DUE DELIGENCE CHECK LIST SAMPLE
A. Introduction
A.1. Our Due Diligence, at different scopes, is prerequisite to any financial transactions such as mergers, acquisitions, equity investments and debt investments.
A.2. Purpose of this check list is to bring out all the facts in one place, the assets and liabilities of a company, discretionary income, benefits and any other considerations for add-ons, and therefore to assess its full commercial value and potentials.
A.3 This list is only a sample of M&A Due Diligence checklist prepared by Fortuna Capital Mergers and Acquisitions for our potential client use.
A.4 It’s use as a final due diligence document is not recommended to anyone, Use of any or all parts of it without our knowledge & permission is prohibited and this statement indemnifies Fortuna Capital Mergers and acquisitions and it’s employees from any relating liability.
A.5 If it looks long & tedious, allow us to help you in step by step process. It is a great practice guide line for preparation of a more extensive due diligence, if required by a good buyer. It is liability protection of seller’s disclosures, as well as acquirer, investor and advisors of different fields in M&A process.
A.6 In this checklist you will find a basic catalogue of items and documents that buyers and investors should take into account and investigate. Not every question in the checklist is relevant or mandatory for an acquisition or investment process.
This check list is a work in progress and you are cordially invited to improve it by adding or subtracting your questions specific to your industry to it.
We appreciate your opinion here: info@fortunacapitalma.com
B. Company Overview
B.1. General information
B.1.1. Company name
B.1.2. Employee count
B.1.3. Company domicile
B.1.4. Year established
B.1.5. Legal structure
B.1.6. Locations
B.1.7. Auditors
B.2. Articles of incorporation and amendments of the last three years
B.3. Commercial register entries
B.4. Any restructuring documents in past three years
B.5. Participations
B.5.1. Subsidiaries
B.5.2. Equity interests
B.6. Rules of procedure Supervisory Board / Executive Board rules of procedure
B.7. Annual General Meeting minutes of last three years
B.8. Annual reports of last three years
B.9. Supervisory Board meetings minutes of last three years
B.10. Executive Board meetings minutes of last three years
B.11. Supervisory Board member contracts (terms and compensation)
B.12.Shareholders’ agreements, including voting, transfer, put or call agreements
B.13.1. Ownership structure; Names, Functions,
B.13.2. Ownership structure; Functions
B.13.3. Ownership structure; Responsibilities
B.14. Ownership structure; share register; share depository
B.15. Overview share capital approved, conditional, own shares, unpaid equity
B.16. Shares / share certificates
B.17. Major share transactions in of the company sold in past five years
B.18. Capital transactions, recapitalizations, capital reductions of past five years
B.19. Third party rights to shares (rights to buy, pre-emption rights, pledges)
B.20. Contracts among the shareholders and contracts between the shareholders and the company
B.21. Particulars to the authorized and issued share capital, outstanding debt securities, convertible securities, options, warrants or preëmptive rights
C. Business Description
C.1. Overview
C.1.1. Industry segments
C.1.2. Size of the business
C.2. Basic strategy
C.2.1. Goals
C.2.2. Feasibility
C.2.3. Action plans
C.3. Company prospectus
C.4. Product brochures
C.5. Product descriptions
C.5.1. Prices
C.5.2. Quality
C.5.3. Service
C.5.4. Market share
C.5.5. Warranties
C.5.6. Cost structure and profitability
C.5.7. Overview of backlog in each product line
C.6. Strategic research work, commissioned by the company
D. Marketing and Sales
D.1. Analyses (industry, competition, client groups)
D.2. Brand positioning
D.3. Brand strategies
D.4. Marketing strategy
D.4.1. Summary
D.4.2. Goals
D.4.3. Product strategy; goals for each product, service, prices, sales, margin
D.4.4. Market strategy; goals for each product, service, prices, sales, margin
D.5. Marketing activities; promotional campaigns for each product
D.6. Press releases of the last three years
D.7.1 Marketing expenditures
D.8.1. Monthly sales volume per client, last three years
D.8.2. Monthly sales volume per client, last three years
D.8.3. Monthly sales volume per product, last three years
D.8.4. Monthly sales volume in different regions, last three years
D.9.1. Incoming orders per month, per client, last three years
D.9.2. Incoming orders per month, per product, last three years
D.9.3. Incoming orders per month, per region, last three years
D.10.1. Monthly margin analysis, per client, last three years
D.10.2. Monthly margin analysis, per product, last three years
D.10.3. monthly margin analysis, per region, last three years
D.11. Further conclusion and analysis of product sales
D.12. Sales strategies
D.13. Prices, terms and conditions
D.14. Sales organization
D.15. Promotional activities
D.16. Public Relations
D.17. Advertising
D.18. Company reputation
D.19. Client base
D.19.1. Segments
D.19.2. List of the top 20 customers
D.19.3. ABC analysis, behavior
D.20. Customer satisfaction, any rating
D.21. Distribution (regions, methods, customer retention)
D.22. Planned new product launches
D.23. Market and product studies
D.24. Samples of customer agreements
E. Human Resources
E.1. Organizational chart
E.2. Management
E.2.1. Number of management layers
E.2.2. Planning and decision making processes
E.2.3. Succession planning
E.2.4. Communications processes
E.2.5. Executive Team and Board of Directors biographies
E.3. List of management staff
E.4. Description of manager’s functions
E.5. Employment contracts
E.6. Standard employment contract
E.7. Special agreements with employees, non-competition clauses, consultancy contracts, exceptional items, salary increases, compensation for inventions, profit-sharing, rights to options
E.8. Organization manual
E.9. General employment terms and regulations
E.10. Travel expenses and other compensation policies, procedures and ways.
