Home Guides Mergers & Acquisitions in the US Due Diligence Due Diligence Checklist

Due Diligence Checklist

Due Diligence Checklist

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Section I.  Organization & Corporate Records

Item

Description

Comment

Received?

I.1  Initial Organization

Documents related to organization of the company prior to incorporation.

 

 

I.2  Organizational Changes

Documents related to acquisitions, restructurings, reorganizations, bankruptcies, dispositions, repurchases, and changes of form (e.g. from a partnership to an LLC)

 

 

I.3  Articles

Articles of incorporation and all amendments thereto

 

 

I.4  Bylaws

Corporate bylaws and all amendments thereto

 

 

I.5  Minutes

Minutes of the board of directors, including shareholder resolutions, written consents, and the minutes of any director or executive committees

 

 

I.6  Shareholder Communications

All communications with shareholders including annual reports, letters, solicitations and proxy statements

 

 

I.7  Stock Ledger

The stock ledger for the Company and each subsidiary.

 

 

I.8  Share Records

A list of all shares authorized, issued and outstanding.

 

 

I.9  Securities Agreements

Agreements relating to options, option plans, voting trusts, warrants, agreements to issues securities, calls, agreements to purchase securities, puts, subscriptions, ESPPs, stock bonus plans, and convertible securities.

 

 

I.10  Equity Compensation

All equity compensation agreements, including a list of all participants, the number of shares they own, the restrictions on those shares, and their exercise price.

 

 

I.11 Shareholder Agreements

All agreements with shareholders relating to voting, acquisition, redemption or disposition of securities.

 

 

I.12  Change of Control Plans

All documents relating to anti-takeover measures or any agreement, plan or document that contains change of control provisions.

 

 

I.13  Org Charts

Organization charts showing ownership and operational structure, including information related to subsidiaries, divisions, joint ventures and affiliates.

 

 

I.14  Certificates

Certificate of Good Standing from the secretary of state of incorporation, as well as any other

 

 

I.15  List of Jurisdictions

List of all states, provinces, or countries where the Company owns or leases property, maintains employees, or is otherwise authorized to do business.

 

 

 

Section II.  Financial Information

Item

Description

Comment

Received?

II.1  Financial Statements

All annual and quarterly financial statements for the past 5 years for the Company and all its subsidiaries.

 

 

II.2  Interim Financial Statements

The latest available interim financial information (e.g. unaudited monthly financial statements).

 

 

II.3  Auditor Communications

All communications with auditors, including auditors letters and replies, PBC lists, and other correspondence for the past 5 years.

 

 

II.4  Budgets

All available company-wide and departmental budgets for the last 5 years

 

 

II.5  Projections

The latest financial projections and estimates for the Company and its subsidiaries, including a discussion of assumptions made.

 

 

II.6  Capital budgets

The latest available capital budget, including a discussion of essential, non-essential and strategic investments

 

 

II.7  Cash

A detailed schedule of all cash holdings and short-term investments

 

 

II.8  Inventory

A detailed schedule of inventory by product and geography

 

 

II.9  Accounts Receivable

A detailed aged schedule of accounts receivable by customer and geography

 

 

II.10  Long term investments

A detailed schedule of long term investments, including share holding, bonds and debt instruments

 

 

II.11  Property, Plant & Equipment

A detailed schedule of all property, plant and equipment, including acquisition cost, accumulated depreciation, and depreciable life

 

 

II.12  Accounts payable

A detailed schedule of all accounts payable by vendor

 

 

II.13  Debt

A detailed schedule of all outstanding notes payable, bonds, mortgages and other long term debts

 

 

II.14  Orders booked

A detailed schedule by customer of orders booked for the past 5 years

 

 

II.15  Revenues and cost of sales

A detailed schedule of revenues and cost of sales broken down by customer, geography, and product for the past 5 years

 

 

II.16  SG&A

A detailed schedule of selling, general and administrative expenses by division, subsidiary and geography for the past 5 years

 

 

II.17  Contingent liabilities

A detailed schedule of all contingent liabilities

 

 

