Financial Due Diligence Checklist
for GCC Acquisitions

Financial due diligence (FDD) is the single most important risk management step in any acquisition. It is where the story the seller has told during marketing gets pressure-tested against the actual numbers. For GCC acquisitions specifically, there are nuances — related to accounting practices, working capital norms, UAE VAT compliance, Zakat in Saudi Arabia, and the structure of family business accounts — that standard FDD templates from international advisory firms frequently miss.

This checklist is structured around the five core FDD workstreams. It is designed to be used by acquirers, CFOs, and their advisors when scoping an engagement or reviewing an FDD report's coverage. It is not a substitute for a professionally conducted FDD — it is a tool to ensure nothing important has been overlooked.

Workstream 1: Quality of Earnings

Quality of Earnings (QoE) is the heart of FDD. It answers the question: how much of the reported EBITDA is genuinely recurring and sustainable, and what does the real run-rate profitability of the business look like?

• Revenue analysis: Revenue by customer, product, and geography for three to five years. Identify top 10 customers as % of revenue and any concentration risk.
• Revenue recognition: Review for completeness, timing, and consistency. Watch for year-end acceleration or deferred revenue that has been incorrectly recognised.
• EBITDA bridge: Build a detailed bridge from reported EBITDA to normalised EBITDA. Identify and quantify all non-recurring items (one-off gains, restructuring costs, asset disposal P&L, grants, COVID-related items).
• Owner adjustments: Identify all owner/family remuneration above or below market rate. Include personal expenses run through the business (vehicles, travel, insurance, school fees).
• Related-party transactions: Map all transactions with affiliated entities. Verify they are at arm's length and determine which continue post-closing and on what terms.
• Cost base sustainability: Review all significant cost lines for sustainability post-acquisition. Identify any costs that will change as a result of the transaction (e.g., management fees, shared services currently provided by related parties).
• Gross margin bridge: Understand gross margin trends by product/service line. Explain any margin improvement in recent years — verify it is structural, not a result of cost deferrals.

Workstream 2: Working Capital

Working capital analysis determines what the normalised level of working capital is, whether the business has been managed to present favourably at the closing date, and what the deal mechanics for working capital should be.

• Trade receivables aging: Review full aging schedule. Quantify receivables over 90 days, 180 days, and 360+ days. Assess recoverability with reference to counterparty quality and collection history.
• Post-dated cheques (GCC-specific): Map post-dated cheque receipts. Understand the practice and quantum — post-dated cheques are economically equivalent to receivables but have different collectability characteristics.
• Inventory: Review inventory valuation methodology. Assess for slow-moving, obsolete, or excess inventory. Verify physical counts tie to financial records.
• Trade payables: Review payables aging and assess whether payables have been extended artificially ahead of the closing date. Compare DPO to industry norms.
• Normalised working capital peg: Calculate the appropriate working capital peg for the locked-box or completion accounts mechanism. Base on a trailing 12-month average, not a single point-in-time balance.

Workstream 3: Net Debt and Debt-Like Items

Net debt identification is critical for converting enterprise value to equity value in the deal. Debt-like items — obligations that economically behave like debt but may not appear in the reported net debt figure — are where acquirers in the GCC most frequently leave value on the table.

• Reported financial debt: Bank loans, overdrafts, lease liabilities under IFRS 16, shareholder loans, and any other interest-bearing instruments.
• End-of-service gratuity (EOSB): In UAE and GCC businesses, unfunded EOSB obligations for employees are material debt-like items. Quantify the full liability based on current salary and tenure of all employees.
• Deferred revenue: Revenue received in advance that represents a performance obligation — this is economically a liability and should be included in debt-like items if material.
• Contingent liabilities and litigation: Review for outstanding litigation, regulatory proceedings, and any contingent exposures. Quantify range of outcomes where possible.
• Customer deposits and advances: Map any customer deposits or advance payments that represent future delivery obligations. These are debt-like where the business has an obligation to perform or refund.

Workstream 4: Tax and Compliance (GCC-Specific)

• UAE Corporate Tax: As of 2024, the UAE imposes a 9% corporate tax on business profits above AED 375,000. Verify registration status, filing history, and any exposure for prior periods.
• UAE VAT: Review VAT registration, filing history, and any open assessments. For businesses with complex supply chains, assess the adequacy of input tax recovery and the treatment of exempt or out-of-scope supplies.
• Zakat (Saudi Arabia): For Saudi entities, verify Zakat filings, assessments, and any open disputes with ZATCA. Zakat exposure can be significant and is often underestimated by non-Saudi buyers.
• Transfer pricing: For businesses with cross-border related-party transactions, assess transfer pricing documentation and compliance with country-specific requirements.
• WPS compliance (UAE): Verify Wages Protection System compliance for all UAE employees. Non-compliance creates regulatory exposure and reputational risk with labour authorities.

Workstream 5: Financial Projections and Business Plan

• Historical vs budget comparison: Review management's track record of delivering against budgets over three or more years. Persistent over-optimism in budget-setting is a red flag for the reliability of the sale forecast.
• Revenue growth assumptions: Challenge the basis for projected growth. Is it supported by contracted order book, identified pipeline, or is it market share capture with no specific underpinning?
• Capex requirements: Verify maintenance capex vs growth capex distinction. Assess whether the business has deferred maintenance capex to improve near-term EBITDA and free cash flow presentation.
• Working capital in the model: Verify that the financial model treats working capital correctly — growing businesses require working capital investment, and projections that show EBITDA conversion to cash at 100% without working capital drain are almost certainly wrong.