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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
1
Agenda
Overview of Process
Defining Due Diligence
Due Diligence Process
• Pre-Letter of Intent
• Post-Letter of Intent
• Post Definitive
Agreement and Closing
Questions
2
Successful
Transaction
Expectations
Right
Team
Negotiations
Market
Closing
Assessment
Overview of Process
3
Thanks to Rua Associates
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
4
Due Diligence
What is it?
Why is it important?
How do you do it?
5
Due Diligence
6
The result may be to:
• Do further due diligence
• Schedule disclosures
• Negotiate a lower purchase price
• Abandon the deal
Due Diligence
Create a system for managing the process
Bank underwriting
Reps, warranties, and indemnification
7
Due Diligence Process
Pre-Letter of Intent
Post-Letter of Intent
Post Definitive Agreement and
Closing
8
Pre-Letter of Intent
Initial financial analysis
Tax issues for transaction structure-asset v. entity purchase
Working capital
9
Pre-Letter of Intent
Legal structure
Review letter of intent
10
• 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?
Post-Letter of Intent
What assets are being purchased
Further review of financial statements
Review tax returns and outstanding liabilities
11
Post-Letter of Intent
Review financial projections and capital budgets
Analyze unusual changes in income and expenses
Review customer and supplier lists
12
Post-Letter of Intent
13
• 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
Post-Letter of Intent
14
• 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
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
15
Post Definitive Agreement
and Closing
Accounting system integration
Internal controls
File purchase price allocation
Complete tax registrations
16
Post Definitive Agreement
and Closing
17
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
Questions?
Carrie Osborn
cosborn@dbccpa.com
18
P. Haans Mulder, J.D., M.S.T., CFP®
phmulder@holland-law.com

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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 1
  • 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 2
  • 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 4
  • 5. Due Diligence What is it? Why is it important? How do you do it? 5
  • 6. Due Diligence 6 The result may be to: • Do further due diligence • Schedule disclosures • Negotiate a lower purchase price • Abandon the deal
  • 7. Due Diligence Create a system for managing the process Bank underwriting Reps, warranties, and indemnification 7
  • 8. Due Diligence Process Pre-Letter of Intent Post-Letter of Intent Post Definitive Agreement and Closing 8
  • 9. Pre-Letter of Intent Initial financial analysis Tax issues for transaction structure-asset v. entity purchase Working capital 9
  • 10. Pre-Letter of Intent Legal structure Review letter of intent 10 • 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 11
  • 12. Post-Letter of Intent Review financial projections and capital budgets Analyze unusual changes in income and expenses Review customer and supplier lists 12
  • 13. Post-Letter of Intent 13 • 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 14 • 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 15
  • 16. Post Definitive Agreement and Closing Accounting system integration Internal controls File purchase price allocation Complete tax registrations 16
  • 17. Post Definitive Agreement and Closing 17 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
  • 18. Questions? Carrie Osborn cosborn@dbccpa.com 18 P. Haans Mulder, J.D., M.S.T., CFP® phmulder@holland-law.com