SAMPLE ACQUISITION DUE DILIGENCE CHECKLIST
David D. Spencer
1621 Lake Mount Drive
Snohomish, Washington 98290
Seattle and Mobile 206.650.7048
©2003 David D. Spencer All Rights Reserved
Updated February 2011
Many clients have found this checklist useful in organizing their due diligence for an acquisition. Not all of the items will apply in every situation, of course, and no doubt in a given case items or topics will need to be added to make the checklist complete.
Please note that this checklist is not intended as legal advice but only as a general guide. Each acquisition is different and should be approached from its unique perspective. The advice of counsel in due diligence matters is a necessary element of any acquisition.
1. CORPORATE ORGANIZATION MATTERS
1.1. Certificate, Articles of Incorporation of the Target Company (“Company”), as amended to date.
1.2. Bylaws of the Company and amendments thereto.
1.3. Minutes of meetings of the Company's Board of Directors, any committees thereof and shareholders since inception (including copies of reports to directors or committee members not set forth in the minutes).
1.4. List of jurisdictions where the Company is (or should be) qualified as a foreign corporation or has offices, including good standing certificates in all states and foreign countries where qualified to do business, if available.
1.5. Copies of all stockholder agreements and all other agreements with respect to the securities of the Company.
1.6. Ownership breakdown.
1.7. List of subsidiaries of the Company and jurisdiction in which organized. List of all other corporations, partnerships or other entities in which the Company holds, or has the right to acquire, directly or indirectly, more than a 20% equity interest.
1.8. Any reports to the Company prepared by its internal auditors, counsel or others relating to material accounting matters.
1.9. Management letters from the Company=s auditors for the last five years.
2. GENERAL BUSINESS INFORMATION
2.1. Current Business Plan.
2.2. Organizational charts and description of responsibilities for management.
2.3. List of the Company=s ten largest suppliers, dollar amounts of product supplied, and payment terms for the last two years.
2.4. All contracts, agreements or instruments that are material to the Company=s business.
2.5. Any brochures, advertising, press releases, promotional materials (including www information) or other information describing the Company=s products and services.
2.6. Company and industry articles, magazines, association lists.
2.7. Samples of all forms of purchase orders, invoices, etc., to the extent utilized regularly.
2.8. All employee manuals, policies and procedures.
3. FINANCIAL MATTERS
3.1. Copies of all annual accountant reports of the Company from fiscal 1991 and thereafter.
3.2. List and detailed explanation of any adjustments to operating income.
3.3. Tax returns for the last four years.
3.4. Monthly financial statements from January 1, 1994 to present.
3.5. Fiscal 2000 budget by month.
3.6. Costs by functional area.
3.7. Current aging report of accounts payable and accounts receivable.
3.8. Detailed fixed assets records, including date of purchase, cost/fair market value, depreciation schedules and recent asset appraisals.
3.9. Description of the Company=s significant bad debts.
3.10. History of inventory reserves.
3.11. Description of inventory costing policies and procedures.
3.12. Agreements, instruments and correspondence relating to debt obligations, including lines of credit, term loans, notes payable, equipment loans and capitalized leases, and any other material debt or financing instruments.
3.13. Historical line of credit usage from 1996 to present.
4. PROPERTIES AND LEASES
4.1. Real Property.
4.1.1. A summary description of all branches, offices and other Company facilities or real property, leased or otherwise used or occupied (in whole or in part) by the Company. Indicate with respect to each facility:
C. Breakdown of square footage by functional area; and
D. Summary of lease terms such as term, renewal or purchase option, and rental amount.
4.1.2. Copies of leases (old and new).
4.1.3. A schedule of all deeds, mortgages, and title insurance policies relating to property held in fee.
4.1.4. Recent appraisals and assessments (if any).
4.2. Personal Property and Equipment.
4.2.1. List of all machinery, equipment, furniture and tangible personal property owned, leased or used by the Company with an indication on the list whether such property is owned free and clear by the Company or leased by the Company and the condition of such property.
4.2.2. Copies of leases to which the Company is party relating to personal property and equipment.
4.3. Patents and Trademarks.
List of trademarks, trade names, service marks, patents or copyrights, owned by, licensed to or applied for by the Company.
5. REGULATORY MATTERS
5.1. List all federal, state and local governmental and regulatory agency permits, licenses, approvals, consents and similar rights obtained or that should be obtained in connection with the business of the Company.
5.2. List and descriptions of all reports relating to inspections or investigations of the business or its facilities by federal, estate or local government agencies.
6. SCOPE OF ACTIVITIES
6.1. List all jurisdictions (domestic and foreign) in which the Company (a) leases office or warehouse space; (b) maintain stock of goods from which orders are filled; or (c) maintains an agent or representative to solicit business.
7. CERTAIN CONTRACTS AND ARRANGEMENTS
7.1. All contracts (and deposit agreements) to which the Company is a party involving more than $100,000 per year.
7.2. All agreements with suppliers, independent agents or representatives, salesmen or others involving the payment of commissions or other consideration or discounts with respect to the provision of services by the Company or its products.
7.3. All contracts or agreements with any current or former officers, director, employee, consultant or shareholder (if any).
7.4. Any material contract for acquisition or sale of property, facilities or services of the Company.
7.5. Any other material contract which remains to be performed in whole or in part, or which was made or succeeded to within the past three years by the Company or any subsidiary.
7.6. If any material contract, agreement, understanding or transaction is not evidenced by a writing, please describe it.
8. MANAGEMENT AND EMPLOYEES
8.1. Officers and Directors.
8.1.1. Names of senior management of the Company and aggregate compensation at present and for the previous five years.
8.1.2. A schedule of the total number of employees by occupation.
8.1.3. Currently effective employment contracts, non-competition agreements, management and consulting contracts, etc.
8.1.4. All documents pertaining to any receivables from or payables (including loans) to directors, officers or beneficial owners of more than 5% of the common stock of the Company.
8.1.5. Indemnification arrangements with officers and directors of the Company, including (but not limited to) liability coverage, Aall risks@ coverage, employee bonds, etc. Summary of all insurance policies (casualty, property, liability, errors and omissions, etc.), including claims history on each.
8.2. Employee Benefit Plans.
8.2.1. All current profit sharing, 401(k) and savings plans; pension or retirement plans; materials describing any of the foregoing; and the latest applicable trust accountings, actuarial reports, and other applicable financial statements.
8.2.2. Description of the Company=s policy with regard to accrued vacations and sick leave, and the provisions for the respective payment.
8.2.3. Description of any severance or termination programs or plans in which employees or officers of the Company participate, and any statement of the Company=s policy with respect to termination of employees and officers and relating benefits.
8.2.4. Copies of any summary plan descriptions or employee handbooks describing employee benefits, hiring process, salaries, wages, benefits, employee loan agreements, vacation policies and employee purchase programs in which employees of the Company participate.
Summary of all material insurance policies and copies of such policies.
Description of all current and pending litigation, threatened claims and anticipated outcome.
11. MANAGEMENT INFORMATION SYSTEMS
Description of the Company=s computer hardware and software.
12. ENVIRONMENTAL ISSUES
12.1. Description of any outstanding environmental issues.
12.2. Copies of any environmental liability assessments or environmental compliance audits.
12.3. Status of current environmental compliance in areas such as permits and contingency plans.
12.4. Copies of all recent and current citations for failure by the Company to comply with applicable environmental, hazardous waste laws and occupational health and safety laws.
12.5. Describe measures being taken to ensure compliance, including any program developed by the Company for the lawful disposal of hazardous wastes.