II.18  Off-balance sheet items

A detailed schedule of all off-balance sheet transactions including lease liabilities and credit derivatives

 

 

II.19  Capital expenditures

A detailed schedule of all capital expenditures for the past 5 years, including a description of each major expenditure

 

 

II.20  Restructurings

A detailed schedule of any restructurings, reorganizations or major operational changes undertaken in the past 5 years

 

 

II.21 Accounting changes

A schedule of any changes in accounting policies, principles or procedures in the past 5 years, including an explanation of why such changes were made

 

 

II.22  Controls

A detailed description of the Company’s internal controls

 

 

II.23  Reserves

Details of any reserves held (e.g. reserve for obsolete inventory)

 

 

II.24  Intercompany transactions

Details of all transactions between the company and its subsidiaries, parents, or other related parties.

 

 

II.25  Extraordinary items

Details and descriptions of any extraordinary or non-recurring items appearing in the financial statements during the past 5 years

 

 

II.26 Deferred income

A detailed schedule of all deferred income items for the past 5 years

 

 

II.27  Accounting policies

A detailed description of all accounting policies, including depreciation methods

 

 

II.28  Breakeven cash flow analysis

An analysis of the company’s monthly breakeven cash flow, broken down by fixed and variable cash inflows and outflows

 

 

II.29  Financial services

Description of services provided by accountants, auditors, financial advisors, actuaries, brokers and other financial professionals for the past 5 years

 

 

 

Section III.  Legal, Regulatory & Compliance

Item

Description

Comment

Received?

III.1  Litigation

A detailed schedule of all ongoing, pending and threatened action, arbitration, audit, examination, investigation, hearing, litigation, claim, suit, administrative proceeding, governmental investigation, or governmental inquiry affecting the Company, its assets or operations

 

 

III.2  Regulators correspondence

Copies of all correspondence, reports to and filings with all regulators, including but not limited to the Securities & Exchange Commission, state securities authorities, foreign securities authorities, the Department of Justice, the Environmental Protection Agency, and the Department of Commerce.

 

 

III.3  Court orders

A detailed schedule of all court orders, writs, judgments, injunctions, decrees and settlements to which the Company is a party

 

 

III.4  Notices

Copies of all notices of legal or regulatory violations and infringements including correspondence, reports, notices, and filings related to any dispute, alleged violation or infringement by the Company, its agents or employees of any local, state, federal or foreign lawn, regulation, order or permit relating to employment violations, unfair labor practices, equal opportunity, bribery, corruption, occupational safety and health, antitrust matters, intellectual property and environmental matters.

 

 

III.5  Permits

All local, state, federal and foreign approvals, authorizations, certifications, clearances, licenses, permits, registrations and waivers related to the Company, its operations or assets

 

 

III.6  Breaches and defaults

A detailed schedule of all breaches or defaults that have occurred under agreements to which the Company is a party, including all agreements which would be affected by the contemplated transaction (e.g. change of control provisions).

 

 

 

 

Section IV.  Taxes

Item

Description

Comment

Received?

IV.1  Returns

All local, state, federal and foreign tax returns and filings (including sales tax returns) made by the Company for the past 5 years

 

 

IV.2  Tax authority correspondence

All correspondence with local, state, federal and foreign tax authorities including audits, revenue agents’ reports and notices of proposed or final adjustments to the Company’s tax liabilities for the past 5 years

 

 

IV.3  Determination Letters

Any determination letters from the IRS or other tax authority received in the past 5 years

 

 

IV.4  Settlements

All agreements, consents, elections, requests, rulings, settlements and waivers made with any local, state, federal or foreign tax authority in the past 5 years

 

 

IV.5  Compliance

All documents related to the Company’s compliance with tax laws and regulations for the past 5 years

 

 

IV.6  Opinions

All tax opinions received from attorneys, accountants or other specialists for the past 5 years

 

 

IV.7  Open years

A detailed schedule of all open years for local, state, federal and foreign taxes

 

 

IV.8  Jurisdictions

A detailed schedule of all tax jurisdictions (including sales tax jurisdictions) where the Company operates, maintains a physical presence of any kind or has employees or agents

