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Asset Purchase Due Diligence Checklist

Asset Purchase Due Diligence Template

An asset purchase, much like an acquisition or merger, requires substantial due diligence on the part of the buyer to ensure there are no unpleasant surprises. More specifically, the buyer must confirm a number of issues to allow for the smooth transfer of title from seller to buyer.

Below, we’ll list a number of areas in which the buyer, or the buyer’s counsel, should conduct a thorough investigation to uncover any issues or problems concealed beneath the surface.

What Tasks Does the Asset Purchase Due Diligence Checklist Include

Financial Statements

First, the financial statements of the owning company, for the last 3 to 5 years, should be reviewed in detail. An analysis of the company’s financials with an eye towards any entries that concern the asset(s) to be purchased will reveal many of the issues that could potentially arise during an asset sale.

A review of the following financial statements is in order:

  • Balance Sheets
  • Income Statements
  • Cash Flows Statements
  • Shareholders’ Equity Statements

It should be noted, particular attention should be paid to the balance sheet, including any entries that pertain directly to the asset(s) being purchased.

Current or Pending Litigation

Legal challenges to the owner’s title to the property being sold must be thoroughly investigated and analyzed. Even a single lawsuit (or pending action) can disrupt the sale of assets. With this in mind, the buyer should request from the owner:

  • A detailed list of any litigation the owner is currently involved in
  • A list of any litigation the owner reasonably foresees he or she will become involved in
  • A list of any judgments or liens against the company or its assets

Constitutional Restrictions

Next, the founding documents of the owner (if it is a body corporate) should be reviewed in order to uncover any impediments or obstacles to the sale of the assets in question. The buyer should review:

  • The articles of incorporation of the owner of the assets
  • Any bylaws or resolutions
  • Any shareholder agreements, especially USAs (unanimous shareholder agreements)
  • The minutes of any directors or shareholder meetings

Contractual Obligations

Existing contractual obligations of the owner could create problems for the buyer if they are only discovered after the sale of an asset. To avoid this the buyer should request from the owner: a list of all agreements that bind the owner to an obligation. These include, but are not limited to, all:

  • Contracts
  • Vendor Agreements
  • Loans
  • Lines of Credit
  • Employment Agreements
  • Leases (of real and personal property)
  • Contracts of Insurance

Intellectual Property Considerations

If the asset being purchased contains creative or original work, the buyer should be on the lookout for any intellectual property considerations that may arise. The buyer should request from the owner:

  • The employment agreements of all employees who helped create the asset
  • Any patents, trademarks, trade names, or copyrights related to the asset
  • A list of employees who are essential to the maintenance and upkeep of the asset

The last item is necessary in order to allow the buyer to hire or retain mission-critical employees at the time of, or before, the closing of the sale.

Regulatory Obligations

The ownership of certain assets may trigger regulatory obligations on the part of the owner. If the buyer is concerned that the asset to be purchased may give rise to any new regulatory requirements, he or she should request from the current owner:

  • A list of any and all regulatory requirements and obligations currently owed due to ownership of the asset
  • All current business licensing requirements
  • A list of any reasonably foreseeable future regulatory requirements that may arise as a result of ownership of the asset

A buyer should also thoroughly review the regulatory regime for the industry in which the asset operates (for example, environmental regulations for oil and gas assets).

Miscellaneous Liabilities

The following items don’t fall neatly into any of the previous categories, but are considered best practices when purchasing an asset:

  • The buyer should request from the owner information regarding any outstanding tax obligations or debts, including any liens on current assets
  • The buyer should request from the owner information regarding any currently outstanding convertible debt agreements, share agreements, or other agreements allowing for a forced sale of any of the owner’s assets
  • The buyer should request from the owner a detailed list of all assets to be purchased, including an indication of fair market value and all deferred or outstanding maintenance requirements
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Asset Purchase Due Diligence Checklist

Asset Purchase Due Diligence Template

An asset purchase, much like an acquisition or merger, requires substantial due diligence on the part of the buyer to ensure there are no unpleasant surprises. More specifically, the buyer must confirm a number of issues to allow for the smooth transfer of title from seller to buyer.

