Due Diligence Support
Once the target company has been approached, the due diligence process (separate from the financial valuation) can begin. A very abbreviated list of topics to be covered follows.
Overall synergies:
2. How well do the products, personnel, and geographic coverage of the acquirer and acquiree fit together?
Market overview:
1. What is the size of the market?
2. How is the market segmented?
3. What is the market’s projected growth and profitability?
4. What are the factors affecting growth and profitability?
5. What are the trends in the number of competitors and their size, product innovation, distribution, finances, regulation, and product liability?
2. How is the market segmented?
3. What is the market’s projected growth and profitability?
4. What are the factors affecting growth and profitability?
5. What are the trends in the number of competitors and their size, product innovation, distribution, finances, regulation, and product liability?
Corporate overview:
2. Does the company maintain any strategic alliances?
3. When and where was the company founded, and by whom?
4. What is its history of product development?
5. What is the history of the management team?
6. Has the corporate location changed?
7. Have there been ownership changes?
8. Have there been acquisitions or divestitures?
9. What is its financial history?
Red Flag Events:
2. Is there evidence of continual changes in accounting methods?
3. Are there unusually complex business arrangements that do not appear to have a business purpose?
4. Is the company continually exceeding its loan covenant targets by very small amounts?
5. Do any of the principals have criminal records?
6. Have there recently been significant insider stock sales?
7. Is the internal audit team subjected to significant scope restrictions?
8. Are a large proportion of monthly sales completed during the last few days of each month?
9. Has the company tried to sell itself in the past and failed?
10. Has the company received major warnings from regulatory agencies?
11. Does the company appear to manipulate reserve accounts in order to smooth or enhance its reported earnings?
The following is a brief list of other topics that must be probed in depth. A complete sample listing of subtopics beneath these headings is available.
- Company operating culture
- Personnel skills, turnover, and benefits (including pension liabilities)
- Intellectual Property value and production trends
- Brand valuation
- Risk identification and management:
- Productive capacity (including service capacity)
- Assets (all details, including asset condition):
- Liabilities (declared and potential)
- Equity (who owns what, including convertible debt)
- Profitability and profit trends
- Cash flow and cash flow trends
- Customer analysis and profitability audit
- Sales processes and sales activity audit
- Product development process audit and output:
- Production and service process audit
- Information technology, including internet use and applications
- Legal and criminal Issues
- Regulatory Compliance, including level of compliance and associated costs
- Policies and Procedures, their cost, level of compliance internally, and impact
- Purchase or merger transaction support (Are there sufficient authorized shares for any planned offering, including any conversion rights?))