Answers / Financial Due Diligence
Why and how do you compute a pro-forma full-year (annualized) view when a target acquired or disposed of a business mid-period?
A core Financial Due Diligence interview question — asked in analyst and associate interviews across IB, PE, and the Big 4.
THE SHORT ANSWER
When the target made an acquisition or disposal during the analysis period, the reported P&L only includes a partial-year effect, so the LTM/historical numbers don't represent the business the buyer is actually acquiring going forward. A pro-forma full-year view restates the period as if the current group structure had been in place for the whole period: add the full-year results of acquired businesses (and remove disposed ones), align accounting policies, eliminate intercompany, and strip transaction one-offs. It matters because EBITDA and the bridge — and therefore the price (× multiple) and the forward plan — should reflect the go-forward perimeter, not a part-year mix. The cautions: use reliable standalone data for the acquired business, don't double-count, distinguish pro-forma (structural) adjustments from QoE normalization adjustments, and disclose the basis clearly. Buyers and lenders rely on the pro-forma run-rate, so its support and assumptions are scrutinized.
WHAT INTERVIEWERS LISTEN FOR
- ✓Partial-year results misrepresent the go-forward business
- ✓Restate as if current structure existed all period (add acquired full-year, remove disposed)
- ✓Align policies, eliminate intercompany, strip transaction one-offs
- ✓Keep pro-forma (structural) distinct from QoE normalization; disclose basis
COMMON MISTAKES
- ✗Pricing off partial-year results
- ✗Double-counting acquired-business revenue
- ✗Conflating pro-forma with normalization adjustments
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