Below, we’ll list a number of areas in which the buyer, or the buyer’s counsel, should conduct a thorough investigation to uncover any issues or problems concealed beneath the surface.

What Tasks Does the Asset Purchase Due Diligence Checklist Include

Financial Statements

First, the financial statements of the owning company, for the last 3 to 5 years, should be reviewed in detail. An analysis of the company’s financials with an eye towards any entries that concern the asset(s) to be purchased will reveal many of the issues that could potentially arise during an asset sale.

A review of the following financial statements is in order:

  • Balance Sheets
  • Income Statements
  • Cash Flows Statements
  • Shareholders’ Equity Statements

It should be noted, particular attention should be paid to the balance sheet, including any entries that pertain directly to the asset(s) being purchased.

Current or Pending Litigation

Legal challenges to the owner’s title to the property being sold must be thoroughly investigated and analyzed. Even a single lawsuit (or pending action) can disrupt the sale of assets. With this in mind, the buyer should request from the owner:

  • A detailed list of any litigation the owner is currently involved in
  • A list of any litigation the owner reasonably foresees he or she will become involved in
  • A list of any judgments or liens against the company or its assets

Constitutional Restrictions

Next, the founding documents of the owner (if it is a body corporate) should be reviewed in order to uncover any impediments or obstacles to the sale of the assets in question. The buyer should review:

  • The articles of incorporation of the owner of the assets
  • Any bylaws or resolutions
  • Any shareholder agreements, especially USAs (unanimous shareholder agreements)
  • The minutes of any directors or shareholder meetings

Contractual Obligations

Existing contractual obligations of the owner could create problems for the buyer if they are only discovered after the sale of an asset. To avoid this the buyer should request from the owner: a list of all agreements that bind the owner to an obligation. These include, but are not limited to, all:

  • Contracts
  • Vendor Agreements
  • Loans
  • Lines of Credit
  • Employment Agreements
  • Leases (of real and personal property)
  • Contracts of Insurance

Intellectual Property Considerations

If the asset being purchased contains creative or original work, the buyer should be on the lookout for any intellectual property considerations that may arise. The buyer should request from the owner:

  • The employment agreements of all employees who helped create the asset
  • Any patents, trademarks, trade names, or copyrights related to the asset
  • A list of employees who are essential to the maintenance and upkeep of the asset

The last item is necessary in order to allow the buyer to hire or retain mission-critical employees at the time of, or before, the closing of the sale.

Regulatory Obligations

The ownership of certain assets may trigger regulatory obligations on the part of the owner. If the buyer is concerned that the asset to be purchased may give rise to any new regulatory requirements, he or she should request from the current owner:

  • A list of any and all regulatory requirements and obligations currently owed due to ownership of the asset
  • All current business licensing requirements
  • A list of any reasonably foreseeable future regulatory requirements that may arise as a result of ownership of the asset

A buyer should also thoroughly review the regulatory regime for the industry in which the asset operates (for example, environmental regulations for oil and gas assets).

Miscellaneous Liabilities

The following items don’t fall neatly into any of the previous categories, but are considered best practices when purchasing an asset:

  • The buyer should request from the owner information regarding any outstanding tax obligations or debts, including any liens on current assets
  • The buyer should request from the owner information regarding any currently outstanding convertible debt agreements, share agreements, or other agreements allowing for a forced sale of any of the owner’s assets
  • The buyer should request from the owner a detailed list of all assets to be purchased, including an indication of fair market value and all deferred or outstanding maintenance requirements
FAQ

Can I change requests in this checklist or add new?

Every M&A and due diligence process is different. Downloaders are urged to make these checklists their own by changing the providing information to better fit their needs.

Does this questionnaire provide all the necessary due diligence information?

This due diligence questionnaire was created by and for M&A professionals and includes a comprehensive starting point for any diligence process. Every deal is different, however, and may require additional requests or diligence areas.

Easily Collect Data Using this Template in DealRoom

This Asset Purchase due diligence template can be easily downloaded and utilized as just the Excel sheet. However, it is most effective when paired with DealRoom’s dynamic due diligence software. We offer a secure space to conveniently request, collect, and house data. Additionally, DealRoom offers analytics, security features, and customized help to streamline the process. We are confident that with DealRoom you can close deals up to 40% 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.

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