Due Diligence: How Buyers Can Protect Themselves in Purchasing a Company
1. DUE DILIGENCE: HOW BUYERS CAN PROTECT
THEMSELVES IN PURCHASING A COMPANY
Carrie Osborn
cosborn@dbccpa.com
P. Haans Mulder, J.D., M.S.T., CFP®
phmulder@holland-law.com
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2. Agenda
Overview of Process
Defining Due Diligence
Due Diligence Process
• Pre-Letter of Intent
• Post-Letter of Intent
• Post Definitive
Agreement and Closing
Questions
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4. Viability of Options
Grow
Organically
Grow Through
Acquisitions
Internal Sale
New
Products/Services
New Markets
Gain Market
Share
Buy Suppliers
Buy Competitors
Buy
Complimentary
Companies
Buy Customers
Family
Shareholder
Buyout
Management
Buyout
ESOP
External Sale
Liquidation
3rd Party
Recapitalization
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9. Pre-Letter of Intent
Initial financial analysis
Tax issues for transaction structure-asset v. entity purchase
Working capital
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10. Pre-Letter of Intent
Legal structure
Review letter of intent
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• Are liabilities being assumed?
• What are the terms of the non-compete?
• Is the seller “staying on” after the closing?
• What are “deal breakers”?
• What due diligence is vital?
• What assets are being sold?
11. Post-Letter of Intent
What assets are being purchased
Further review of financial statements
Review tax returns and outstanding liabilities
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12. Post-Letter of Intent
Review financial projections and capital budgets
Analyze unusual changes in income and expenses
Review customer and supplier lists
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13. Post-Letter of Intent
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• Personal property
• Lien searches, appraisals, and equipment leases
• Real Estate
• Due diligence
• Appraisal and inspection
• Title Search and survey
• Environmental assessments
• Zoning
• Intellectual property
• Trademarks, copyrights, patents, and trade secrets
14. Post-Letter of Intent
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• Review material contracts
• Customers and suppliers
• Employee issues
• Key employees (non-solicits and non-competes)
• Employee handbooks and at-will status
• 401k and employee benefit plans
• Determine who has authority to approve the transaction
• Find out if lender approval is necessary
• Evaluate customer relationships
• Analyze suppliers and vendors
15. Post-Letter of Intent
Obtain tax clearance letter
Obtain payoff letters for liabilities to be paid at closing
Assess pending or threatened litigation
Determine what licenses need to be obtained or transferred
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16. Post Definitive Agreement
and Closing
Accounting system integration
Internal controls
File purchase price allocation
Complete tax registrations
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17. Post Definitive Agreement
and Closing
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1. File corporate
changes and
security documents
2. Obtain issued
licenses and permits
3. Transfer titles
4. Assign intellectual
property
5. Title policy issued
6. Discharges/releases
for liabilities