 

 

IV.9  Tax liabilities

A detailed schedule of all tax liabilities

 

 

IV.10  Tax basis

A detailed schedule of the tax basis of all assets, its accumulated depreciation and the depreciation method used

 

 

IV.11  Carryforwards and carrybacks

A detailed schedule of all tax ncarryforwards and carrybacks, including their source (e.g. net operating loss or foreign tax credit), their expiration dates and any limitations on their use

 

 

IV.12  Tax free transactions

A detailed schedule of all tax free transactions not listed on the Company’s tax returns

 

 

IV.13  Transfer pricing

A description of transfer pricing methodologies

 

 

IV.14  Tax liens

A detailed schedule of all tax liens against the Company’s assets

 

 

 

 

Section V.  Intellectual Property

Item

Description

Comment

Received?

V.1  IP portfolio

A detailed schedule of all patents, patent applications, trademarks, trademark applications, trade names, trade name applications, copyrights, copyright applications, service marks and service mark applications owned, held or used by the Company, including ownership, adverse claims made, involvement in litigation (if any), jurisdiction of registration and registration status.

 

 

V.2  Trade secrets

A description of trade secrets and other unpatented proprietary information

 

 

V.3  Know how

A description of significant technical know-how used by the Company

 

 

V.4  License agreements

A detailed schedule of all license agreements to which the Company is a party

 

 

V.5  Royalty agreements

A detailed schedule of all royalty agreements to which the Company is a party

 

 

V.6  Technology sharing

A detailed schedule of all technology sharing agreements to which the Company is a party

 

 

V.7  Other IP agreements

A detailed schedule of all agreements related to intellectual property, including use of technology or information, disclosure of information and confidentiality.

 

 

V.8  Domain names

A schedule of all internet websites and domain names owned or used by the Company

 

 

V.9  Software

A detailed schedule of all software assets owned or licensed by the Company

 

 

V.10  Infringement

A detailed schedule of all potential or current matters relating to infringement, interference, or unfair competition

 

 

 

 

 

Section VI.  Employee Matters

Item

Description

Comment

Received?

VI.1  Officers and directors

A list of all officers and directors of the Company.

 

 

VI.2  Org charts

Organizational charts describing the Company’s management structure and lines of reporting.

 

 

VI.3  Key employees

A list of all key employees, their function, their salary, their resume and their importance to the business.

 

 

VI.4  Employee list

A list of all employees including position, salary, and location.

 

 

VI.5  Consultants and contractors

A list of all consultants and contractors working for the Company.

 

 

VI.6  Employment agreements

All employment, consulting, change-of-control, non-disclosure, non-solicitation , or non-competition agreements between the Company and any of its employees, contractors or consultants.

 

 

VI.7  Bonus plans

Documents describing any bonus, incentive or profit-sharing plans including funding requirements and schedules of amounts paid under the plan for the past 5 years.

 

 

VI.8  Pension plans

Documents describing any retirement or pension plans including funding requirements; actuarial reports; financial reports or financial summaries; IRS Form 5500, 5310, or 5330; annual reports, reportable event notices, notices of intent to terminate a plan filed with the Pension Benefit Guarantee Corporation; any applications for determination filed with the IRS;  and schedules of amounts paid under the plan for the past 5 years.

 

 

VI.9  Insurance plans

Documents describing any group life insurance, death benefit, disability, accident, cafeteria, health, major medical, medical expense reimbursement, dependent care or sick leave policies or programs, including funding requirements; actuarial reports; financial reports or financial summaries; IRS Form 5500, 5310, or 5330; annual reports, reportable event notices, notices of intent to terminate a plan filed with the Pension Benefit Guarantee Corporation; any applications for determination filed with the IRS;  and schedules of amounts paid under the plan for the past 5 years.

 

 

VI.10  Vacation plans

Documents describing any holiday, vacation, leave-of-absence or sabbatical plans, including funding requirements; actuarial reports; financial reports or financial summaries; IRS Form 5500, 5310, or 5330; annual reports, reportable event notices, notices of intent to terminate a plan filed with the Pension Benefit Guarantee Corporation; any applications for determination filed with the IRS;  and schedules of amounts paid under the plan for the past 5 years.

