honest view of capacity and timescales is critical to us. And so is the availability of senior team members and general transparency on the project. We know who to call, and we know we’ll always get a straight answer. Clarity and responsiveness are critical in a fast-moving deal.

Linzi: You’ll be pleased to know I’ve kept the taboo subject until last: fees! They are often a sensitive subject when it comes to FDD. What do you make of Consilium’s approach to fees?

Duncan: Honestly, it’s very pragmatic. It’s not just about numbers on a page; it’s the quality of the advice, the insight into risks, and the confidence we have in the people and the process. For us, that’s worth every penny.

The difference between good and great financial due diligence

Great financial due diligence isn’t just a box-ticking exercise. It is a vital part of the investment process. At Consilium, we focus on providing financial due diligence and tax due diligence services that truly uncover investment risks, validate assumptions and provide essential insights.

To discuss financial due diligence or tax due diligence services, speak to Linzi Wilson. You can also learn more about our approach to FDD or take a look at our investment Success Stories.

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