What Questions does Private Equity Due Diligence Checklist Include
Understanding the target company and its business model is the foundational phase of the diligence process
. It helps you glean an over-arching understanding of their potential investment. Data required ranges from general information about the company and their culture to conducting more in-depth surveys on internal processes.
Items in company/business model due diligence include:
Gather general company information -- Name, Mission, Values, etc.
Examine corporate bylaws
Identify corporate identity and culture
Evaluate business model
Pinpoint and assess key internal processes
Legal/IP due diligence helps you deduce whether the target company is sound and complaint or riddled with statutory issues. Additionally, evaluating the target company’s intellectual property (IP) will aid in estimating overall business value. Information required often include various contracts, IP documentation, litigations, and licenses and permits.
Items in legal/IP due diligence include:
Review labor/unionization relations and general employee contracts
Examine and assess applicable intellectual property (IP) documentation -- patents, copyrights, trade secrets, etc.
Review lease and property agreements
Assess supply and distribution contracts
Scrutinize current collateral pledges, security agreements, indentures, and mortgages
Investigate current/past disputes and litigations
Identify governmental regulatory or administrative orders
Assess governmental licenses & permits
Auditing the target company’s financial situation is an integral factor in valuing a company. Financial due diligence brings validity to the confidential information memorandum (CIM) and helps forecast potential financial risks. The documents required include audited/unaudited financial statements, tax documents, sales projections, and long-term debt agreements.
Items in financial due diligence include:
Audit audited/unaudited financial statements
Comprehensive audit of tax statements and practices
Inspect historic and projected sales
Scrutinize financial projections
Assess debts and asset liquidity
Inspect promissory notes and loan agreements
Human resources play a key role in an integration’s ultimate success. Examining HR practices and the target company’s people will help you understand the company culture, procedures, and indispensable personnel. Information collected org charts, benefits and compensation packages, employee contracts, and performance appraisals.
Items in HR due diligence include:
Evaluate the organizational structure and upper management
Audit and evaluate HR policies and practices
Evaluate HR metrics and statistics
Scrutinize benefits and compensation packages
Scrutinize pension and retirement plan options
Review employee agreements and contracts -- employee, compensation, collective bargaining, severance
Assess Human Resources Information System (HRIS)
Review performance appraisals
Pinpoint key personnel
Create an organizational restructuring strategy
Property, Plant, & Equipment
A company’s intangibles can be a costly investment. Appraising a company's property, plants, and equipment will help safeguard against unforeseen expenses for faulty assets. Data required includes asset policies, depreciation methods, and physical inspections.
Items in property, plant, and equipment due diligence include:
Evaluate ICT infrastructure and processes
Assess fixed asset policies and depriciation methods
Appraise current machinery and equipment
Hidden environmental and safety liabilities can result in thousands of lawsuits and fines. Verifying the target company’s compliance will protect against headaches and unnecessary expenditures down the line. Documents required include accident histories and material safety data sheets.
Items in environmental due diligence include:
Review safety hazards and on the job employee accident history
Inspect Materials Safety Data Sheet (MSDS)
Appraise the overall environmental impact of the company
After investing in a company, it would be devastating to find out their product, service, or idea is a complete flop. Evaluating the company’s market and competitive scape offers insight on the investment’s viability and long-term success. Items required include information on the current market, risks, trends, and competitors.
Items in market/competition due diligence include:
Identify and evaluate current market
Conduct SWOT analysis
Catalogue key competitors
Pinpoint market trends and risks
Easily Collect Data Using this Due Diligence Template in DealRoom
This private equity fund due diligence template may be used as simply the downloadable Excel sheet. However, it operates most efficiently when utilized in conjunction with DealRoom’s dynamic due diligence tool
. We offer a secure space to conveniently request, collect, and house data. Additionally, DealRoom offers numerous capabilities and security features to streamline the process and ultimately close deals faster.
How to use the template with DealRoom:
Download the due diligence template from DealRoom’s website
Open a room within DealRoom
Go to the Requests tab and select “import”
Import the downloaded template
The Requests tab is automatically populated with the requests from the due diligence template. Users can begin assigning, adding to, and completing due diligence requests.