Due Diligence Documents Required for M&A - Complete Due Diligence Checklist
Kison Patel
CEO and Founder of DealRoom
Kison Patel
Kison Patel is the Founder and CEO of DealRoom, a Chicago-based diligence management software that uses Agile principles to innovate and modernize the finance industry. As a former M&A advisor with over a decade of experience, Kison developed DealRoom after seeing first hand a number of deep-seated, industry-wide structural issues and inefficiencies.
CEO and Founder of DealRoom
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When selling your business, there are several advantages to having first-class due diligence documents prepared in advance.
The mere process of putting these documents together will give you a good overview of your own business and where some of its potential weaknesses lie.
As long as the business hasn’t been sold, you can work towards strengthening those areas that your due diligence documents suggest might need reinforcing.
On the buyer side, receiving these documents in a timely and orderly fashion speeds up the M&A process, quickly providing reassurance that what’s under the hood checks out with what the company’s marketing documents show.
Above all, it’s the best signaling mechanism a company has to show that it’s worth acquiring.
Due diligence documents are the research and analysis of a company or organization done in preparation for a business transaction (such as a corporate merger or purchase of securities). Due diligence documents typically include the following categories; legal, financial, sales and marketing, and human resources.
Looking at the due diligence documents required under their headings, the list looks something like the following - with some differences based on the specifics of your business, industry or geography.
What is Due Diligence Checklist?
Due diligence is defined as the research and analysis of a company or organization done in preparation for a business transaction. A due diligence checklist incorporates all the necessary information a company must acquire from their target before moving forward with a deal.
At DealRoom, we put together a complete due diligence checklist that enables to track the diligence progress and secure important documents.
This allows practitioners to make well-informed decisions throughout a deal’s lifecycle.
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Complete Due Diligence Documents Checklist
The due diligence checklist below covers the most important due diligence documents that should be prepared ahead of a deal:
Details of company investments (bonds, marketable securities, etc.)
Capital structure
Projections, capital budgets, and strategic plans
Up to date tax and pension liabilities
Details on when contracts and leases are renewed and whether the terms change
Details of stockholders (percentage holdings, voting rights, etc.)
Foreign exchange reserves
List of unrecorded liabilities
List of collateral for debt
Details of owner withdrawals (if any)
Revenue by client (if possible)
Gross margins analysis
Fixed/variable expenses analysis
List of non-operational expenses
General ledger
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3. Sales and Marketing Due Diligence Documents
Detailed overview of sales and marketing strategy
Marketing/sales coordination protocols
Revenue listed by customer
Exhibit relationship between marketing expense and revenue growth
Details of existing sales contracts (and when they expire)
List of top 10 suppliers
Sales reports by category of product or service
Details of credit terms with customers
Current market share (if possible)
Percentage of sales owing to each sales channel (e.g. online, offline, direct sales, etc.)
4. Human Resources Due Diligence Documents
Provide a list of current employees and independent contractors
Employee rules of conduct handbook and safety policies
Detail past employee disputes (if any)
Detail employee and independent contractor terms of employment
Detail updated employee resumes
Outline policy of working with labor union (if any)
Outline training conducted with existing employees
Worker's compensation/unemployment claims history
Outline policy of bonuses, incentives, commissions and deferred commissions
Detail policies for sick days, paid holidays, paid vacations and overtime pay
5. Property, Plant, and Equipment Due Diligence Documents
Equipment
Real estate
Technology
Inventory
6. Contract Due Diligence Documents
Customer contracts
Supplier contracts
Joint venture/partnership agreements
Settlement agreements
Franchising agreements
Accounts receivable schedule
Accounts payable schedule
Equipment leases
Non-compete agreements
Employee contacts
Loans, credits, and guaranties agreements
7. Intellectual Property Due Diligence Documents
Trade secrets
IP claims and litigation
Domain names
Issued patents
Patent applications
Design patents
Design patent applications
Industrial designs
Industrial design applications
Liens on intellectual property
Copyrights
Licenses
Licensing agreements
Trademarks
Agreements/documents regarding ownership and rights of use of advertising copy, trade-marks, logos, and slogans
8. Company's Good Standing and Organization Due Diligence Documents
Organizational Chart
Shareholders/percentages owned
Voting trusts, subscriptions, calls, puts, options, and convertible securities agreements
State of incorporation status reports for the last three years
Assumed names
Company minutes book
Company bylaws and amendments
List of the states and countries where the company has employees, owns assets, leases assets, and does business
The Articles of Incorporation/amendments.
Annual reports for the last three years.
A Certificate of Good Standing from each Secretary of State where the company conducts business
How to Find a Complete Due Diligence Checklist for your Deal
Every deal is different, therefore no two due diligence checklists will be identical. The above list is just a general guideline of some materials collected during due diligence. For your own process, check with your team if you have conducting similar deals in the past to begin your checklist.
