due diligence: how buyers can protect themselves in purchasing a company
TRANSCRIPT
DUE DILIGENCE: HOW BUYERS CAN PROTECT THEMSELVES IN PURCHASING A COMPANY
Neil [email protected]
P. Haans [email protected]
Agenda
Overview of Process
Defining Due Diligence
Due Diligence Process• Pre-Letter of Intent • Post-Letter of Intent• Post Definitive
Agreement and Closing
Questions
Successful Transaction
Expectations
Right Team
Negotiations
Market
Closing
Assessment
Overview of Process
1. Seller Expectations
SellerExpectations
• Summary• Same Page
SellerExpectations
2
1
3
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• Motivation
• Options
• Ideal Prospect Attributes
• Ideal Transaction Picture
1. Buyer Expectations
SellerExpectations
• Summary• Same Page
BuyerExpectations
2
1
3
456
• Motivation
• Options
• Ideal Prospect Attributes
• Ideal Transaction Picture
Viability of Options
Grow Organically
New Products/Services
New Markets
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
Right Team• Right Seat• Right People
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3
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2. Right Team
3. Assessment
Assessment• Quantitative• Qualitative 2
13
456
4. Market
MarketMarketing Plan
Qualification
21
3
456
5. Negotiations
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3
456
Negotiations• Proposal Elements• Financing Feasibility
6. Closing
Closing• 90-Day Checklist• Alignment
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3
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Due Diligence
What is it?
Why is it important?
How do you do it?
• Do further due diligence
• Schedule disclosures
• Negotiate a lower purchase price
• Abandon the deal
The result may be to:
Due Diligence
Due Diligence
Create a system for managing the process
Bank underwriting
Reps, warranties, and indemnification
Due Diligence Process
Pre-Letter of Intent
Post-Letter of Intent
Post Definitive Agreement and Closing
Pre-Letter of Intent
Background Information
Tax issues for transaction structure-asset v. entity purchase
Analyze sales, income/profit, cash flow, and growth potential
Pre-Letter of Intent
Confidentiality
Legal structure
• 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
Post-Letter of Intent
Further review of financial statements
Agree on accounting principles for financial statements
Review tax returns and outstanding liabilities
Analyze unusual changes in income and expenses
Post-Letter of Intent
What assets are being purchased
Identify non-operating assets
Review detailed customer lists
• 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
• Review material contracts
• 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
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
Post Definitive Agreement and Closing
1. Inventory valuation
2. Working capital
3. Transfer titles
4. Assign intellectual property
5. Title policy issued
6.Discharges/releases for liabilities
