Due Diligence Checklist - Buying a Company - Selling a Company

Due Diligence Checklist - Buying a Company - Selling a Company

Below you will find an example (short version) of a due diligence checklist from M&A practice, which was used in the context of a company acquisition/sale for the preparation of documents in the data room (seller) or as a requirements list for the data room (buyer). This due diligence checklist is only an example that gives an idea of a possible due diligence checklist. It is not a sample and the following example is not complete and is intended solely as information to illustrate possible contents of a due diligence checklist. In each individual case of a due diligence (risk assessment, due diligence) of a purchase object and the company value, the potential acquirer should, within the scope of his due diligence, commission an experienced lawyer as well as auditor and tax advisor with the preparation of a due diligence checklist related to the specific case.

Example of a Due Diligence Checklist

I. Accounting and taxes (financial due diligence)

1. individual tax and trade balance sheets 20xx - 20xx
2. auditor/tax advisor reports to management, if available
3. monthly and quarterly figures for the current financial year compared to the respective month of the previous year
4. comprehensible adjustments of the submitted financial statements and extraordinary figures
5. financial planning, budgeting, explanations of target/actual deviations
6. accounting and valuation guidelines, if not evident from the balance sheets
7. tax returns and tax assessments of the last 3 years
8. reports and results of the last tax audit
9. tax payments and tax refunds of the last three years
10. presentation of movements in equity (distribution, retention, taxation)
11. explanations of inter-company relations
12. cash flow statements, insofar as they are not shown in the financial statements
13. list of assets (if not included in the annual accounts in sufficient form)
14. results of the inventory of the previous year including provisions for the valuation of inventories
15. a statement of changes in inventories over the last three years
16. special features on the development of inventories
17. explanations on the determination and accounting of changes in inventories
18. presentation of devaluations and depreciations in fixed and current assets
19. analysis of provisions
20. age structure of receivables, valuation of receivables, receivables management
21. presentation of other assets
22. list of top 10 debtors 20xx-20xx YTD (year-to-date)
23. bad debts of the last 3 years
24. presentation of trade and other payables including tax liabilities Liabilities including tax liabilities
25. list of top-10 creditors 20xx- 20xx YTD
26. allocation of gross profit to business lines, where meaningful
27. contribution margin statement by business lines and product groups, where meaningful
28. the like for customers

II. Financing (Financial Due Diligence)

1. Auflistung aller Bankverbindungen mit Kontonummern, Bankdarlehen und deren Besicherung, Kontokorrentlinien, Avallinien
2. Auflistung aller erhaltenen Darlehen (inklusive Gesellschafterdarlehen) mit Darlehensverträgen
3. Darstellung der Wechselverbindlichkeiten
4. Sicherheitsübertragungen
5. Darstellung aller gewährten Bürgschaften, Garantien für Dritte (einschließlich Gesellschafter),
6. Darstellung aller von Dritten zugunsten des Unternehmens übernommenen Bürgschaften, Garantien, Grundschulden, Sicherheitsübertragungen
7. Auflistung aller ausgereichten Darlehen (an Mitarbeiter, Gesellschafter etc.) mit Darlehensverträgen
8. Besserungsscheine
9. Darstellung von Subventionen und Zuschüssen sowie deren Rückzahlungsverpflichtungen

III. Market and competition (business due diligence/ commercial due diligence/ management due diligence)

1. reports from consultancies and market studies produced
2. associations and association reports of the last years
3. market volumes and market growth by business segment and region
4. profiles (business model, strategic positioning, production locations, size, product range, quality, prices, etc.) of competitors by business segment and region
5. significant market changes in recent years (e.g. consolidation, new competitors, bankruptcies, etc.)
6. assessment of success factors by business segment
7. growth opportunities in existing and, if applicable, new business areas
8. possible market and competition risks (especially regulatory issues)

IV. Marketing, Vertrieb, Service (Business Due Diligence Check/ Commercial Due Diligence/ Management Due Diligence Check)

1. representation of the sales organisation
2. status of the national and international sales partners (commercial agents), if available
3. qualification and training profile of the sales staff
4. loss of sales staff in the last 24 months
5. list of the top 30 customers by turnover and profit contribution for the current year, of the top 10 customers for the last three business years; also presentation of possible interrelationships of the customers (e.g. group affiliation)
6. structure of product sales by EUR and units 20xx - 20xx YTD
7. if available, commercial agents with turnover duration of activity for "target company", commission models, compensation claims
8. sales breakdown 20xx - 20xx YTD by region (please break down by region of the delivery address and region of the location of the associated power plant, if known)
9. general commission schemes and individual agreements with distribution partners, if available
10. marketing and sales documents, brochures
11. price lists and discount policy
12. description of business relations with affiliated companies with turnover and profit contribution
13. calculation of sales (selected examples)
14. explanation of service activities

V. Purchasing, procurement, logistics (business due diligence/management due diligence)

1. purchasing volume from the 10 most important suppliers 20xx - 20xx YTD
2. listing of suppliers and development of supplier relationships (new suppliers added and suppliers lost)
3. stock turnover rate