 

 

VI.11 Stock plans

Documents describing any stock option, stock purchase, stock appreciation right, stock bonus, employee stock option and employee stock ownership plans, including funding requirements; actuarial reports; financial reports or financial summaries; IRS Form 5500, 5310, or 5330; annual reports, reportable event notices, notices of intent to terminate a plan filed with the Pension Benefit Guarantee Corporation; any applications for determination filed with the IRS;  and schedules of amounts paid under the plan for the past 5 years.

 

 

VI.12  Savings plans and other employee benefit plans

Documents describing any savings, deferred compensation, supplemental unemployment benefit, welfare, salary continuation, severance pay, termination pay, change-in-control, worker’s compensation or other employee benefit plan, including funding requirements; actuarial reports; financial reports or financial summaries; IRS Form 5500, 5310, or 5330; annual reports, reportable event notices, notices of intent to terminate a plan filed with the Pension Benefit Guarantee Corporation; any applications for determination filed with the IRS;  and schedules of amounts paid under the plan for the past 5 years.

 

 

VI.13  ERISA Plans

Documents describing any plan that qualifies as an “employee pension benefit plan” or “employee welfare benefit plan” as defined by Section 3 of the Employee Retirement Income Security Act of 1974.

 

 

VI.14  Collective bargaining agreements

Copies of any collective bargaining agreements related to any labor unions or other employee groups. 

 

 

VI.15  Reductions in force

Details of any reductions-in-force made by the Company within the past 12 months, including lists of employees made redundant and the costs of such reductions-in-force.

 

 

VI.16  Employee disputes

A detailed schedule of any allegations of wrongful termination, harassment, discrimination or other employee disputes for the past 5 years.

 

 

VI.17  Litigation

A detailed schedule of all employee or labor related litigation and investigations, whether settled, ongoing, or pending, over the past 5 years.

 

 

VI.18  Labor relations disputes

A detailed schedule of any labor disputes, requests for arbitration, or grievances filed or pending within the past 5 years.

 

 

VI.19  Code of ethics

Copies of codes of ethics or conduct used by the Company.

 

 

 

Section VII.  Contracts

Item

Description

Comment

Received?

VII.1  Contracts with other organizations

A detailed schedule of all subsidiaries, partnerships, joint ventures and strategic alliances along with copies of all related agreements.

 

 

VII.2  Contracts with related parties

Copies of all contracts between the Company and its officers, directors, shareholders and affiliates.

 

 

VII.3  Contracts with creditors

Copies of all loan agreements, bank financing agreements, lines of credit, promissory notes, security agreements, mortgages, indentures, collateral pledges or other contracts with creditors.

 

 

VII.4  Guaranties and indemnity agreements

Copies of all agreements that obligate the Company to indemnify a third party, or that otherwise commits the Company to provide a guarantee of any kind.

 

 

VII.5  Sales agreements

Copies of all contracts related to sales, agency, franchise, dealer, marketing or distribution agreements or arrangements.

 

 

VII.6  Supply agreements

Copies of all contracts related to supplier or vendor agreements.

 

 

VII.7  Customer contracts

Copies of all customer agreements with a value of $______ or greater. 

 

 

VII.8  Licensing, franchise and conditional sales

Copies of all licensing agreements, franchise agreements and conditional sales agreements to which the Company is party.

 

 

VII.9  Quotes

Copies of all outstanding bids, quotations or tenders with a potential value of $____ or greater. 

 

 

VII.10  Purchase orders

Copies of the Company’s standard quote, purchase order and invoice forms, including standard terms and conditions.

 

 

VII.11  M&A

Copies of any memoranda of understanding, letters of intent, contracts, agreements, or closing documents related to any acquisition or disposition of corporate shares, companies, divisions, businesses, or other significant assets by the Company. 

