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MASTER ACQUISITION DUE DILIGENCE CHECKLIST

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MASTER ACQUISITION DUE DILIGENCE CHECKLIST
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  MASTER ACQUISITION DUE DILIGENCE CHECKLIST   Copyright © Pioneer Business Ventures 2006-2011 Page 1 of 19 TABLE OF CONTENTS I CORPORATE OVERVIEW..............................................................2  A. Corporate Organization  .............................................................2  B. Corporate Development Overview ...............................................2  C.   P UBLIC D OCUMENT R EVIEW .............................................................3 D.   S YNERGIES ................................................................................3 II   MARKETING & SALES...................................................................3    A. Industry & Market Overview .......................................................3  B.   B RANDS .....................................................................................3 C.   C USTOMERS ................................................................................4 D.   M ARKETING AND D ISTRIBUTION ........................................................4 E.   S ALES A CTIVITY ...........................................................................4 F.   P RODUCT D EVELOPMENT .................................................................5 III HUMAN RESOURCES....................................................................6  A.   C ULTURE ...................................................................................6 B.   M ANAGEMENT &    E MPLOYEES ............................................................6 C.   B ENEFITS ..................................................................................8 IV OPERATIONS MANAGMENT.........................................................9  A.   C APACITY ...................................................................................9 B.   P RODUCTION P ROCESS ...................................................................9 V   FINANCIAL MANAGEMENT.........................................................10  A.   A SSETS ...................................................................................10 B.   P ROPERTY ,   P LANT AND E QUIPMENT ...................................................10 C.   I NTANGIBLES A SSETS ...................................................................11 D.   L IABILITIES ..............................................................................11 F.   P ROFITABILITY ...........................................................................12 G.   C ASH F LOW ...............................................................................13 H.   T AXES .....................................................................................13 I.   A UDITS .....................................................................................13 J.   I NSURANCE &    R ISK M ANAGEMENT ......................................................14 VI TECHNOLOGY.............................................................................14  A.   I NFORMATION T ECHNOLOGY ............................................................14 B. B USINESS T ECHNOLOGY ................................................................15 C.   I NTERNET ..................................................................................15 VII LEGAL MANAGEMENT................................................................15  A.   G ENERAL L EGAL I SSUES ................................................................15 B.   I NTELLECTUAL P ROPERTY ...............................................................17 C.   R EGULATORY C OMPLIANCE .............................................................18 VIII   ENVIRONMENTAL MATTERS ................................................18   IX   MISCELLANEOUS DUE DILIGENCE .........................................19 REFERENCES:...................................................................................19    MASTER ACQUISITION DUE DILIGENCE CHECKLIST   Copyright © Pioneer Business Ventures 2006-2011 Page 2 of 19 INTRODUCTION Due to the volume of information needed and facts to investigate during the due diligence process, this checklist provides a general master list for the due diligence leader and team members. A comprehensive checklist yielding absolute certainty might be unobtainable. The business judgment required to interpret due diligence information inevitably uncovers areas of uncertainty. However, fundamental due diligence investigation practices should mitigate risk and at least identify critical assumptions, key risks, and areas of uncertainty to assess them as manageable or deem them unmanageable. This checklist comprises nine (9) fundamental areas of due diligence for most businesses. If comfortable, feel free to check only those areas which are relevant to the acquisition in question. Once complete, the investigation team must apply experienced business judgment against due diligence information to assist the acquirer with business decision making. If this master list can be refined, improved or clarified for purposes of best practices, let us know by sending feedback to www.pioneerbusinessventures.com. Good luck with your due diligence and business venture! I CORPORATE OVERVIEW   A. Corporate Organization :      Review Incorporation Documents of the Company.    Obtain Certificate of Status/Good standing for the Company.    Review by-laws of the Company.    Conduct a corporate review of the minute books of the Company.    Focus on validity of major corporate actions.    Obtain a list of countries and states where the Company is or should be qualified to do business    Review partnership or joint venture agreements, if any.    Perform asset searches in jurisdictions where principal assets are located. B. Corporate Development Overview :    What are the company's core competencies?    Does the company maintain any strategic alliances?    When and where was the company founded, and by whom?    What is its history of product development?    What is the history of the management team?    Has the corporate location changed?    Have there been ownership changes?    Have there been acquisitions or divestitures?    What is its financial history?    Obtain and review copies of all o   acquisition agreements; o   filings with government agencies made in connection with the acquisition;  MASTER ACQUISITION DUE DILIGENCE CHECKLIST   Copyright © Pioneer Business Ventures 2006-2011 Page 3 of 19 o   Other closing documents for the acquisition. C. Public Document Review:    Review all publicly filed documents of the Company.    Perform Internet searches in respect of the Company.    Review all press releases and media articles relating to the Company and the industry.    