Confidential due diligence tool
DETAILED CHECKLIST FOR A DUE DILIGENCE INVESTIGATION
A structured, buyer-focused due diligence checklist for reviewing a business before final valuation, offer finalisation and acquisition agreement drafting.
Purpose: to highlight factors that may affect past and future business performance and to identify matters that should be disclosed, verified and, where necessary, warranted.
Purpose of the investigation
The purpose of the investigation is to give the buyer an indication of those factors which will have a bearing on the past and future performance of the business and to highlight those limitations which must be taken into account in the final valuation.
Buyers must pay particular attention to the following
01
Why the business is for sale. NB: From a buyer's point of view it cannot be emphasised enough that the buyer knows why the seller wants to sell.
02
The price parameters and terms of payment together with the seller's basis of valuation.
03
The seller's mandate to sell (does he have the consent of other shareholders of the company, etc).
04
Other possible offers for the business.
05
The market position of business.
06
Key areas, which may add value to the selling price.
07
Sellers must be careful not to give too much away too soon.
How to use this checklist
This document is designed to support a practical transaction workflow. It should be used together with professional legal, tax, accounting and sector-specific advice.
1
Collect source documents
Request corporate, financial, legal, staff, asset and contract documents before committing to value.
2
Verify financial quality
Test management reports, financial statements, tax returns, working capital and normalised earnings.
3
Identify risk outside the numbers
Assess reputation, management depth, contract dependency, licences, technology, labour and market exposure.
4
Convert findings into deal terms
Use verified risks to frame price, warranties, conditions precedent and due-diligence protections.
01
48 checklist points
Documents, Company History & Ownership
Information and documentary evidence normally requested before valuation and offer finalisation.
History of the company
Share capital
Board of directors / management
02
56 checklist points
Employees, Assets & Working Capital
People, benefits, fixed assets, intellectual property, systems, inventory and debtor quality.
Payment:
Pensions
Deductions
Medical benefits
Assets
Plant and equipment
Intellectual property rights & investments
Computer & accounting
Stock and work in progress
Debtors
03
25 checklist points
Liabilities, Taxation & Funding Risk
Funding structure, creditors, statutory liabilities, guarantees and working-capital adequacy.
Loans, mortgages & debentures (incl. foreign loans)
Creditors
Taxation
Overdraft
Guarantees & Surety Ships
04
25 checklist points
Profit & Loss Review
Accounting policies, reporting, pricing, profitability, customer/outlet analysis and operating systems.
Accounting issues
05
31 checklist points
Items Not Appearing in the Financial Statements
Commercial, market, legal, labour and operational risk factors that may not be obvious from the numbers.
Special items not normally declared
06
13 checklist points
Advisors & Group Policies
External advisors and written or unwritten group policies that may influence the transaction.
Advisors
Group policies written or unwritten in respect of
Material disclosure reminder
NB: Any material factors which a willing buyer should be made aware of should be disclosed by the seller and warranted in the acquisition agreement and finally, don't forget the security audit..
✓
Disclose material facts
Any matter that may influence a willing buyer's decision, price, risk appetite or conditions should be disclosed and documented.
✓
Convert risk into warranties
Important representations should be captured in the acquisition agreement and supported by documents wherever possible.
Warning, disclaimer and statement of passing over information
All rights reserved
No part of this document may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without prior permission from the Agent. This document is intended only for the person or entity to whom it is provided.
Confidentiality
All information reflected in this checklist and any supporting documentation is confidential and must be treated accordingly. The checklist is intended to guide the orderly collection, classification, review and assessment of due diligence information.
Correctness of information
The compilation and presentation of the information is limited primarily to the collection, classification and summarisation of information supplied by the seller, management, advisors and other relevant parties. No representation is made that the information is complete, and errors and omissions are excepted.
Professional advice
This checklist does not replace professional legal, accounting, tax, labour, technical, environmental, property, regulatory or sector-specific advice. A buyer should independently verify all information and obtain appropriate professional input before proceeding.
Transaction use
Findings from the due diligence investigation should be incorporated into the transaction structure, price, conditions precedent, warranties, indemnities, disclosure schedule and final acquisition agreement where applicable.
Contact
Entrust Business Consultants
Business consulting, acquisition advisory and transaction support.
Emailpieter@entrustbusinessconsultants.co.za
Phone+27 83 379 6909
Websitewww.entrustbusinessconsultants.co.za
LocationCape Town 7550