E.11. Employee incentives policies; bonuses, company cars, stock option plans
E.12. Qualifications and performance-measurement systems
E.13. Employee demographics, salary, employment history and location
E.14. List of all independent salespersons, licensees, representatives and brokers and their compensation plans, including any incentive compensation payable
E.15. Documentation on outstanding or anticipated claims, proceedings prosecutions or obligations regarding wrongful dismissal, employment standards, labor relations, occupational health and safety, human rights, pay and employment equity, workers’ compensation or any other employment-related matters
E.16. Information and documentation regarding any pending resignations of employees or terminations of employment in the past three years
E.17. Information and documentation regarding all restrictive covenants such as noncompetition, non-solicitation and confidentiality agreements affecting the Corporations or employees or contractors of the Corporations
E.18. Evaluation of HR statistics such as age, wage, fluctuation and absences
E.19. Collective and union labor agreements
E.20. Documentation of labor disputes over the last 5 years
E.21. Trade union activities
E.22. Communication with trade unions
E.23. Redundancy programs
E.24. List of available life, health, and personal accident insurance policies
E.25. List of all individual holiday entitlements and overtime eligibilities
E.26. Miscellaneous (time sheet, work permits)
E.27. Company sponsored pension fund and retirement plans
E.27.1. Regional and national pension plan and retirement fund statutes
E.27.2. Documents on company commitments on pension plan and retirement
E.27.3. Contracts concerning pension plan and retirement fund
E.27.4. Latest audit report of the pension funds, expert opinions, financing, funding, loans granted
E.27.5. In case of additional pension schemes: audit report, eligibility details
E.27.6. Miscellaneous
F. Financials
F.1. Accounting principles
F.2. Valuation principles
F.3.1. Financial impact of any changes in accounting principles in last three years F.3.2 Financial impact of future changes in accounting principles
F.4. Group manual
F.5. General ledger , table of accounts
F.6. Auditor’s reports (last three years: group and individual reports)
F.7. Management letters (last three years)
F.8. Relevant correspondence with auditors (last three years)
F.9. Annual reports (Group and individual reports; last three years)
F.10. Latest audited interim report (group and individual reports)
F.11. Internal audit reports (last three years)
F.12. Internal accounts and financial ratio analysis (group and individual reports) including management comments of last three years
F.13. Transformation external to internal accounts, last three years
F.14. Budgets, including variance analysis actual vs. projection of prior year, last three years
F.15. Budget, forecast of current and next year; comparison to prior year actual
F.16. Financial planning, medium term planning
F.17. Details of cash positions; Bank balances (saving, checking, money market) and cash balances at the end of last fiscal year and present
F.18. Accounts receivable at the end of last fiscal year and present
F.18.1. Development of accounts receivable, losses, provision, aging
F.18.2. List of open credit positions in the accounts receivable
F.18.3. Age analysis of accounts receivable (year-on-year comparison of each position)
F.18.4. Description of del credere provisions
F.18.5. Losses on accounts receivables
F.18.6. List of intercompany accounts receivable
F.19. Other accounts receivables (e.g. social security, health insurance, pension funds, advanced payments to employees)
F.20. Advance payments to others
F.21. Particulars as to original capital cost, undepreciated capital cost, age and location, depreciation reserve and depreciation rates used
F.22. Expenses, at the end of financial year and present
F.23. Marketable securities
F.24. Inventory, merchandise, finished goods for sale, semi-finished goods, work in progress, raw materials
F.24.1. Change in inventory, inventory turnover, other inventory key figures
F.24.2. Detailed listing of product groups, stocks, valuation
F.24.3. Valuation concept and calculation of value adjustments
F.24.4. Annual or seasonal adjustments, corrections to discrepancies and losses
F.24.5. Clearance of stocks through disposal (numbers and values)
