There are several key m&a due diligence checklist activities for buying a business. In fact, most buyers evaluate prospective businesses using these checklists. By determining a prospective business’s commercial potential, these buyers judge whether the business can fulfill their specific needs. Additionally, extensive appraisal of business assets and liabilities often streamlines ownership transitions and offers a more complete picture of business financials. As a prospective business buyer, you should highlight red flags and determine an applicable business’s potential fit for your needs with an m&a due diligence checklist. In this post, we’ll discuss some key m&a due diligence checklist activities for buying a business.
Intellectual Property Due Diligence
Buyers are typically invested in the quality and extent of their target business’s intellectual properties, so m&a due diligence is often done on this area. Usually, due diligence checklist items include domestic and foreign patents held by the target company, as well as any pending. Additionally, determine if the target business protects their intellectual properties with elements such as confidentiality agreements. Moreover, consider any trademark symbols and copyrights held by the company. Ask about any trade secrets and how they’re maintained, as well. Lastly, inquire about any pending litigation regarding these aspects, as patent and IP litigation often comes at significant costs. Surely, determine the quality of your target company’s intellectual properties in your due diligence.
Financial Due Diligence
Financial due diligence is crucial to evaluating the commercial feasibility of any business. It provides a clear snapshot of the target company’s market value, as well as their financial stability and growth potential. This due diligence activity typically includes looking at the business’s revenue, profits, risks, and financial assets. Additionally, ask for summaries of financial activities such as company investments and hedging policies. Moreover, consider looking over current and future capital expenditures. Lastly, ask for copies of all insurance claims and policies. Absolutely, determine the target business’s commercial potential and market value with financial due diligence.
Contractual Due Diligence
Contractual due diligence is another crucial element of any m&a checklist. Since combing through these contracts is often time-consuming, partner with a corporate attorney. They review the target company’s enforced contracts, including customer and supplier contracts, accounts payable/receivable schedules, as well as credit agreements. Additionally, they look at partnership and joint venture agreements, equipment leases, and settlements. Any applicable non-compete, licensing, franchising, and advertising agreements are also evaluated. Certainly, streamline ownership transition processes with your awareness of business obligations from your contractual due diligence.
Customer Acquisition Due Diligence
Many business buyers consider customer due diligence as one of the most critical business evaluations. Seek comprehensive customer base information such as the target business’s largest customers. Additionally, list and describe their largest competitors. Include their strengths, weaknesses, market shares, and the basis of competition. Moreover, ask for a list of existing distribution channels, marketing opportunities, market research, trade secrets, and comparative competition analyses. This way, you evaluate the target business’s brand and how they compare to the competition. Definitely, procure an accurate snapshot of how your target company compares to its competition with customer acquisition due diligence.
Structural Organization Due Diligence
Lastly, structural organization due diligence provides insight into the target company’s management. Ask for the target’s Articles of Incorporation, Bylaws, and all amendments made to both. Next, ask for the minute book, ensuring it includes all minutes and resolutions from governing groups such as directors, shareholders, and executives. Additionally, look at the company’s organizational charts and shareholder lists. Confirm the existence of a Certificate of Good Standing from the target state’s Secretary of State. Finally, ask for lists of all states where the target is authorized to do business, all states where it owns property, and all assumed names the company has ever had. Of course, provide robust insights into organizational structure with your structural organization due diligence.
There is a myriad of key m&a due diligence checklist activities for buying a business. For example, determine the quality of your target company’s intellectual properties in your due diligence. Second, determine the target business’s commercial potential and market value with financial due diligence. Third, streamline ownership transition processes with your awareness of business obligations from your contractual due diligence. Next, procure an accurate snapshot of how your target company compares to its competition with customer acquisition due diligence in the service industry or other industries. Finally, provide robust insights into organizational structure with your structural organization due diligence. When searching for m&a due diligence checklist activities for buying a business, consider the activities described above.