A guarantee is a commitment by which a third party (the guarantor) undertakes to fulfil the obligations of a primary debtor if that debtor defaults. In corporate finance and financial structuring, guarantees take multiple forms: bank guarantees (payment on demand), personal director guarantees, parent company guarantees, and asset and liability warranties in M&A. In financial due diligence, guarantees given by the target on behalf of third parties — subsidiaries, affiliates, business partners — constitute off-balance-sheet contingent liabilities that must be identified, quantified and integrated into the net debt definition to ensure an accurate equity value bridge.

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Example: due diligence on a Swiss holding company identifies CHF 3.5 million of guarantees given in favour of foreign subsidiaries. These contingent liabilities, unprovisioned on the balance sheet, are integrated as debt-like items in the adjusted net debt calculation — with a 40% call probability assumption reducing the equity value by CHF 1.4 million versus the unadjusted enterprise value of CHF 22.0 million.

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Hectelion identifies and quantifies guarantees exhaustively in every due diligence to prevent post-closing surprises on the true financial exposure of the acquired entity.