F.24.6. List of all product stock keeping units
F.25. Fixed assets
F.25.1. Detailed register
F.25.2. Fixed assets movement schedule
F.25.3. Method of depreciation
F.25.4. List of fixed assets, rented, leased, or used otherwise, that do not appear in the movement schedule
F.26. Intangible assets description (patents, goodwill, brands, models, …)
F.26.1. Intangible assets detailed register
F.26.2. Intangible assets movement schedule
F.27. Financial assets (equity interests, loans, …)
F.27.1. Detailed register
F.27.2. Description of the investments
F.27.3. Annual accounts of investments, solvency of investments
F.27.4. Valuation
F.28. Loans to employees, managers, shareholders, affiliated companies
F.28.1. Detailed listing
F.28.2. Solvency and status of borrower
F.29. Accounts payable
F.29.1. Changes in accounts payable, aging
F.29.2. List of open positions in the accounts payable
F.29.3. Age analysis of accounts payable (year-on-year comparison of each position)
F.29.4. Listing of inter-company payables
F.30. Other liabilities
F.31. Deferred income
F.32. Short-term bank debt
F.33. Advance payments by customers
F.34. Provisions (incl. taxes, law suits)
F.35. Long-term loans
F.35.1. Amounts
F.35.2. Interest rates
F.35.3. Terms of contract
F.36. Equity capital
F.36.1. Composition of equity
F.36.2. Types, approved, conditional, voting rights, dividends, hidden reserves
F.37. Off-balance sheet items
F.37.1. Guarantees
F.37.2. Pledges
F.37.3. Solidary debt
F.37.4. Commitments arising from letters of comfort
F.37.5. Declaration of subordination and conditional remission of debt
F.37.6. Liabilities in case of release of covenant
F.37.7. Commitments from lease agreements not listed in the balance sheet
F.37.8. Foreign exchange: hedging, commitments, practices
F.37.9. Forward transactions, option contracts, futures contracts, swaps
F.38. Expert opinions on the value of the fixed assets
F.39. List of all extraordinary earnings and expenses (last three years)
F.40. Compilation of expenses associated with corporate restructurings, one-time profits / losses (last three years)
F.41. Cash planning and Cash Flow (last three years)
F.42. Cost accounting (Unit costing and “cost center” method)
F.43. Pre calculation and post calculation per product category
F.44. Volume of order backlog for each product category
F.45. Investment appraisal (next three years)
F.46. Projects aimed at enhancing profitability (revenue, contribution margin, costs)
F.47. Credit and loan agreements
F.47.1. Lender
F.47.2. Date signed
F.47.3. Amounts
F.47.4. Interest rates
F.47.5. Value in domestic currency
F.47.6. Repayment
F.47.7. Due dates
F.47.8. Current terms
F.48. List of all bank accounts incl. information on access authorization and credit lines
F.49. List of all securities issued by the firm (options, bonds, debentures, …)
F.50. List of all guarantees granted
F.51. Capitalized leasing
G. Taxes
G.1. Copies of the income tax return declarations (last six years)
G.2. Tax assessment notices in relation to the income tax returns
G.3.Annual accounts that served as a tax base for the tax returns
G.4. Agreements and the documents relating to the terms and or completion of any inter-company transactions
G.5. Social security annual statements (last three years)
G.6. Correspondence with tax authorities
G.7. Governmental Audit Reports
G.7.1. Social security
G.7.2. Corporate tax
G.7.3. Value Added Tax (VAT)
G.8. VAT statements, last five years
G.9. List of declarations of exports, last five years
G.10. Documents concerning any sales to personnel, last five years
G.11. Management fees, licensing fees and compensation for know-how transfer charged to affiliated companies
G.12. Schedule of all tax return statute of limitation extensions
H. Operations:
H.1. Plants
H.1.1. Address, description, size, date of construction
H.1.2. Organization
H.1.3. Space allocation (production, warehouse, offices, …)
H.1.4. Leased, purchased price, book value, market value, remaining service and economic life
H.1.5. Alternative uses
H.1.6. Technical description of all plants and machinery
H.1.7. Plans for new production equipment
H.2. Production planning
H.2.1. Cycle times of products
H.2.2. Timeliness of the delivery
H.2.3. Capacity and capacity utilization of each plant
H.2.4. Analysis of the production processes
H.2.4.1. Description of the production processes, type of production process (mass
production, process industry, assembly line, …)
