Transaction Services in M&A: what they actually do and when to use them

When a business owner begins exploring a sale or acquisition, the first instinct is to focus on the headline price. The more productive question, however, is whether the figures underpinning that price are reliable, recurring and defensible. That is precisely what Transaction Services (TS) teams are engaged to determine — and it is a role fundamentally different from statutory audit, legal due diligence or valuation advice.

A TS report does not certify accounts. It reads them critically: stripping out one-off items, rebuilding a normalised economic performance, and identifying the specific figures that will drive — or disrupt — price negotiations. For a founder selling their first company or an SME director buying a competitor, understanding what a TS team does (and does not do) is a prerequisite for meaningful conversations with advisers, banks and counterparties.

In short: Transaction Services analyse the underlying financial performance of a target (or a business being sold) to support the investment decision, objectify valuation and frame the pricing mechanism. Core deliverables are the Quality of Earnings report, normalised working capital analysis, net debt review, and advice on whether to use completion accounts or a locked-box mechanism.

The terms are often used interchangeably, but the distinction matters. Financial due diligence is the broader investigative process covering financial, tax, legal, social and environmental workstreams. Transaction Services refers specifically to the financial analytical workstream: critical review of the financial statements, EBITDA normalisation, working capital and net debt analysis, and pricing mechanism support.

Statutory audit — the audit conducted by an external auditor or, in France, the commissaire aux comptes — is a regulated assurance engagement whose objective is to express an opinion on whether the accounts give a true and fair view. It does not ask whether earnings are recurring, whether working capital is managed opportunistically, or what the business is worth to a specific buyer. On any M&A transaction, TS and statutory audit co-exist with fundamentally different mandates.

Vendor Due Diligence (VDD) — a report commissioned and paid by the seller, then made available to potential buyers — follows the same logic on the sell side. A well-prepared VDD reduces the information asymmetry that typically drives buyer risk adjustments and last-minute price chips.

The Quality of Earnings (QofE) report is the central deliverable in any buy-side TS mandate. Its purpose is to move from the reported EBITDA to a normalised, recurring EBITDA after adjusting for items that inflate or distort the underlying performance.

Typical adjustments include:

• Non-recurring items — restructuring costs, exceptional litigation charges, gains on asset disposals, one-off integration costs;
• Non-arm's-length items — owner-manager remuneration above or below market rate, intra-group rents or management fees at non-market prices, related-party transactions;
• Accounting adjustments — changes in depreciation policies, provisions judged insufficient or excessive, revenue recognition on long-term contracts;
• Management adjustments — future costs required to run the business on a stand-alone basis after separation from a group (shared services, IT platforms, back-office functions).

The normalised EBITDA produced by the QofE becomes the valuation anchor. If a buyer pays a multiple of six times EBITDA and the QofE reduces EBITDA by EUR 500k, the theoretical price impact is EUR 3m. Every adjustment line is a potential negotiation point.

Normalised Working Capital (in French, BFR normatif) is consistently one of the most underestimated topics for selling business owners — and one of the most carefully scrutinised by experienced buyers.

When a business is sold, the buyer expects to receive a company with a "normal" level of working capital sufficient to operate the business at its ordinary run rate. If a seller has reduced working capital ahead of closing — by accelerating customer collections, delaying supplier payments, or running down inventory — the buyer must fund that deficit after taking ownership, without having paid for it in the price. This is the principle of not paying twice: once in the price, once in post-closing funding.

A TS team reconstructs the normalised working capital by smoothing seasonal variations over two to three financial years, excluding atypical peaks or troughs, and identifying balances driven by management decisions rather than structural business activity. The resulting target becomes the reference against which the closing working capital is measured — and any shortfall is deducted from the price.

In a transaction context, net debt extends well beyond bank borrowings. A TS team systematically reviews:

• finance leases and bank debt;
• dividends approved but not yet paid;
• significant deferred tax liabilities;
• earn-out payments due on past acquisitions;
• unfunded or under-funded pension obligations;
• off-balance sheet commitments (sureties, guarantees, operating leases outside IFRS 16 scope);
• customer deposits treated as economic liabilities.

