Merger and Acquisition Due Diligence Checklist
When it comes to mergers and acquisitions, taking due diligence takes center stage. Without proper due diligence, you might find yourself in a serious financial mess. So, before you commit to a transaction, it’s important to understand what you are buying and the obligations that come with it. This may include things like contingent liabilities, litigation risks, intellectual property-related issues, as well as problematic contracts. In particular, those dealing with private companies should carry put extra due diligence because there is limited information about these companies in the public domain. On these lines, this guide is going to take you through the Prolifogy Mergers & Acquisitions Checklist and how to take due diligence.
Financial Matters
Go through the company’s financial statements. Look at the company’s financial matrices and projections. This should include projected future performance. In particular, pay close attention to the following topics:
- Annual, quarterly, and monthly financial statements
- Audited financial statements
- Current and contingent liabilities
- Company’s projections
Technology and Intellectual Property
As a buyer, you should be interested in the company’s technology in addition to its intellectual property. Take due diligence in areas such as domestic as well as foreign patents. Also, it’s important to investigate if the company has taken the necessary steps in the protection of intellectual property. Also, check whether the company has any registered as well as common law trademarks as well as service marks. Additionally, look into the company’s copyrighted. Try to establish any trade secrets in the company.
Other Things to look into include:
- Intellectual property rights of the company
- Any involvement ion intellectual property litigation
- The technology in-license of the company
- Technology licenses to third parties
- The use of open-source software in the company
Material Contracts
Review the company’s material contracts—including all commitments. In particular, understand the loans and other credit agreements. Don’t forget to review the customer as well as supplier contracts. Also, go through the agreements of partnerships and joint ventures. Dollar thresholds contracts should also be reviewed. Additionally, review the following areas:
- Settlement, indemnification, and employment agreements
- Also, review past acquisition agreements and equipment leases
- Exclusivity and real estate purchase agreements
- License agreements
- Franchise and license agreements
- Equity agreements and powers of attorney
Customers and Sales
It’s also important to understand the target company’s customer base. This should include the concentration of its customers and the sales pipeline. Look at the top 20 customers of that company. In particular, pay close attention to the revenues from these customers. Look at the customer concentration. Also, the satisfaction of customers is important. Look at it. If there are many warrant issues, take note. Don’t forget to look at the customer backlog of that company. Investigate the terms of sale—especially those relating to exchanges and refunds. Look at the number of people compensated over the last few years.
Other Areas
- Employee or management issues
- Litigation and tax matters
- Antitrust, related party transactions, and regulatory issues
- Insurance matters and marketing arrangements
- General corporate matters and environmental issues
- Governmental regulations and property ownership matters
- Competitive landscape and online data room
The Bottom-Line
Mergers and acquisition matters can be weighty. They can involve a lot of legal issues. In particular, these matters can be complex to new business buyers. However, with the right information, you can handle M&A issues diligently and get a good deal. The above guide is all you need to get it right as far as mergers and acquisitions are concerned.