The world is scattered with numerous Mergers and Acquisitions (M+A) failures
The results of these failures are vast – e.g. cost benefits not met, a strategic synergy not happening, staffing issues, regulatory problems and so on.
The cause of these problems is often the buying organisation (and sometimes the selling one) getting carried away from the ‘glamour’ of the M+A and not performing sufficient due diligence to (a) understand any issues up front so (b) they can be planned around or mitigated.
I have worked on a number of M+A activities in my career and I have created the below checklist to help focus organisations on the due diligence that is required.
I hope that you find it interesting and useful?
| 1 | WHAT IS THE STRATEGIC VALUE OF THE ACQUISITION? | |
| 1.1 | Need to understand why were are interested and what is the strategic value of the buying company. This will focus on the assessment of the screening data below. | |
| 2 | GENERAL COMPANY INFORMATION | |
| 2.1 | Incorporation documents Shares, partnerships, etc | |
| 2.2 | Jurisdictions | |
| 2.3 | List of shareholders/partners/etc. and type of stock/bonds/etc Length of ownership | |
| 2.4 | Stock Issued stockOutstanding stockStock options promisedWarrants? Convertibles? etcBonds issues? | |
| 2.5 | List of directors NamesAddressesBioAgeRoleExe vs NEDLength as a director | |
| 2.6 | Board minutes and reports since the start | |
| 2.7 | Shareholder minutes and reports since the start | |
| 2.8 | Subsidiaries (with incorporating documents) per above plus | |
| 2.9 | Ownerships %age (esp. if not 100% by the firm being looked at) | |
| 2.10 | Corporate Governance Governance structuresWhich committees, roles, frequency, reporting, etcRisk management processLogs, mitigations, reviews, etc | |
| 2.11 | Cultural Fit As we could be working with the organisation for many years then, do we have any concerns regarding cultural mismatches | |
| 2.12 | Environmental Are any hazardous substances used? If so What permits or licences are required?What processes are in place to manage?Details of issues over the past 5 years, inflight and/or pendingInsurances in place?Regulatory issues?Anything else? Are we allowed to contact the local government to check on performance? | |
| 2.13 | Any noticeable impact of COVID-19? | |
| 3 | DISTRIBUTION / SALES / CLIENT-BASE (with a particular focus on the past 3 to 6 months). | |
| 3.1 | List sales by customers or customer groups and products by the last five years – i.e. is there a concentration risk? | |
| 3.2 | Distribution channels – over the past five years and predicted for the next three years. Sales/revenue by product and customers by distribution channel | |
| 3.3 | List of total, new and leaving customers over the past five years? Are there any seasonable movements that cause problems? E.g. lack of cash etc | |
| 3.4 | Are there any customer issues over the past five years? Returns?Claimants?Legal issues?Customer leaving?Level of customer calls, emails, letters, etc? | |
| 3.5 | Need to understand whether customers will leave after the acquisition? Loyalty to the previous owner?Do clients have contract clauses to leave under a change of ownership? | |
| 3.6 | How are sales teams paid? Baseline and sales bonus? If so, then how is this measured?What are the terms of sale? | |
| 3.7 | What is the %age of customer billing | |
| 4 | PRODUCT/SERVICE BASE | |
| 4.1 | For each product distributed over the past five years Name of productPriceUnits/revenue sold per yearClients or client groups sold toWhen introducedIf stopped, then confirm when and why? | |
| 4.2 | New products planned (over, say next three years) Name of productPriceUnits/revenue sold per yearClients or client groups sold toWhen introducedIf stopped, then confirm when and why? | |
| 4.3 | Who makes the products? If external, then supplier details, costs, details of supplier contractors, etcCan be provided under the list of contractsIf internal, then details should be provided under Operating Model | |
| 5 | OPERATING MODEL | |
| 5.1 | Operating and manufacturing process | |
| (a) | Operating model map showing all functions flows between them. | |
| (b) | How is the work split between internal and external (e,g, customers, suppliers, websites, delivery, etc.) | |
| (c) | Are there any timings on the processes? | |
| (d) | What locations (esp if cross border) is the work performed in? | |
| 5.2 | Technology | |
| (a) | Copy of architecture diagrams – i.e. applications, websites, suppliers, distribution, manufacturing, etc | |
| (b) | Software List of what is used (grouped by criticality)PackagesLicences detailsSupplierSupport and upgrade detailsStart/end/renewal dateTerms of use (esp. novation rights)Contracts (see Contract section)How long has it been liveUnderlying technologyBespoke or in-house developedWho supports it?Who owns the source code?How long has it been live?Underlying technology | |
| (c) | Hardware Details of what is owned – e.g. PCs, servers,Support and upgrade details | |
| (d) | Outsourcing arrangements (including Cloud) What functionsSupplierOversightDetails will be provided under Contracts | |
| (e) | Website Provide details if not provided above | |
| (f) | What data Security arrangements and controls | |
| (g) | BCP plans – provide details, when last tested, issues found, etc | |
| (h) | Do you keep details of clients, transactions, etc. – if so, then provide details. | |
| 6 | FINANCIALS – LOOKING BACK – provide a breakdown of the following across the past 3 to 6 months. | |
| 6.1 | Profit by year | |
| 6.2 | Sales by year | |
| 6.3 | Costs of sales by year (variable costs) | |
| 6.4 | Other costs by year (fixed and step costs) | |
| 6.5 | Cash inflow/outflow/balance by year and Cash cover | |
| 6.6 | Other assets by year – e.g. Property, Shares/bonds, etc | |
