When two companies merge or one acquires the other, it’s a big deal. And it’s a complex process that requires careful organization, especially during the due diligence phase. That’s why we created this M&A documents checklist – to help both sides stay on track and ensure completeness throughout the entire process. Whether you’re the one acquiring or being acquired, you’ll find this checklist invaluable
Regardless of why a Buyer is acquiring your business, please be clear of this one significant point. Anyone who can write the size of cheque you’re hoping for, when they buy your company, will not do it on faith. If you’re in the process of selling a business, by the time you get to the M&A Due Diligence Checklist you’ve had nice conversations and provided quite a bit of material on your company. You may have gone back and forth multiple times to arrive at an acceptable LOI or Letter Of Intent. Now the fun begins. You may ask yourself how long does it take to sell a business? This is where the time is taken
If you’re asking a professional who provides coaching for business owners how long does it take to sell a business, what are the steps to selling a business or how much do I sell my business for? Ask anyone who does family business coaching or provides tips for selling a business. The key to these questions is in how prepared you are for the M&A Due Diligence Checklist.
If a Buyer knows what they are doing, and most do, they will have a long list of items for you to produce. The M&A Due Diligence Checklist has brought many a deal to an abrupt and unpleasant end. The better prepared you are for the tough questions and extensive requests for detailed information the smoother it will go for both sides. If you start now and think like a Buyer you can overcome objections, fix negative situations in your business in advance and reduce the potential pot holes that appear with a Due Diligence process.
If the Buyers’ team, including their own trusted business advisor, doesn’t thoroughly check all the aspects of your business it could prove to be a very costly exercise acquiring your company. And they really, really do not want that to happen.
For a successful acquisition the Buyers’ M&A consulting team will need to learn, understand and assess as much as possible about your business’s: Financial Statements, Legal Records and Procedures, Organizational and Operational specifics, Material and Partnership Contracts, Intellectual and Material Property, Employee and Board of Directors details. This will only be accomplished by their M&A consulting team conducting extensive and proper Due Diligence. While this may not sit well with you, if you’re thinking about how to sell your business to a competitor the same applies. They have the same M&A Due Diligence Checklist.
While some of this information may have been provided earlier, during the first M&A Due Diligence Checklist questions, the Buyer will now require updated information and a whole lot more. At this point you will be relying heavily on your Sale Advisor and or M&A consulting transition team and likely a few more staff and outside suppliers not part of the team. Have your Intermediary communicate the checklist items directly to team members. This is not the time for broken telephone. Nor is it the time to hold back information because you don’t think the Buyer needs it, you’re hiding something or you are embarrassed. This is the full monty. Imagine you hold back or lie about something and it directly and adversely affects the deal or worse, the deal goes through and the business suffers. The Buyer finds out after closing and the law suits begin.
You May Have These Common Questions
- Will all the requests in these checklists apply to my business?
- What if I don’t have all the information?
- This sounds like a lot of work. Do I have to do everything?
This is where family business coaching and consulting comes in. You will need help in many areas including business value consulting where they are experts in knowing how to calculate value of a company. If they are off in calculating the correct market value of a company you could lose the deal.
Our small-med sized business M&A Due Diligence Checklist was created for Sellers to be better prepared. It contains a comprehensive starting point for the anticipated Due Diligence process you will have to go through. As I’m sure your Sale Advisor has told you, every deal is different and yours likely will require additional documents and tasks to speak specifically to your company and industry. The size or complexity of your business and the same for the Buyer will dictate to a certain extent requirements unique to your deal.
Every Selling situation and Due Diligence process is different. We highly recommend you start with our lists, speak with your M&A consulting transition team, specifically legal and your financial advisor business coach and be prepared to adjust these checklists to your own situation. Change the anticipated information requirements to better suit your company and your deal. Just be prepared.
If you’re asking yourself should I sell my business, when is it time to sell your business or how can I sell my business check out our program ‘Sell Your Business 4 More’ for a very detailed M&A Due Diligence Checklist and so much more.
Disclaimer: At Eric Gilboord Online Courses we are not providing legal, financial or any other professional services advice. We accept no responsibility and absolutely suggest you seek professional help when preparing any and all M&A Due Diligence Checklist documents.
Merger and Acquisition Due Diligence Checklist
Looking to ensure your M&A due diligence is complete and thorough? We’ve got you covered. With this all-encompassing checklist, you’ll have everything you need to cover every critical aspect of the process. You’ll find detailed explanations of each item and why it’s so important, divided into helpful categories including Corporate Documents/Legal Information, Financial Records, Tax Information, Sales & Marketing, Human Resources, Intellectual Property/Product Development, Technology & Operations, and Employment Practices. Rest easy knowing that you won’t miss a thing.