For example one deal may need the following categories - administrative, financial, asset, human resources, environmental, intellectual property, taxes, and legal.
How to Collect Due Diligence Documents
What emerges from bringing together all of the documents outlined above is a true understanding of your business and what’s ‘under the hood.’
Many of the documents will be partially or fully available straight away (for example, details of your employees and their training to date) while others, such as the audited financial statements, will by their very nature, take longer to put together.
If your company has high quality CRM, ERP or BI systems, they can be used to bring together all kinds of useful data used in due diligence. The feedback provided by these systems also gives reassurance to potential buyers that there’s no human error in the data they’ve received.
Furthermore, as we never tire of mentioning, information on your firm is as useful to you as it is to a buyer of a firm, and should be analyzed on an ongoing basis in any case.
Collecting the due diligence documents should be done in a systematic manner that allows you to see where documents can be obtained, whether more should be added, progress reports on their collection and more. We suggest putting together a list in a table format structured similarly to the one provided below:
Keeping structured records like this in a spreadsheet also allows you to filter for results faster when buyers ask for documents. Whatever headings you opt for, the ‘last updated’ column is particularly important, allowing you to see at a glance when due diligence documents were last updated and thus, how likely they are to be relevant.
When Should You Provide Due Diligence Documents to the Buyer?
Keeping thorough and updated due diligence documents allows you to get relevant information over to the buyer of your business efficiently and with as little friction as possible. But the question then arises:
When should due diligence documents be provided to the buyer?
Can this be done too quickly?
Absolutely. Unfortunately, the world of M&A is full of tire kickers who enjoy finding out about businesses simply to see what’s out there. Asking you for due diligence documents rarely costs them anything (hence the reason why some bankers push for charging buyers for due diligence).
The best policy is to begin by providing audited financial statements - a great signaling device for any owner looking to sell their business that their ship is in order - and send over documents as they’re requested by the buyer, who should have signed an NDA in advance.
The more buyers you speak to, the more likely it is that you’ll be able to anticipate what documents they’re looking for in advance, making the process even more efficient.
How to Collect & Share Due Diligence Documents Easily
DealRoom has been designed to help companies efficiently collect due diligence documents.
We offer complete range of free due diligence checklists and M&A templates, and also let dealmakers upload their own templates, into the room.
From there, you and your team can create due diligence requests that correspond with every document you need to collect. For more information about how to use DealRoom for this process, check out DealRoom for due diligence
What are Due Diligence Documents?
Due diligence documents are the research and analysis of a company or organization done in preparation for a business transaction (such as a corporate merger or purchase of securities). Due diligence documents typically include the following categories; legal, financial, sales and marketing, and human resources.
When selling your business, there are several advantages to having first-class due diligence documents prepared in advance.
The mere process of putting these documents together will give you a good overview of your own business and where some of its potential weaknesses lie.
As long as the business hasn’t been sold, you can work towards strengthening those areas that your due diligence documents suggest might need reinforcing.
On the buyer side, receiving these documents in a timely and orderly fashion speeds up the M&A process, quickly providing reassurance that what’s under the hood checks out with what the company’s marketing documents show.
Above all, it’s the best signaling mechanism a company has to show that it’s worth acquiring.
Due diligence documents are the research and analysis of a company or organization done in preparation for a business transaction (such as a corporate merger or purchase of securities). Due diligence documents typically include the following categories; legal, financial, sales and marketing, and human resources.
Looking at the due diligence documents required under their headings, the list looks something like the following - with some differences based on the specifics of your business, industry or geography.
What is Due Diligence Checklist?
Due diligence is defined as the research and analysis of a company or organization done in preparation for a business transaction. A due diligence checklist incorporates all the necessary information a company must acquire from their target before moving forward with a deal.
At DealRoom, we put together a complete due diligence checklist that enables to track the diligence progress and secure important documents.
This allows practitioners to make well-informed decisions throughout a deal’s lifecycle.
{{cta-block-download}}
Complete Due Diligence Documents Checklist
The due diligence checklist below covers the most important due diligence documents that should be prepared ahead of a deal:
Details of company investments (bonds, marketable securities, etc.)
Capital structure
Projections, capital budgets, and strategic plans
Up to date tax and pension liabilities
Details on when contracts and leases are renewed and whether the terms change
Details of stockholders (percentage holdings, voting rights, etc.)
Foreign exchange reserves
List of unrecorded liabilities
List of collateral for debt
Details of owner withdrawals (if any)
Revenue by client (if possible)
Gross margins analysis
Fixed/variable expenses analysis
List of non-operational expenses
General ledger
{{cta-block3="/cta"}}
3. Sales and Marketing Due Diligence Documents
Detailed overview of sales and marketing strategy
Marketing/sales coordination protocols
Revenue listed by customer
Exhibit relationship between marketing expense and revenue growth
Details of existing sales contracts (and when they expire)
List of top 10 suppliers
Sales reports by category of product or service
Details of credit terms with customers
Current market share (if possible)
Percentage of sales owing to each sales channel (e.g. online, offline, direct sales, etc.)
