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