Answers / Financial Due Diligence
How do you handle a company with significant related-party transactions?
A core Financial Due Diligence interview question — asked in analyst and associate interviews across IB, PE, and the Big 4.
THE SHORT ANSWER
Identify all related-party transactions (revenue, costs, financing). Assess whether pricing is at arm's length by comparing to market rates. Adjust for differences: above-market revenue = negative adjustment; below-market rent = negative adjustment (cost will increase post-deal). Quantify the impact on adjusted EBITDA. Flag for the client: will these transactions continue post-deal? If not, what's the pro forma impact?
WHAT INTERVIEWERS LISTEN FOR
- ✓Identify all related-party transactions
- ✓Assess arm's length pricing
- ✓Quantify impact on adjusted EBITDA
- ✓Flag continuation post-deal
COMMON MISTAKES
- ✗Ignore related-party transactions
- ✗Assume all transactions are fair
- ✗Fail to quantify adjustments
Reading isn't the same as answering under pressure.
Interviewers don't hand you the model answer — you deliver yours on a clock. Practice this and 1,000+ questions with AI feedback on every answer.
RELATED QUESTIONS
- Give me 3 examples of QoE adjustments.
- A company shows 30% revenue growth. What would you investigate?
- How would you handle a situation where management proposes a large add-back?
- How do you analyze revenue quality for a SaaS company?
- What metrics would you use to assess the quality of earnings for a company with a high proportion of recurring revenue, and how would you use these metrics to identify potential risks or areas for improvement?
- How would you handle a situation where the target company's management proposes a large add-back to EBITDA, and what factors would you consider when evaluating the justification for the add-back?