H.2.4.2. List of major production materials
H.2.4.3. Potential for productivity increases
H.2.4.4. Benchmarking vis-à-vis the firm’s competitors
H.2.4.5. Vertical range of manufacture
H.2.4.6. Down time
H.2.4.7. Scrap rate
H.2.4.8. Repair time
H.3. Supply concept / materials management
H.3.1. Description of the sourcing process
H.3.2. Description of the sourced product categories (in terms of availability)
H.3.3. Procurement volumes by categories
H.3.4. ABC – analysis of purchased goods/items
H.3.5. Analysis of stocks and warehouses
H.3.6. Warehouse capacity
H.3.7. Structure of suppliers (number, volume, delivery times, ABC analysis)
H.3.8. Analysis of suppliers location, terms and conditions, longevity & reliability
H.3.9. Make or buy analysis
H.4. Logistics, company names and terms of contracts
H.5. IT
H.5.1. Electronic data processing concept, IT strategy
H.5.2. Estimated capital requirements over the next three years
H.5.3. Current IT projects
H.5.4. Hardware specification, date introduced, strengths, and weaknesses
H.5.5. Software, specification, date introduced, strengths, and weaknesses
H.5.6. Purchase, monthly rental or long term leasing
H.5.7. IT-budget
H.5.8. IT-costs
H.6. Research & Development
H.6.1. Current R&D-projects
H.6.2. Completed R&D-projects
H.6.3. Planned R&D-projects
H.6.4. Description of the R&D infrastructure
H.6.5. Description of R&D cooperation and alliances
H.6.6. R&D expenditure, budget
H.6.7. Average length of development projects
H.7. Quality management
H.7.1. Quality Management handbook
H.7.2. Organization
H.7.3. Processes
H.7.4. Certificates
H.7.5. Which areas / functions are covered by the quality management program?
H.7.6. Cost of error
I. Property
I.1. Excerpts from the land register
I.2. Land
I.2.1. Location
I.2.2. Description
I.2.3. Size
I.2.4. Date purchased
I.2.5. Purchase price
I.2.6. Current market value
I.2.7. Building permits
I.2.8. Lay-out plan
I.2.9. Development costs
I.2.10. Land charges
I.2.11. Description of legal planning, limitations of construction projects and use
I.2.12. Copies of the building permits
I.3. Buildings
I.3.1. Location
I.3.2. Description
I.3.3. Total area, built-up area, land reserves in operating or non-operating limits
I.3.4. Date purchased
I.3.5. Purchase price
I.3.6. Current market value
I.3.7. Building permits
I.3.8. Lay-out plan
I.3.9. Assessment of the building infrastructure
I.3.10. Maintenance costs
I.3.11. Refurbishment costs
I.3.12. Development cost
I.3.13. Land charges
I.4. Tenancy agreements and lease contracts
I.5. Fair value estimate
I.6. List of purchases and sales (last five years)
I.7. Schedule of all agreements to buy or sell property at a future date
I.8. Document about rent-related disputes (last five years)
I.9. Construction right contract
I.10. Particulars of all locations where property owned or leased by the Corporation is situated, including municipal addresses and legal descriptions
I.11. Copies of registered and unregistered encumbrances and liens against the property
I.12. Copies or details of any options, contracts of sale, easements, rights of way, adverse possession, executions or other rights or entitlements affecting property owned or leased by the Corporation
I.13. Copies of maintenance, service and operating contracts
I.14. Agreements with local municipalities or other service providers on the provision of services to the property, including power, electricity and gas, water, sanitary and storm sewer, telephone, life safety
J. Legal
J.1. List of regulations and statutes to which company is subject
J.2. Loan guarantees
J.3. Letters of comfort
J.4. Subordination statements
J.5. Debt forgiveness
J.6. Joint and several liability, debt
J.7. Loan and credit agreements
J.8. Guarantee contracts
J.9. Sale-and-lease-back-agreements, financial leasing, instalment contracts
J.10. All contracts / draft contracts concerning intended acquisitions
J.11. Contracts with important clients
J.12. Contracts with important suppliers
J.13. Contracts relating to co-operations, joint ventures, co-ownership and partnership agreements
J.14. Copies of all certificates of compliance or non-default given by the Corporation to any of its creditors in connection with its outstanding debt in the preceding three-year period
J.15. Exclusivity agreements, cooperation agreements
J.16. Syndicate contracts
J.17. Standard contracts
J.18. Tenancy and leasing contracts (excluding property)
