Manufacturing Due Diligence Playbook

Beyond standard diligence requests that are applicable to most transactions, this manufacturing playbook emphasizes the areas of due diligence specific to manufacturing targets. Work through due diligence items in-time and achieve your goals. Book a playbook demo to explore — schedule a call with us and we will reach out to help you get started.

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Due Diligence

What Tasks does the

Manufacturing Due Diligence Playbook

Include

Industry

Breakdown by manufacturing site of the products manufactured, personnel employed, number of shifts and capacity.
List of major suppliers showing total and type of purchases from each supplier during the last and current fiscal years, indication of which suppliers are sole sources, and contact names and phone numbers.
Description of any toxic chemicals used in production and manner of storage and disposition. Description of any EPA or other investigation or claim.
List of contract manufacturers or assemblers showing total and type of purchases from each contract manufacturer or assembler during the last and current fiscal years.
List of product fabrication facilities used and contracts, investments, and loans related to the use of such facilities.
Material or outside of ordinary course of business contracts with suppliers, manufacturers, etc.
Form or agreement relating to the sale or lease of equipment.
What is the extent of future capital expenditure “sustaining versus expansion”?
Are there any important plant and equipment which are currently being leased?
What are the implications of a change in control (sale of shares) or transfer of ownership (asset sale)?
Will the lessor agree to any changes and on what terms?
Are there competent management and staffing involved in production process?
How is product manufactured?
What is the interaction between materials, manufacturing space, equipment, human resources and data?
What is the capacity of the plant?
To what extent can the target decrease production costs without major machinery upgrades?
What quantity of inventory is necessary for ongoing operations?
How does the stockholding policy compare to that of competitors?
Who are the major suppliers and are they financially stable?
Is there any overdependence on a specific supplier or continuity issues?
What is the impact of international competition on the manufacturing processes’ sustainability?
Does the target have a good safety record?
Does this provide insight into the possibility of other problems (eg poor management, systems etc)?
What is the individual profitability of each manufacturing division?
How are overheads allocated?
Are there plans to discontinue or improve certain cost centres?
What is the relationship between fixed and variable costs and at what level is break-even achieved?
What is the quality of products produced?
Are credit notes regularly issued because of defective products?
Is there risk of exposure-based product liability eg defective ladders?
Does the entity have documented quality policies and/or industry quality certifications (e.g. ISO 9000)?
Are there opportunities for sub-contracting to organisations that are part of the acquirer’s group?
What is the extent of purchase of material used in the production process from BEE partners?

Legal

Organizational chart showing the corporate structure of the Target and all subsidiaries and affiliates.
Copies of all joint venture agreements, partnership agreements or agreements involving the sharing of profits or technology
Applicable governing documents for the Target and all subsidiaries and affiliates
List of all jurisdictions in which the Target and its subsidiaries and affiliates are licensed to do business.
Minutes and/or resolutions for all meetings of the board and shareholders/members, as applicable.
Ccopies of any contracts relating to any material acquisitions and/or divestitures of equity and/or assets
Summary of all related party transactions entered into in the past 3 years, including the key terms thereof and review/approval procedures applicable thereto.
Professional biography for each member of the management team and any other key employees identified by Buyer.
Professional biography for each member of the board.
Documentation evidencing each issuance of equity for the Target and each subisidiary and/or affiliate.
Summary of all oustanding options, warrants, covertible notes, and any other right entitling the holder to obtain equity in the Target or any subisidiary or affiliate.
Copy of all outstanding debt instruments.
Summary of all material litigation.
Summary of all permits, licenses, and other authorizations that are required for the Target to conduct its business.
Copies of all agreements or instruments that place restrictions or encumbrances on assets.
Copies of all material contracts that are terminable upon a change of control or other corporate transaction.
Copies of all contracts that restrict the right to conduct its business.
Copies of all contracts under which the Target has any continuing obligations.
Copies of all indemnification agreements between the Target and any officers, directors or agents thereof.
Summary of the Target's compliance program and copies of all policies, procedures.
Summary of all material regulations applicable to the Target and/or its business.
Please provide copies of any material correspondence with any regulatory agencies or authorities.
Summary of all product recalls conducted by the Target in the last 5 years.
Summary of all material warranty claims brought within the last 5 years.