On a well-run SME with competent but M&A-unprepared accounting, a TS review frequently surfaces items representing a meaningful adjustment to the headline price. Each item identified is a potential closing adjustment.

The pricing mechanism determines how the final consideration is calculated and when it becomes certain. Two approaches are common in European M&A:

The choice between the two mechanisms is usually made at the LOI stage. A TS team engaged early in the process can materially influence this choice and reduce the risk of post-closing disputes.

1. Scoping — define the perimeter (entities, periods, priority workstreams) and align the timeline with the LOI and closing calendar.
2. Management information requests — structured request list covering financial data, operational analytics and supporting documentation.
3. Quality of Earnings analysis — line-by-line restatements, management interviews on non-recurring items, EBITDA bridge from reported to normalised.
4. Working capital review — monthly reconstruction over 24 to 36 months, seasonality analysis, normalised target calculation.
5. Net debt analysis — inventory of financial and financial-like items, off-balance sheet commitments, closing adjustment identification.
6. Report and negotiation support — TS report delivery, findings quantification, SPA annexes, support on warranty and indemnity discussions.

The right choice depends on deal profile, not abstract preference.

Big Four firms (Deloitte, PwC, EY, KPMG) suit large-cap, cross-border and fund-driven transactions where international standing is required. Mid-tier and boutique M&A firms typically offer better partner access, greater agility on compressed timelines and fees proportionate to deal size — often the better fit for businesses in the EUR 5m–50m range.

Questions to ask any TS provider before engaging:

• Who runs the file day to day — a partner or a junior manager?
• Do they have sector experience relevant to the target?
• Can they deliver within the LOI timeline?
• How do they manage conflicts of interest if they also audit the target?

On the buy side: mandate the TS team as soon as the LOI is signed. Late engagement leaves no time to negotiate on findings. An early acquisition review before the LOI can identify show-stoppers before a binding commitment is made.

On the sell side: engage six to twelve weeks before launching the sale process. A VDD completed after the process is already running can only document weaknesses — it cannot correct them. Prepared early, it enables the seller to address sensitive areas and enter negotiations with a defensible financial story.

Figures are illustrative and do not represent sector norms.

An industrial SME shows apparent average working capital of EUR 1.2m over twelve months. Monthly reconstruction over three years reveals: marked seasonality peaking at EUR 2.1m in March–April, accelerated receivables collection in the two months before the reference balance sheet date, and inventory EUR 300k below the three-year average.

The reconstructed normalised working capital target is EUR 1.8m. The EUR 600k gap is a potential closing price adjustment under completion accounts, or a leakage item under a locked-box structure. A buyer without a TS team absorbs that gap silently post-closing — without having negotiated it. This reflects the structural reality that a single balance sheet date rarely captures the normalised working capital of a business.

The most frequent difficulties on TS mandates do not arise from accounting irregularities. They arise from readability in a transaction context.

Three patterns recur. First, accounts that are correct but insufficiently analytical: sound bookkeeping, but no monthly working capital tracking, no formal split between recurring and exceptional charges. Reconstruction leaves grey areas buyers exploit. Second, data room preparation starting too late: founders underestimate the documentary volume expected, standard buyer requests feel excessive, and timeline pressure erodes the negotiating position. Third, confusion between valuation and TS: TS informs valuation, it does not produce it. The valuation methodology work and the TS analysis are complementary but separate engagements.

Further reading: Business transmission, Business valuation methods, Acquisition audit, Financial due diligence, Vendor due diligence.

This article is for informational purposes only. It does not constitute legal, financial or tax advice tailored to your specific circumstances. Any decision relating to an acquisition, sale or fundraising transaction requires personalised analysis taking into account your documents, deal structure and applicable law. Updated May 2026.