For buying a company, there are several main M&A due diligence checklist activities. In reality, most buyers use these checklists to assess potential businesses.
These buyers assess a prospective business’s market potential to see whether it can meet their particular requirements.
Furthermore, a thorough assessment of a company’s assets and liabilities will help with ownership transfers and provide a more complete image of its financials.
As a potential business buyer, you can use an M&A due diligence checklist to identify red flags and decide if a company is a good match for your needs.
1. Intellectual Property Due Diligence
Buyers are frequently concerned about the quality and scope of their target company’s intellectual property, so M&A due diligence is frequently conducted in this area.
Due diligence checklist elements typically include the target company’s domestic and international patents, as well as any pending patents.
Also, see how the target company uses elements like confidentiality agreements to protect their intellectual property.
Often, take into account the company’s trademark symbols and copyrights. Inquire about any trade secrets and how they’re protected.
Finally, find out if there is any ongoing litigation involving these issues, as patent and IP litigation can be expensive.
2. Financial Due Diligence
Financial due diligence is important when assessing a company’s commercial viability. It gives you a good picture of the target company’s market value, as well as its financial stability and potential for growth.
This type of due diligence usually entails examining the company’s sales, earnings, risks, and financial assets. In addition, request financial activity summaries, such as business investments and hedging strategies.
Also, think about the present and potential capital expenditures. Finally, request copies of all insurance plans and claims. Financial due diligence can be used to assess the target company’s commercial viability and market value.
3. Contractual Due Diligence
Contractual due diligence is an essential part of every mergers and acquisitions checklist. Partner with a company attorney because sifting through these contracts will take a long time.
They look through the target company’s implemented arrangements, such as consumer and supplier agreements, accounts payable/receivable plans, and credit agreements.
They also examine alliance and joint venture arrangements, as well as equipment leases and settlements.
Non-compete, licensing, franchising, and advertisement arrangements are all reviewed as well.
Certainly, your understanding of company commitments from your contractual due diligence will help to streamline ownership transfer processes.
4. Customer Acquisition Due Diligence
Customer due diligence is regarded by many company buyers as one of the most important business assessments. Look for detailed customer details, such as the target company’s largest clients.
Also, make a list of and identify their main competitors. Including their advantages, disadvantages, market shares, and competitive advantages.
Request a list of existing distribution networks, marketing opportunities, market intelligence, trade secrets, and comparative competitor studies, among other things.
This allows you to assess the brand of the target company and how it compares to the competition.
5. Structural Organization Due Diligence
Finally, structural organization due diligence offers information about the management of the target enterprise.
Request the target’s Articles of Incorporation and Bylaws, as well as any changes to either.
Next, request the minute book, and double-check that it contains all minutes and resolutions from governing bodies including directors, shareholders, and executives.
Examine the company’s organizational maps and shareholder lists as well. Confirm that the target state’s Secretary of State has issued a Certificate of Good Standing.
Finally, request a list of all states where the target is permitted to do business, all states where it owns land, and all assumed names it has ever used.
When it comes to buying a company, there are a slew of important M&A due diligence checklist activities to consider.
Determine the nature of your target company’s intellectual properties, for example, as part of your due diligence.
Second, use financial due diligence to assess the target company’s commercial prospects and market value.
Third, with your knowledge of company responsibilities gained from contractual due diligence, streamline ownership transfer processes.
Next, use consumer acquisition due diligence in the service sector or other sectors to get an accurate picture of how your target business compares to its competitors.
Finally, through the structural organization due diligence, have solid insights into organizational structure.
Consider the above activities when looking for M&A due diligence checklist activities for buying a company.