 

 

VII.12  Noncompetition agreements

Copies of any agreements that prohibit, limit or restrain the Company from engaging in any business activity or otherwise competing with another entity.

 

 

VII.13  Nondisclosure agreements

Copies of any nondisclosure agreements to which the Company is a party.

 

 

VII.14  Other material agreements

Copies of all agreements with a value of $_____ or greater, or which have a material impact on the operation of the business, and are not requested elsewhere in this checklist.

 

 

 

Section VIII.  Real & Personal Property

Item

Description

Comment

Received?

VIII.1  Business locations

A detailed schedule of all locations where Company business is transacted, including offices, warehouses, stores and factories.

 

 

VIII.2  Owned real estate

A detailed schedule of all real estate owned by the Company.

 

 

VIII.3  Titles and rights to owned real estate

A copy of the deed or title to any real estate owned by the Company as well as a description of all rights attached to the property (e.g. air or mineral rights)

 

 

VIII.4  Debts and encumbrances on owned real estate

A detailed schedule of all debts, liens or other encumbrances on real estate owned by the Company.

 

 

VIII.5  Other documents related to owned real estate

A copy of all surveys, zoning approvals, variances, use permits or appraisals related to real estate owned by the Company.

 

 

VIII.6  Leased real estate

A detailed schedule of all real estate rented or leased by the Company.  This schedule should contain a brief description of the lease terms, including amount and frequency of rent and the remaining term of the lease or rent agreement.

 

 

VIII.7  Owned personal property

A detailed schedule of all personal property owned by the Company with a value of $______ or greater.  This schedule should include a description of the property, its location, its book value, and any debt or encumbrances on the property.  This schedule should include all inventories, machinery and equipment, tools, furniture, office equipment, computer hardware and software, supplies, materials, vehicles and fixtures.

 

 

VIII.8  Leased personal property

A detailed schedule of all personal property rented or leased by the Company with a value of $______ or greater.  This schedule should include a description of the property, its location, its book value, the amount and frequency of rent and the remaining term of the lease or rent agreement.  This schedule should include all inventories, machinery and equipment, tools, furniture, office equipment, computer hardware and software, supplies, materials, vehicles and fixtures.

 

 

VIII.9  Lien search

The results of any lien searches.

 

 

VIII.10  UCC filings

A schedule of all UCC filings on the assets of the Company.

 

 

VIII.11  Capital equipment purchases and disposals

A detailed schedule of all capital equipment purchases and dispositions made during the past 5 years.

 

 

 

Section IX.  Credit Facilities

Item

Description

Comment

Received?

IX.1  Long-term debt facilities

A detailed schedule of all long-term debt facilities, including capitalized leases, guarantees and other contingent obligations, along with copies of all related documents.

 

 

IX.2  Short-term debt facilities

A detailed schedule of all short-term debt facilities, including capitalized leases, guarantees and other contingent obligations, along with copies of all related documents.

 

 

IX.3  Correspondence

Copies of all correspondence with lenders including consents, notices, waivers of default, and compliance certificates.

 

 

 

Section X.  Environmental Matters

Item

Description

Comment

Received?

X.1  Permits

A detailed schedule of all permits, licenses, registrations, notices, approvals, certifications, contingency plans and any other authorization related to environmental, health or safety matters.

 

 

X.2  Audits

Environmental audits for each property owned or leased by the Company.

 

 

X.3  Hazardous materials

A detailed schedule of all hazardous substances (including dangerous, toxic, radioactive, or infectious substances, materials, pollutants, contaminants or waste) that the Company has or may have used, stored, generated, treated, handled, released or disposed of.

 

 

X.4  Disposal methods

A description of the Company’s methods of handling, treating, storing, securing, transporting, recycling, reclaiming and disposing of hazardous materials.  This should include a detailed schedule describing all wells, above-ground storage tanks, below-ground storage tanks, surface impoundments, and any other waste disposal facility owned, operated or used by the Company to store or dispose of hazardous materials.

 

 

X.5  Internal reports

Copies of all internal reports (whether created by Company personnel or a 3rd Party) relating to environmental, health or safety matters.  Such reports should include emissions monitoring results, sample testing results, laboratory analyses, and monitoring logs.