Review all management speeches. D. Synergies :    Itemize the synergies that will be created by the acquisition. Split the synergies list into those that are based on identifiable cost reductions, and those based on possible revenue increases.    How well do the products, personnel, and geographic coverage of the acquirer and acquired fit together? II MARKETING & SALES A. Industry & Market Overview :    How is the market segmented?    What are the factors affecting growth and profitability?    What are the trends in the number of competitors and their size, product innovation, distribution, finances, regulation, and product liability?    Estimate the size of the industry, present and projected, in each significant product line, and compare Business growth projections with anticipated market size for consistency.    Review government and trade reports and trade literature regarding the market segments of the Business.    Analyze competitors' SEC and other filings for unanticipated trends or developments.    Review any internal or outside studies of the Business, the market and the products.    Interview trade association personnel concerning trends of relevance.    Assess the effect of macroeconomic trend (e.g., interest rate fluctuations, inflation rates, economic growth rates).    Assess the comparative strengths and a weakness of competitors in terms of the dominant competitive factors in the industry (e.g., price, service, performance, etc.)    Determine whether research and development (R&D) expenditures are consistent with industry practice. B. Brands :    Review any branding strategy documents. Does the company have a long-term plan for brand support?    Review budgeted and actual expenditures for customer support, marketing, and quality assurance related to branding.    What types of advertising and promotion are used?  MASTER ACQUISITION DUE DILIGENCE CHECKLIST   Copyright © Pioneer Business Ventures 2006-2011 Page 4 of 19    Ensure that the company has clear title to any branded names.    How well is the brand supported on the company Web site?    Note the amount and trend of any legal fees needed to stop brand encroachment. C. Customers :    How concentrated are sales among the top customers?    What is the distribution of sales among the various products and services?    What is the current sales backlog by customer?    What is the seasonality of sales? Are sales unusually subject to changes in the business cycle?    What is the financial condition of key customers? Does it appear that their businesses are sufficiently robust to continue supporting purchases from the company?    How long has the company had sales relationships with its key customers?    Which new customers is the company actively pursuing, and how much potential revenue and profit do they represent?    How profitable is each of the key customer accounts? Do any customers require a disproportionate amount of servicing, or require special terms and conditions?    Itemize any customer contracts that are coming up for renewal and likely changes to the key terms of those agreements.    Is there a history of complaints from any customers? How profitable are the customers who appear to be the most dissatisfied?    Obtain a list of all customers who have stopped doing business with the company in the last three years. D. Marketing and Distribution :    Evaluate the importance of srcinal equipment manufacturers (OEMs), present and future.    Analyze each significant contract regarding contingencies, extent of warranties and other service obligations, rights of cancellation, etc.    Check material contracts with customers for completeness, to determine existence of side written or oral commitments, or other terms that materially vary Business contracts.    Evaluate the extent to which the Company finances any customer purchases from the Business and obtain a coy of documentation.    Review model sales contract, sales representative agreements and dealer agreements used by the Business.    Evaluate the adequacy of the distribution network, the degree of control over distribution, etc.    Evaluate the effectiveness of marketing personnel.    For new products, estimate the cost of introduction, and determine whether the cost is adequately reflected in cash flow projections.    Assess the likelihood of discontinuation of products or services. E. Sales Activity :    Determine the amount of ongoing maintenance revenue from standard products.  MASTER ACQUISITION DUE DILIGENCE CHECKLIST   Copyright © Pioneer Business Ventures 2006-2011 Page 5 of 19    Obtain copies of all outstanding proposals, bids, and offers pending award.    Obtain copies of all existing contracts for products or services, including warranty and guarantee work.    What is the sales strategy (e.g., add customers, increase support, increase penetration into existing customer base, pricing, etc.).    How does the company promote its products and services (advertising, trade shows, etc.)?    What is the structure of the sales organization? Are there independent sales representatives?    Obtain the sales organization chart.    How many sales personnel are in each sales position?    What is the sales force’s geographic coverage?    What is the sales force’s compensation, split by base pay and commission?    What were the sales per salesperson for the past year?    What was the sales expense per salesperson for the past year?    What is the sales projection by product for the next 12 months?    Into what category do customers fall – end users, retailers, OEMs, wholesalers, and/or distributors?    How many customers are there for each product, industry, and geographic region?    What is the average order size?    Does the company have an Internet store? Does the site accept on-line payments and orders? What percentage of total sales come through this medium?    What is the structure of the technical support group? How many people are in it, and what is their compensation?    Does the company use e-mail for marketing notifications to customers?    What are the proportions of sales by distribution channel?    How many customers can the company potentially market its products to? What would be the volume by customer?    What is the company’s market share? What is the trend?    Are there new markets in which the products can be sold? F. Product Development :    Which products are nearing the end of their useful lives, and how much revenue is attached to them?    Obtain a list of development projects in the product pipeline. What is the estimated remaining time and expense required to launch each one?    What attributes make the company’s new products unique?    Have any products been in the development pipeline for a long time, and have no immediate prospects for product launch?    Who are the key development personnel? What is their tenure and educational background?    Does the company primarily use incremental product improvements, or engage in major new product development projects?
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