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Due Diligence: How Buyers Can Protect Themselves in Purchasing a Company
The document outlines the due diligence process for buyers purchasing a company, detailing essential stages such as pre-letter of intent, post-letter of intent, and post-definitive agreement and closing. It covers seller and buyer expectations, team composition, assessment methods, negotiation elements, and closing checklists to ensure successful transactions. Additionally, it emphasizes the importance of thorough due diligence to mitigate risks and secure favorable transaction terms.
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Due Diligence: How Buyers Can Protect Themselves in Purchasing a Company
- 1. DUE DILIGENCE: HOWBUYERS CAN PROTECT THEMSELVES IN PURCHASING A COMPANY Neil DeBoer ndeboer@dbccpa.com P. Haans Mulder phmulder@holland-law.com
- 2. Agenda Overview of Process DefiningDue Diligence Due Diligence Process • Pre-Letter of Intent • Post-Letter of Intent • Post Definitive Agreement and Closing Questions
- 3.
- 4. 1. Seller Expectations Seller Expectations •Summary • Same Page Seller Expectations 2 1 3 4 56 • Motivation • Options • Ideal Prospect Attributes • Ideal Transaction Picture
- 5. 1. Buyer Expectations Seller Expectations •Summary • Same Page Buyer Expectations 2 1 3 4 56 • Motivation • Options • Ideal Prospect Attributes • Ideal Transaction Picture
- 6. Viability of Options Grow Organically New Products/Services NewMarkets Gain Market Share Grow Through Acquisitions Buy Suppliers Buy Customers Buy Competitors Buy Complimentary Companies Internal Sale Family Shareholder Buyout Management Buyout ESOP External Sale Liquidation 3rd Party Recapitalization
- 7. Right Team • RightSeat • Right People 2 1 3 4 56 2. Right Team
- 8. 3. Assessment Assessment • Quantitative •Qualitative 2 1 3 4 56
- 9.
- 10. 5. Negotiations 2 1 3 4 56 Negotiations • ProposalElements • Financing Feasibility
- 11. 6. Closing Closing • 90-DayChecklist • Alignment 2 1 3 4 56
- 12. Due Diligence What isit? Why is it important? How do you do it?
- 13. • Do furtherdue diligence • Schedule disclosures • Negotiate a lower purchase price • Abandon the deal The result may be to: Due Diligence
- 14. Due Diligence Create asystem for managing the process Bank underwriting Reps, warranties, and indemnification
- 15. Due Diligence Process Pre-Letterof Intent Post-Letter of Intent Post Definitive Agreement and Closing
- 16. Pre-Letter of Intent BackgroundInformation Tax issues for transaction structure-asset v. entity purchase Analyze sales, income/profit, cash flow, and growth potential
- 17. Pre-Letter of Intent Confidentiality Legalstructure • Is it an asset or entity interest purchase? • What assets are being sold? • Are liabilities being assumed? • Is the seller “staying on” after the closing? • What are “deal breakers?” • What due diligence is vital? Review letter of intent
- 18. Post-Letter of Intent Furtherreview of financial statements Agree on accounting principles for financial statements Review tax returns and outstanding liabilities Analyze unusual changes in income and expenses
- 19. Post-Letter of Intent Whatassets are being purchased Identify non-operating assets Review detailed customer lists
- 20. • Personal property •Lien searches, appraisals, and equipment leases • Environmental assessments • Zoning • Real estate • Due diligence • Appraisal and inspection • Title Search and survey • Intellectual property • Trademarks, copyrights, patents, and trade secrets Post-Letter of Intent
- 21. • Review materialcontracts • Customers and suppliers • Determine who has authority to approve the transaction • Find out if lender approval is necessary • Employee issues • Key employees (non-solicits and non-competes) • Employee handbooks and at-will status • 401k and employee benefit plans • Evaluate customer relationships • Analyze suppliers and venders Post-Letter of Intent
- 22. Post-Letter of Intent Obtaintax 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
- 23. Post Definitive Agreement andClosing 1. Inventory valuation 2. Working capital 3. Transfer titles 4. Assign intellectual property 5. Title policy issued 6.Discharges/releases for liabilities
- 24. Questions? Neil DeBoer ndeboer@dbccpa.com P. HaansMulder phmulder@Holland-law.com