 

 

X.6  Regulators

Copies of all statements, reports and correspondence involving the Environmental Protection Agency or any other environmental, health or safety regulatory group, agency or body.

 

 

X.7  Environmental, health or safety related litigation

A detailed schedule of all environmental, health or safety related litigation and investigations, whether settled, ongoing, or pending, over the past 5 years.

 

 

 

Section XI.  Related Parties

Item

Description

Comment

Received?

XI.1  Contracts

Copies of any contracts or agreements between the Company and any current or former director, officer, shareholder or affiliate of the Company.

 

 

XI.2  Receivables and payables

A detailed schedule of any amounts owed by the Company to any current or former director, officer, shareholder or affiliate of the Company and any amount owed by any current or former director, officer, shareholder or affiliate of the Company to the Company.

 

 

XI.3  Other transactions

Copies of documents relating to any other transaction between the Company and any current or former director, officer, shareholder or affiliate of the Company.

 

 

XI.4  Conflicts of interest

Describe any interests of any current or former director, officer, shareholder or affiliate of the Company in any business that competes with, conducts any business similar to, or has any arrangement or agreement with the Company.

 

 

 

Section XII.  Securities & Investments

Item

Description

Comment

Received?

XII.1  Equity investments

A detailed schedule of companies in which the Company holds an interest of 5% or more.

 

 

XII.2  Offering documents

Copies of all offering circulars, private placement memoranda, syndication documents, or other securities placement documents, prepared or used by the Company over the past 5 years.

 

 

XII.3  Engagement letters

Copies of contracts, agreements or engagement letters with investment bankers, finders, business brokers or other financial advisers pursuant to any contemplated financial transaction over the past 5 years.

 

 

 

Section XIII.  Imports & Exports

Item

Description

Comment

Received?

XIII.1  Imports

A description of the Company’s major imports, the import process, and dealings with the US Customs Service

 

 

XIII.2  Exports

A description of the Company’s major exports and the export process.  Include a detailed schedule of the Company’s exports (both products and services), along with the annual amount of revenue derived from each export and the country to which the product or service was exported. 

 

 

XIII.3  FCPA

A description of the Company’s procedures and controls for complying with the Foreign Corrupt Practices Act.  Include a detailed schedule of all sales representatives, commission agents, dealers and consultants dealing with foreign companies or agencies on the Company’s behalf.

 

 

 

Section XIV.  Products & Services

Item

Description

Comment

Received?

XIV.1  Product and service lines

A detailed schedule of all existing products and services offered by the Company.

 

 

XIV.2  Complaints

A detailed schedule of any complaints, warranty claims or litigation related to products or services offered by the Company.

 

 

XIV.3  Internal reports

Copies of any tests, evaluations, studies, surveys and other internal reports related to existing or contemplates products and services.

 

 

 

Section XV.  Customer Information

Item

Description

Comment

Received?

XV.1  Customer list

A detailed schedule of the Company’s customers, along with annual sales to each customer over the past 5 years.

 

 

XV.2  Terms and conditions

A description of the Company’s standard sales terms and conditions.

 

 

XV.3  Market activities

Description of all marketing research, campaigns, plans, programs, budget and materials.

 

 

XV.4  Competitors

A list of the Company’s 10 most significant competitors.

 

 

 

Section XVI.  Other

Item

Description

Comment

Received?

XVI.1  Professionals

A detailed schedule of all law firms, accounting firms, consulting firms and other professionals engaged by the Company over the past 5 years.

 

 

XVI.2  Licenses and permits

Copies of all licenses, permits or consents held by the Company.

 

 

XVI.3  Press releases

Copies of all press releases issued by the Company over the past 5 years.

 

 

XVI.4  Insurance policies

Copies of all insurance policies, whether by third parties or self insured.

 

 

XVI.5  Claims

A detailed schedule of the Company’s insurance claims history over the past 5 years.

 

 

XVI.6  Other significant matters

Any other document or information that may be significant to the Company or its operations.

 

 



 

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