Merger and Acquisition Due Diligence Checklist Explained
Financial Records
Discover your company’s financial health with an all-encompassing overview. A three-year lookback can provide valuable insights into assets, liabilities, and cash flow. Retrieve these key pieces of information for a comprehensive overview: bank statements for all business bank accounts, business lines of credit agreements, business credit card statements, business financing, loan, or debt agreements, statements that reflect business debt, loans, etc., and trial balances.
Tax Information
To ensure accurate tax filing, it’s crucial to collect all necessary documents. Apart from state and federal tax returns, additional tax records are required. These include statements of property taxes paid by the business, tax credits received along with their supporting documents, and copies of agreements like PILOT agreements that reduce or defer local tax liability. Be sure to gather all tax records for the last three years to avoid unwanted penalties.
Sales & Marketing
Effectively evaluating a company’s market value during M&A deals requires hard sales data to back up impressive claims. Sales documents provide an understanding of the company’s commercial potential, showcasing past and present performance alongside:
- Customer, product line, and geographic revenue breakdown
- Sales figures for bookings, billings, and revenue recognition support
- Insight into sales pipeline and win rates
- Analysis of customer loss rates
- A comprehensive list of product lines
- Strategic plans and SWOT analysis that highlight market risks and the competitive landscape
- Salesforce compensation plans and targets
These crucial sales details bring clarity to any M&A discussions and provide the insights necessary for a smooth transition.
Human Resources
When integrating two companies through a merger or acquisition, it’s important to consider their distinct organizational hierarchies and corporate cultures. As part of your preparatory efforts, be sure to gather essential HR documentation, including employee agreements, consulting contracts, recruitment and hiring policies, employee benefits information, and human resources policies and handbooks. You should also compile a comprehensive list of all employees and their roles, as well as any relevant disciplinary matters and actions taken. By having these materials on hand, you can ensure a smoother and more successful integration process.
Intellectual Property
In mergers and acquisitions (M&A) deals, intellectual property (IP) plays a crucial role in determining the value of a business. IP refers to the creative ideas behind the products or services offered by a business. This includes trademarks, patents, and platforms like websites or podcasts that are associated with the business.
It is essential to gather all documentation related to your business’s intellectual property, including a comprehensive list of websites, trademarks, and patents. Additionally, if there are any assets held jointly with another party, be sure to include them, as well.
Agreements that dictate how the company’s IP can be used should also be included. These agreements spell out when and how third parties may use the company’s trademark. It is also necessary to keep track of any current or pending litigation relating to intellectual property, such as copyright infringement lawsuits, challenges, or restrictions on intellectual property.
By taking stock of all your intellectual property and keeping it organized in one place, you can ensure that you have a complete picture of your business’s value, which can increase your chances of success in M&A deals.
Technology & Operations
In the world of business, technology is an essential component of operations. When two companies come together, it’s crucial to plan ahead and identify the technologies they use and the associated risks to protect against cyber threats.
To conduct a thorough technology and operations due diligence, gather the following key documents:
- List of hardware and software resources
- List of IT employees
- Technology policies such as data storage and BYOD policies
- Description of ongoing and upcoming IT projects
- Copies of all IT policies
- List of technology vendors and vendor agreements
- List of technology vendors and vendor agreements
- Financial breakdown of technology costs
- Copies of vendor and contractor agreements related to IT
- Overview of the company’s technology usage
- Information about IT security protocols and disaster recovery plans
- Cyber stress test or threat assessment results
- Summary of past malware, ransomware, or phishing incidents
- Overview of any data breaches and how they were addressed
By gathering this information, businesses can ensure they have a comprehensive understanding of the technology landscape and can make informed decisions to strengthen their cyber security defenses.
Employment Practices
When pursuing an M&A deal, it’s essential to communicate your company’s employment practices to the potential partner. By following our M&A due diligence guide, you likely already have an extensive set of HR and operational documents. Now, focus on filling any gaps in the information by gathering internal reports, org charts, job titles and descriptions, and open position details. These key elements provide valuable insights into your company’s way of doing things, informing your potential partner of what to expect and establishing a solid foundation for collaboration.
FAQs
What is involved in M&A due diligence?
Before making any investment deal, you need to know if it’s worth the risk. That’s where due diligence comes in- the vital process of verifying and investigating all the relevant details and financial information to confirm the viability of an M&A deal or investment opportunity. From the smallest to the biggest deals, due diligence is crucial for making informed decisions and protecting your money. So, ensure your investments are worthwhile by engaging in thorough due diligence today.
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What are the 5 steps in M&A?
5 Vital steps of Mergers and Acquisitions
- Assessment and preliminary review
- Negotiation and letter of intent
- Due diligence
- Negotiation and closing
- Post-closure integration/implementation Uncover the key components of each stage and ensure a successful M&A transaction
As a trusted business advisor and sale advisor I appreciate the opportunity to share my years of experience working with Owners just like you. In fact you may want to consider our online program Sell Your Business 4 More.