Acquisition Due Diligence in Paris

An acquisition is rarely decided by the headline valuation. It is decided by what surfaces between the letter of intent and signing: earnings inflated by one-off items, net debt heavier than the borrowings line, structurally understated working capital, a live employment claim, a provision never booked.

Acquisition due diligence turns those uncertainties into numbers. Its purpose is not to produce a compliance document but to answer three operational questions: is the asking price justified, which risks survive completion, and which of them belong in the warranty package rather than in the price.

Hayot Expertise acts in Paris 8 on French SME and business acquisitions, for buyers and for sellers.

Financial workstream#

This is the core of the engagement, and the part that moves the price.

• Quality of earnings: normalising EBITDA and operating profit to separate recurring from non-recurring items (exceptional income, owner remuneration off market, intragroup rent, personal costs carried by the company).
• Real net debt: borrowings, shareholder current accounts, finance leases, factoring, rescheduled tax and social liabilities, off balance sheet commitments.
• Normalised working capital: average working capital across a full cycle, not the 31 December snapshot, which is often the most flattering date of the year.
• Receivables: aged balance, revenue concentration, doubtful debts not provided for.
• Inventory: physical reality, turnover, obsolescence, valuation method.
• Cash: separating available cash from the cash the business needs to operate.

Tax workstream#

• Review of returns for open years and consistency with the accounting records.
• Uncertain tax positions: VAT on complex transactions, deductibility of charges, favourable regimes applied without meeting every condition.
• Current or past audits, reassessments, settlements.
• Tax cost of the transaction itself: transfers of shares fall under article 726 of the French Tax Code, at a rate that varies with the company's form and the nature of its assets. This is settled before signing, not after.
• When buying a fonds de commerce, the purchaser is jointly liable with the seller for certain taxes under article 1684 of the French Tax Code. This is a standard reason to escrow part of the price.

Employment workstream#

• Actual headcount, contracts, seniority, acquired individual benefits.
• Correct collective bargaining agreement, grades, minimum pay.
• Overtime, day-rate arrangements, accrued paid leave.
• Live employment claims and latent exposure.
• Where a business or a line of activity is acquired, the attached employment contracts transfer automatically to the buyer under article L. 1224-1 of the French Labour Code. Employment liabilities follow the activity, so they are reviewed before, not after.

We quote after an initial discussion on the target and the timetable. The quote is fixed: we do not bill time against an open-ended budget.

A findings report built as a decision document rather than a stack of schedules:

1. Findings ranked by financial impact, each one quantified.
2. An explicit split between what should be negotiated in the price (normalised working capital above the assumed level, understated net debt) and what should be covered by warranties (a probable but unliquidated tax exposure, a live claim).
3. The points requiring a specific clause in the warranty and indemnity package, with the amount to secure.
4. Operational recommendations for the first hundred days.

Samuel Hayot is a chartered accountant registered with the Ordre des experts-comptables de Paris Ile-de-France and a statutory auditor registered with the Compagnie regionale des commissaires aux comptes de Paris. That dual registration has a practical effect on due diligence: the habit of reviewing accounts under professional liability, a disciplined approach to sampling and audit evidence, and the ability to read a French tax return beyond what it states.

Acquisition due diligence is not a statutory audit, and we say so plainly in the report. But it is run with the same evidential discipline.

• Before the price is set: our business valuation engagement produces a defensible range.
• On the sell side: our business sale advisory prepares the file and runs the process.
• If the acquisition runs through a holding company: structuring and the tax regime fall under our holding company engagement.
• For the detailed method, workstream by workstream: our acquisition due diligence guide.

• A manager or executive buying a French SME, alone or alongside a fund.
• A group acquiring a competitor or a supplier.
• A buyer of a fonds de commerce, a professional practice or a pharmacy.
• An investor taking a stake in a private French company.
• A seller who wants to de-risk the sale by auditing the business before presenting it.