4. Human Resources Due Diligence Documents
Provide a list of current employees and independent contractors
Employee rules of conduct handbook and safety policies
Detail past employee disputes (if any)
Detail employee and independent contractor terms of employment
Detail updated employee resumes
Outline policy of working with labor union (if any)
Outline training conducted with existing employees
Worker's compensation/unemployment claims history
Outline policy of bonuses, incentives, commissions and deferred commissions
Detail policies for sick days, paid holidays, paid vacations and overtime pay
5. Property, Plant, and Equipment Due Diligence Documents
Equipment
Real estate
Technology
Inventory
6. Contract Due Diligence Documents
Customer contracts
Supplier contracts
Joint venture/partnership agreements
Settlement agreements
Franchising agreements
Accounts receivable schedule
Accounts payable schedule
Equipment leases
Non-compete agreements
Employee contacts
Loans, credits, and guaranties agreements
7. Intellectual Property Due Diligence Documents
Trade secrets
IP claims and litigation
Domain names
Issued patents
Patent applications
Design patents
Design patent applications
Industrial designs
Industrial design applications
Liens on intellectual property
Copyrights
Licenses
Licensing agreements
Trademarks
Agreements/documents regarding ownership and rights of use of advertising copy, trade-marks, logos, and slogans
8. Company's Good Standing and Organization Due Diligence Documents
Organizational Chart
Shareholders/percentages owned
Voting trusts, subscriptions, calls, puts, options, and convertible securities agreements
State of incorporation status reports for the last three years
Assumed names
Company minutes book
Company bylaws and amendments
List of the states and countries where the company has employees, owns assets, leases assets, and does business
The Articles of Incorporation/amendments.
Annual reports for the last three years.
A Certificate of Good Standing from each Secretary of State where the company conducts business
How to Find a Complete Due Diligence Checklist for your Deal
Every deal is different, therefore no two due diligence checklists will be identical. The above list is just a general guideline of some materials collected during due diligence. For your own process, check with your team if you have conducting similar deals in the past to begin your checklist.
For example one deal may need the following categories - administrative, financial, asset, human resources, environmental, intellectual property, taxes, and legal.
How to Collect Due Diligence Documents
What emerges from bringing together all of the documents outlined above is a true understanding of your business and what’s ‘under the hood.’
Many of the documents will be partially or fully available straight away (for example, details of your employees and their training to date) while others, such as the audited financial statements, will by their very nature, take longer to put together.
If your company has high quality CRM, ERP or BI systems, they can be used to bring together all kinds of useful data used in due diligence. The feedback provided by these systems also gives reassurance to potential buyers that there’s no human error in the data they’ve received.
Furthermore, as we never tire of mentioning, information on your firm is as useful to you as it is to a buyer of a firm, and should be analyzed on an ongoing basis in any case.
Collecting the due diligence documents should be done in a systematic manner that allows you to see where documents can be obtained, whether more should be added, progress reports on their collection and more. We suggest putting together a list in a table format structured similarly to the one provided below:
Keeping structured records like this in a spreadsheet also allows you to filter for results faster when buyers ask for documents. Whatever headings you opt for, the ‘last updated’ column is particularly important, allowing you to see at a glance when due diligence documents were last updated and thus, how likely they are to be relevant.
When Should You Provide Due Diligence Documents to the Buyer?
Keeping thorough and updated due diligence documents allows you to get relevant information over to the buyer of your business efficiently and with as little friction as possible. But the question then arises:
When should due diligence documents be provided to the buyer?
Can this be done too quickly?
Absolutely. Unfortunately, the world of M&A is full of tire kickers who enjoy finding out about businesses simply to see what’s out there. Asking you for due diligence documents rarely costs them anything (hence the reason why some bankers push for charging buyers for due diligence).
The best policy is to begin by providing audited financial statements - a great signaling device for any owner looking to sell their business that their ship is in order - and send over documents as they’re requested by the buyer, who should have signed an NDA in advance.
The more buyers you speak to, the more likely it is that you’ll be able to anticipate what documents they’re looking for in advance, making the process even more efficient.
How to Collect & Share Due Diligence Documents Easily
DealRoom has been designed to help companies efficiently collect due diligence documents.
We offer complete range of free due diligence checklists and M&A templates, and also let dealmakers upload their own templates, into the room.
From there, you and your team can create due diligence requests that correspond with every document you need to collect. For more information about how to use DealRoom for this process, check out DealRoom for due diligence
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