| 6.7 | Liabilities by year LoansMortgagesLeases of real propertyFinancing leases and sale and leaseback agreements | |
| 6.8 | Creditors by year (including ageing) | |
| 6.9 | Debtors by year (including ageing) | |
| 6.10 | Any there any audit issues outstanding? | |
| 6.11 | Any there any contingency liabilities outstanding? e,g, court cases | |
| 6 | FINANCIALS – LOOKING FORWARD — projected financials for the next 1, 2, 3, 4 and 5 years. | |
| 6.12 | Sales by year | |
| 6.13 | Costs of sales by year (variable costs) | |
| 6.14 | Other costs by year (fixed and step costs) | |
| 6.15 | Cash inflow/outflow/balance by year, esp Cash cover | |
| 6.16 | Other assets by years | |
| 6.17 | Liabilities by years | |
| 6.18 | List of assumptions underpinning these financials | |
| 6 | FINANCIALS – TAX | |
| 6.19 | Copies of the last five years’ tax returns Could be international, cross-border, etc | |
| 6.20 | Any tax issues? (historic over past 5 years, inflight or pending) Fines? Audits? Other | |
| 6 | FINANCIALS – INSURANCES. | |
| 6.21 | Insurances For example (lifted from Forbes)General liability insuranceD&O insuranceIntellectual property insuranceCar insuranceHealth insuranceE&O insuranceKey man insuranceEmployee liability insuranceWorker’s compensation insuranceUmbrella policiesProvide details – egCover providedPremiumStart/end/renewal datesAmount coveredExcessesSpecial clauses (esp. if it impacts cover)Claims made and did it impact future cove, premium, etc | |
| 6 | FINANCIAL – OTHER | |
| 6.22 | Can we speak to your accountants (past and present) regarding the above? | |
| 7 | LEGAL | |
| 7.1 | Existing and Pending Contracts | |
| (a) | Please provide copies of all contracts that are live or pending. For example (but not limited to): Customer AgreementSupplier agreementsDistribution agreementsManufacture agreementsEquipmentTechnology agreementsWebsitesSoftwareHardwareetcProperty leasesMortgage, banking, financing, etcAny JVs?Employment agreementsExclusivity agreementsGolden handcuffsPlus others | |
| (b) | For each contract (in #6.1(a)) please confirm the attached: How important is the contract? i.e. what the firm collapse if the contract was terminatedWhat is in the contract – e,g, scope, end/start/renewal dates, liabilities, etcIs there any impact if ownership changesWill the other side be happy if ownership changes – e,g, what they terminate for convenience | |
| 7.2 | Legal Issues | |
| (a) | Is any historic (last 5 years), inflight, in arbitration or pending? if so, then provide details PartiesReasonOutcome Settlement terms | |
| (b) | Any court injunctions, orders, etc., against the firm, its staff or other related party? | |
| (c) | What insurance is in place to cover ligitations? Please find details of coverage, premiums, etc. | |
| (d) | Can we speak to your external legal firm regarding these points? | |
| 7.3 | Intellectual Property | |
| (a) | What patents are in place or pending? Who owns them? How reliant is the firm on them?If not owned by the firm, then how do they get access? e.g. by a user licenceDo they have exclusive access? | |
| (b) | What trademarks, copyrights, etc., does the firm use? Who owns them? How reliant is the firm on them?If not owned by the firm, then how do they get access? e.g. by a user licence Do they have exclusive access? | |
| (c) | How does the firm protect its trade secrets and IP? e,g, confidentiality agreements, etc.) | |
| (d) | Also, how reliant is the firm on the above patents, trademarks, etc? If access was lost, then how badly would the firm be impacted? | |
| (e) | Will these be void if the firm changes ownership? | |
| 8 | STAFFING | |
| 7.1 | Structure of firm (listing all staff if possible) Organisational chartReporting linesLocationsTime zonesVacancies (with recruitment plans) | |
| 7.2 | Staff issues over the past five years and predicted next three years Discipline issuesGrievanceStrikesOther | |
| 7.3 | List of key staff, management and directors covering RoleWhy important, and what would happen if they leftStart dateLength of serviceNotice periodSalaryBenefitsBonusesNon-cash compo PensionDeferred salaryIncentive plans e,g, LTISRedundancy cost (esp, if enhanced, is part of employment contractConflicts of interest – e.g. with a competitor?Any other agreements – e,g, IP license, property, keeping company cars, etc.? | |
| 7.4 | List of non-key staff RoleWhy important, and what would happen if they leftStart dateLength of serviceNotice periodSalaryBenefitsBonusesNon-cash compo PensionDeferred salaryIncentive plans and staff buy-ins (such as Long Term Incentive Plans).Redundancy cost (esp, if enhanced, is part of employment contractConflicts of interest – e.g. with a competitor?Any other agreements – e,g, IP license, property, keeping company cars, etc.? | |
| 7.5 | Any other staff (with criticality) such as contractors, consultants, etc RoleWhy important, and what would happen if they leftStart dateLength of serviceNotice periodSalaryBenefitsBonusesNon-cash compo PensionDeferred salaryIncentive plans e,g, LTISRedundancy cost (esp, if enhanced, is part of employment contractConflicts of interest – e.g. with a competitor?Any other agreements – e.g., IP license, property, keeping company cars, etc.? | |
| 7.6 | Provide copies of staff policies Holidays, disciplinary, etc | |
| 7.7 | Pension arrangements Cost over the past 5 years Predicted cost over the next three years)Staff contribution?Firm contribution?Shortfalls that the firm needs to fund?Other? | |
| 9 | REGULATORY | |
| 8.1 | Is the firm regulated under any rules Provide details of who and whyProvide the last five years’ regulatory returns | |
| 8.2 | Are there any regulatory issues? Historic (past 5 years), inflight or pendingAudits or visits | |
| 8.3 | If the change of owner (esp. if merged with another firm) cause regulatory issues | |
Recent Comments