Buyer's Side Due Diligence Checklist

The process of due diligence can be extremely complex in merger-and-acquisition transactions. The information uncovered can make or break a deal.

If your business is considering a purchase and is only acquiring the target company's assets,the existence of undisclosed liabilities is generally only an issue to the extent they burden assets that you would be acquiring (such as real property mortgages, tax liens, and so forth).

However, if your business is acquiring or merging with a legal entity and all of its related liabilities, you should employ due diligence procedures to make sure you are aware of all such liabilities.

And depending on the circumstances of the potential merger or acquisition transaction, you may also want to perform due diligence steps to assess the target's operating results.

Appropriate steps to uncover liabilities and examine the operations of the company could include the following.

Due Diligence Steps to Scrutinize a Target Company's Liabilities

Conduct a Uniform Commercial Code (UCC) filing search and a review of local court records to turn up undisclosed loans secured by assets; outstanding liens and judgments against the target business or its owners or principals; undisclosed litigation against the target business or its owners or principals; and so forth.
Notes:

‍

Review prior tax returns and tax filing positions to identify aggressive or questionable positions that could lead to future assessments for unpaid taxes, penalties and interest.
Notes:

‍

Review contracts entered into by the target company for undisclosed liabilities, obligations and unfavorable deals that might hinder future operations.
Notes:

‍

Examine employee retirement and benefit plans to determine if they have been properly funded and to understand the extent of future financial obligations that will be assumed by your company.
Notes:

‍

Due Diligence Steps to Scrutinize a Target Company's Operations

Perform various financial ratio analyses to assess cash flow, profitability and overall financial health.
Notes:

‍

Assess the financial health of the target company's major customers and suppliers. Interview some of them about their perspectives on the target's operations
Notes:

‍

Examine the target's culture and determine if it can be integrated with your company's culture.
Notes:

‍

Do an Internet search of the company and its officers to make sure there are no embarrassing surprises that could come to light in the future.
Notes:

‍

Obtain an organizational chart of managers and employees, along with biographical information for key personnel.
Notes:

‍

Interview selected personnel to hear their thoughts about the target company's operational performance and suggestions for improvements.
Notes:

‍

Determine if key personnel can be retained or are likely to leave after the merger or acquisition.
Notes:

‍

These are just some of the due diligence factors that need consideration when evaluating a potential merger or acquisition candidate. Obviously, each case is unique and the appropriate due diligence procedures must be customized for each situation. Contact our firm if you need assistance conducting a thorough, revealing and cost-effective due diligence investigation.