| Due Diligence advisors to help you with company mergers and acquisitions |
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| In this section, we explain the checklist for the due diligence process in business mergers and acquisitions. It may seem an exhaustive list, but time spent in this phase of the acquisition process can save millions of dollars if the acquisition goes wrong. Many of the failures in mergers and acquisitions that we read about could have been avoided if the buyers had spent time going through a thorough, meticulous and methodical due diligence process.
By the time you have got to the due diligence, you have already spent considerable time and energy investigating your target company, so it is difficult to make rational and impartial decisions over the viability of the acquisition. Oftentimes, the smartest acquirer is the one who is prepared to walk away from a deal. We only list the bullet points here, but we’re happy to talk you through each particular step. Financial Statements: management accounts, capital expenditures, ratios, debt capacity, verification of reported financials, inventory, accounts receivable risk, identification of adverse trends, Sarbanes-Oxley compliance. Liabilities: pending lawsuits, violations, liens, judgments, tax, environmental factors. Operations: required capital expenditures, IT systems and expenditure, insurance cost changes, purchasing procedures, inventory management, production technology, resource requirements, loss of proprietary capabilities. Legal: permits, licenses, certifications, patent expiration, intellectual property, statutory records, tax filings, property titles, contracts, corporate registers, good standing in current and proposed operating regions. Reputation: customer satisfaction and service history, late shipment and poor quality history, history of regulatory violations, Better Business Bureau records, media exposure. Industry: micro and macroeconomic trends, growth rate, growth patterns, cyclicality, risk of product obsolescence, comparative performance versus competitors. Competition: strengths and weaknesses of key competitors, changes in competitive strategy, barriers to entry, proprietary capabilities, potential or emerging competitors, supplier base, market share, pricing strategies, product and service development. Customers: key contracts, customer lists, customer support, customer retention and loyalty, risk of customer loss post-acquisition, order volume changes, new demands on quality or product design. Suppliers: availability of raw materials and cost fluctuations, trends in supplier base, changes in supplier leverage. People: organizational structure, employee turnover, demographics, compensation, employment contracts, non-compete agreements, remuneration and benefits, training and skills gaps, reliance on key employees, availability of capable management, unionization, labor disputes, management philosophy and style, employee networks. Property, Plant & Equipment (PP&E): ownership structure, condition of property, availability of equipment and facilities post-acquisition, lease expiration, lease terms, zoning and construction, vacant land and buildings, room for expansion.
Due Diligence on Growth Opportunities Cost reduction: productivity enhancement, implementation of IT systems, plant layout and workflow redesign, process redesign, supplier cost reduction, asset utilization improvements, synergies to realize. Sales: inside and outside sales efforts, sales strategy, customer base expansion, marketing efforts, increase volume to existing customers. Product expansion: new product extensions, expand product line through acquisition. Price per unit growth: product improvements and services that add value, customer segmentation and targeted pricing. Modeling: cash flow and debt service modeling for multiple scenarios. Roll-up: potential scale efficiencies, availability of add-on acquisitions, vertical integration opportunities. Exit strategy: develop exit strategy based upon different events and outcomes, target future sale to strategic or financial buyers, potential for IPO or private resale, timeline and transition plan. Conclusions. Report the risks and rewards with their value weighted by probability. Identify the areas to address in a written integration plan and forecast the cost of integration and/or additional post closing investment needed. Data needs to be obtained from as many primary sources as possible, including plant and equipment inspections, financial statement, government records, industry research, interviews with customers, suppliers, employees and management, as well as consultations with outside experts and other sources. At the end of this, you will receive a detailed due diligence report with recommendations. |