J.19. Hire-purchase agreements
J.20. License agreements
J.21. Cooperation agreements, R&D agreements and all other agreements relating to industrial property rights
J.22. Consultancy contracts (e.g. advertising agencies, internet- and all other agencies and consultants)
J.23. Service contracts
J.24. Freelance contracts
J.25. Contracts with third-party providers, i,e, security, cleaning, catering, HR
J.26. Representation contracts
J.27. Factoring agreements
J.28. Profit transfer agreements
J.29. Contracts or agreements with logistics companies
J.30. IT contracts; hardware, software, servicing and maintenance
J.31. Intercompany agreements on provision of in-house services, management fees, knowhow performance, …
J.32. Various other contracts
J.33. Filings by the firm for composition or bankruptcy proceedings
J.34. Terms and conditions of sale and delivery
J.35. General purchasing conditions
J.36. Any existing or potential merger law related clarifications, inquiries
J.37. List and amount of disputed claims or liabilities, pending or imminent law suits and arbitration procedures
J.38. Documents relating to pending or imminent law suits, arbitration procedures
J.39. List of all authorized officers and representatives with their representation warrant
J.40. List of all authorized persons, who are not employees representatives
J.41. Signature regulations
J.42. Organization of legal department
J.43. List of lawyers commissioned by the company, last three years
J.44. List of all claims and pending litigation involving the patents, trademarks and other intellectual property of a Corporation or alleged infringements by a Corporation of the patents, trademarks or other intellectual property of others as well as any such claims made in the past five years
J.45. Copies of opinions regarding the validity or infringement of third party patents and, in circumstances where the advice of counsel was sought on such issues but written opinions were not produced, copies of any correspondence, notes or memoranda recording the advice which was sought and the advice which was given
K. Intellectual Property
K.1. Registered trademarks
K.2. Patents
K.3. List of all samples and models
K.4. Other items belonging to intangible assets by type and description
K.5. List of all patent agents commissioned by the company
K.6. Correspondence relating to the breach of intellectual property rights
K.7. Information about registered Internet domain names
K.8. Receipts confirming payment of patent fees
K.9. Licensing agreements
K.10. Cooperation agreement, R&D contracts and other agreements concerning industrial property rights
K.11. Governmental Licenses and Approvals
K.12. Governmental orders and approvals concerning the firm’s operations
K.13. Withdrawn or suspended governmental orders and approvals
K.14. Grants
K.15. Declarations, petitions and complaints filed with governmental agencies, last five years
K.16. Certificate of the company or its products (copy of certificate and records)
K.17. List of state subsidies (e.g. tax breaks) applied for and or received within the last five years
K.18. Insurance contracts
K.19. Overview, summary of existing insurance policies
K.20. Key statistics on premium and incidents (last five years)
K.21. Any incidents in the last five years
L. Environmental Protection
L.1. Environmental studies on land contamination, waste disposal, disruptions
L.1.1. Environmental compatibility
L.1.2. Environmental issues of concern (e.g. contaminated soil, toxic waste, …)
L.1.3. Transcripts of correspondence with government agencies with respect to environmental protection
L.2. Excerpts from the contaminated land register
L.3. Environmental legislation and environmental compliance (violations, court rulings, correspondence)
L.4. Pending injunctions and conditions
L.5. Resolved environment problems (last ten years)
L.6. Latent yet unexamined environmental risks
L.7. Safety precautions and safety management concept
L.8. Environmental management system
L.9. Public perception of the company with regard to the environment
L.10. Environmental protection investment (past and planned)
L.11. List of all substances used in the business operations and the Corresponding safety precautions
L.12. All environmental assessments, studies or audits conducted or commissioned by or by third parties, in the possession of the Corporations
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