Merger & Acquisition M&A Due Diligence Checklist
An investor or buyer must perform a “due diligence check” to learn more about a company before they finalize the transaction. Due diligence is vital to uncovering any issues that may occur in a merger and acquisition. A mergers and acquisitions lawyer can help both buyers and sellers during the process of a due diligence check. Call Nakase Wade to seek the advice and support of an M&A Lawyer. They will help you conduct a comprehensive due diligence check or prepare the documents a buyer requires.
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What Is Due Diligence?
Due diligence is buyer or investors thorough appraisal of a business and its practices to ensure it is a sound investment. Your mergers and acquisitions lawyer will review the structure, operations, liabilities, assets, and key business relationships. Along with evaluating the risks and possibilities of the investment or transaction, it helps you to determine if the deal is priced correctly.
If you are a seller, a mergers and acquisition attorney will help you assemble to documents the buyer or investor will need. They will also manage the process proactively to avoid a steady stream of requests for documents or information.
Key Considerations to Put on Your Due Diligence Checklist
Each merger and acquisition deal is unique, and the due diligence checks needed will vary depending on the type of deal. There are certain due diligence checks that will be needed no matter the transaction. We have included these below.
Corporate Structure and General Matters
M&A attorneys will review the organizational documents, capitalization, corporate structure, and general corporate records to ensure all is in order. Some of the typical documents your lawyer will look at are:
- Corporate bylaws
- List of securities holders
- Incorporation documents
- Organizational chart
- Stock option agreements and plans
- Stockholder and voting agreements
- Recapitalization or restructuring documents
- Stock appreciation rights plans and related grants
- Restructuring documents
- Recapitalization documents
- Business and sales agreements
- Minutes from all executive committee, board, and shareholder meetings
Corporate attorneys will review the last five years of financial information and the forecasts for the next five years.
Due diligence also covers any past income tax liabilities and any potential benefits such as tax carry forwards. Corporate lawyers can ensure that there are no unexpected tax issues. They will review:
- IRS Form 5500 for 401(k) plans
- Government audits
- Tax sharing and transfer pricing agreements
- Credit carryforwards
- Net operating losses
- Notices or correspondence from any federal, state, local, or foreign tax authority
- All tax returns filed in the last five years
The potential for future performance and strategic fit is just as important as the company’s current and past profits. Due diligence for a potential buyer includes seeing how it will strategically fit with your business or objectives. Consider the costs of the acquisition or merger and how the work culture will fit in with yours.
An M&A lawyer can help you understand the value of the company’s intellectual property and how to protect it. The attorney will review:
- Domain names
- Trade secrets
- IP litigation and claims
- Licensing agreements
- Liens on intellectual property
The material assets are equally as important as intellectual property assets. An attorney will appraise the following assets:
- Inventory stock
- Real estate
The buyer will often be bound by many of the material commitments and contracts of the company. A lawyer will review:
- Equipment leases
- Supplier contracts
- Customer contracts
- Guaranties, credit agreements, and loans
- Schedule of accounts receivable and payable
- Joint venture or partnership agreements
- Settlement agreements
- Franchising agreements
- License agreements
- Employment contracts
- Exclusivity and non-compete agreements
- Sales agency, dealer, advertising, and distribution agreements
Employees and Management
Due diligence includes examining the management and employees of the company and understanding the quality of work and the contracts. Your corporate lawyer can assist you in making decisions about which employees you should keep and any potential employee issues.
Due diligence checks include reviewing potential litigation and legal liabilities to adequately prepare you for any issues that may arise.
Compliance and Regulatory Matters
Attorneys will review compliance and regulatory issues for the deal and the target company. Principal among the issues they check for is anti-trust implications.
Frequently Asked Question
Is this a comprehensive due diligence checklist?
No, these are common due diligence checks that we will complete regardless of the type of transaction. However, this is not an exhaustive list as we will complete other due diligence checks specific to the transaction type. As your attorney, we will provide a comprehensive due diligence checklist and work through it with you.