Due Diligence: How Buyers Can Protect Themselves in Purchasing a Company
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These slides outline the legal and tax/accounting issues buyers need to be aware of when purchasing a company
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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
- 3. Successful Transaction Expectations Right Team Negotiations Market Closing Assessment Overview of Process 3 Thanks to Rua Associates
- 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