VI. Organisation/ Information Technology (Business Due Diligence)

1. IT equipment (hardware, software)
2. IT investments 20xx - 20xx YTD
3. documentation of business processes (if available)
4. presentation of internal controlling (e.g. monthly reports)
5. reports of IT audits by external auditors or internal auditors

VII. Staff (Human Resources Due Diligence)

1. organigrams of the companies with assignment of staff
2. listing of staff by departments and functions with information on salary and fringe benefits
3. absenteeism of staff, if above average
4. remuneration of the managing director (fixed and variable)
5. list of all senior staff with name, age, seniority, qualifications
6. brief curricula vitae of management
7. development of staffing levels over the last three years by function
8. description of current works agreements, organisation of works council, names of works council members, next elections to works council
9. validity of collective agreements, membership of employers' association

VI. Legal Due Diligence

1. extract from the commercial register
2. articles of association (old and new agreements or entire chain of documents)
3. list of shareholders
4. shareholder structure of the last 5 years
5. documents on options, subscription rights or other rights to the company's capital, if available
6. shareholders' resolutions and minutes of shareholders' meetings as well as resolutions and minutes of advisory boards/supervisory boards of the past three years
7. documents on all participations (majority participations, dormant partners, joint ventures)
8. contracts or declarations of intent on mergers, amalgamations, restructurings, spin-offs
9. company purchase agreements
10. contracts and other agreements with affiliated companies
11. company agreements including profit sharing, options and other ancillary agreements
12. participations of the managing directors / partners in third companies
13. managing director agreements and rules of procedure for the managing directors
14. powers of attorney and procurations granted (with indication of the type of procuration - individual, joint procuration)
15. rental and lease agreements for buildings, land and operations/parts of operations
16. copies of all contracts for the acquisition or disposal of real property (or rights equivalent to real property incl. order of heritable building rights) which have not yet been executed
17. overview of rental and leasing contracts for movable property (e.g. telephones, motor vehicles, etc.)
18. maintenance contracts for movable assets (e.g. telephones, IT)
19. leasing contracts for objects which, if they were shown in the balance sheet, would have to be shown in the balance sheet under fixed or current assets
20. contracts or other obligations outside the ordinary course of business which result in obligations for the company of more than EUR 20,000
21. employment contracts (standard employment contract, management contracts) supplemented by the data requested under 4. organisation and personnel
22. termination agreements and dismissals of the last 12 months
23. pending and threatened dismissal protection proceedings in the last 24 months
24. contracts with all freelancers
25. pension obligations, including actuarial report, if applicable
26. company agreements (working time regulations, salary regulations), collective bargaining agreements
27. permits, approvals etc. relevant to business operations
28. insurance policies
29. list of all consultants (last 5 years)
30. supply contracts with clients (if any)
31. supply contracts with suppliers
32. all active and passive proceedings as well as proceedings that are not pending in court, but which are supervised by a lawyer
33. warranty, product liability and damage claims asserted out of court as well as threatened legal disputes
34. risks from product liability and precautions against them
35. own industrial property rights (patents, trademarks, designs)
36. agreements restricting competition and non-competition clauses or restrictions to the detriment of the company
37. licences for the use of third party industrial property rights
38. copyrights of the company (ascertainable and/or registered)
39. trade names and business names of the company
40. licences for industrial property rights or know-how in respect of which the company is the licensor
41. a statement of all pending or threatened infringement proceedings instituted by or against the company within the last five years
42. standard forms of the company: general terms and conditions, standard contracts, order forms, invoices

VIII. Land, buildings, rented premises, equipment

1. 1. exact list of the land, buildings, rented rooms (size, area and location plans)
2. details and description of the real property; land register excerpts
3. list of all encumbrances under public law, in particular excerpt from the register of building encumbrances with confirmation of completeness from the relevant municipality
4. assessment of existing liability risks with regard to possible environmental burdens
5. plans, calculations, contracts, permits, etc. for the planned new building
6. list of machinery and equipment
7. description of planned, decided and started investments

The above due diligence checklist for the sale of a company does not claim to be complete, legally valid or correct. This checklist is not intended to be applied in any specific individual case. KP Tech accepts no liability etc. for any damages arising from any form of use of this exemplary and purely informative due diligence checklist. The aim of due diligence is to uncover risks (risk assessment) at the target company. Risks that are discovered are used by the buyer to push down the company valuation or even to distance themselves from the potential acquisition.

KP Tech Corporate Finance (Germany, Austria, Switzerland)

As a professional M&A advisor, KP Tech Corporate Finance advises either the buy side or the sell side in corporate transactions (including professional advice on due diligence) as well as in corporate succession and venture capital transactions. We would be pleased to discuss with you in strict confidence the current company valuations as well as the possibilities and probabilities of success in the event of a sale of your company. Contact us in strict confidence byphone +49 89 21 53 66 09-0 to arrange a personal and non-binding meeting. Benefit from more than 20 years of experience in international M&A and corporate finance consulting.

Thema dieses Artikels: Due Diligence Checklist - Example of a Due Diligence Checklist from the practice in company acquisitions and company sales