Commercial

List of the top 25 customers for each of the past 3 years, including revenue.
List of all material customers that have ceased doing business with the Target in the past 12 months.
List of all material sales channel partners for each of the past 3 years.
Breakdown of sales and gross profits by: Product Type; Geography; Sales Channel.
Copies of all material customer contracts.
Copies of all contracts with material sales channel partners
Copies of all contracts with government customers.
Copies of all material contracts that have remaining terms longer than one year.
Copies of policies and procedures related to credits, returns, warranty claims, etc.
Copies of policies and procedures related to pricing.
Copies of any strategic plans.
Copies of any marketing/advertising plans.
Summary of anticipated new products and/or product improvements.
Copies of all brochures, presentations, sales sheet, and other advertising and/or marketing materials.
Product descriptions for all material products and product lines.
Summary of all ongoing R&D projects, including an estimated timeline for completion thereof.
Summary of all marketing risks and opportunities.
List of the top 15 suppliers for each of the past 3 years, including spend.
Copies of all material supplier contracts.
Copies of all material subcontractor contracts.
Summary of the policies and procedures utilized when evaluating and onboarding any new supplier or subcontractor.

Financial

Copies of audited financial statements and each subsidiary and affiliates.
Copies of unaudited financial statements.
Detailed description of any off-balance sheet/statement of financial position items, liabilities or obligations of any nature.
Schedule and description of any contingent liabilities not disclosed or referred to in the financial statements.
Detailed schedule of the components of all prepaid expenses and deposits.
Copies of any letters issued by the Target’s auditors during the last 5 years regarding the Target’s accounting controls, method of accounting and other procedures, including all Management Representation Letters.
Summary of all material changes to accounting policies adopted.
Copies of all budgets and operating plans.
Copies of all financial projections.
Summary of any cash management controls and practices.
Summary of the Target's investment policies.
Summary of the Target's hedging policies.
Report reflecting all aged accounts receivable trial balances.
Summary of the Target’s inventory costing system and other procedures and policies related to inventory.
Schedule and detailed description of any reserves/contingency funds established for specific risk situations.
Copies of recent bank reconciliations and bank statements for all material bank accounts.
Summary of all capital expenditures planned in the next 12 months.
Current fixed asset register and/or copy of latest physical inventory of all equipment and other assets.
Summary of all current insurance coverages and copies of all policy documents related thereto.
Summary of all claims made against any insurance policy within the last 5 years.

Human Resources

Copies of all employment agreements and indicate those affected by the transaction.
Copies of all consulting agreements.
To the extent not already provided, copies of all agreements relating to any compensation arrangements between the Target and any third party.
Copies of all collective bargaining agreements.
Copies of all confidentiality, non-competition, nondisclosure, non-solicitation, intellectual property, or similar agreements.
Copies of any severance agreements under which the Target has or may have outstanding liabilities whether as a result of the proposed transaction or otherwise.
Summary of any current recruitment initiatives.
Summary of all benefits.
Copies of plan documents for all benefit plans.
Copy of the Target's compensation policy.
Details of bonus or other profit-related schemes and details of beneficiaries/participants.
Summary of all incentive stock option plans.
Summary of all outstanding stock option awards and copies of any award documents related thereto.
List and detailed summary of all pension pension plans.
Summary of all litigation against the Target brought by any current or former employee.
Description of any court judgement or current employment tribunal award in respect of any employee dispute.
Headcount by function and location.
Schedule of any employees suspended – including reasons for suspension and salary implications.
Schedule of employees dismissed in the last 12 months.
Schedule of all employees absent from work due to disability, long-term illness, or otherwise.
Schedule of employees covered by any disability legislation applicable in the jurisdiction in which the Target operates.
Copies of all employee handbooks and other employee policies.
Detailed summary of the Target's hiring practices and policies.
Summary of any changes that have been agreed within the past 12 months.
Detailed schedule of any loans granted to employees.

Intellectual Property

Summary of all patents and registered trademarks held by the Target.
schedule of all websites and domains owned or run by the Target and any terms and conditions related thereto.
Copies of all agreements under which the Target is granted the right to use IP owned by a third party.
Copies of all agreements under which a third party is granted the right to use IP owned by the Target.
Summary of any IP that is not solely owned by the Target (e.g., joint ownership, non-exclusive license, etc.), including any contracts or other documentation related thereto.
Summary of any past or current instances where any third party actually or allegedly infringed on the Target's IP or where the Target actually or allegedly infringed on a third party's IP.
Detailed summary of any restrictions to which IP assets of the Target are subject.
Summary of all IP litigation in which the Target is or has been involved, including the current status or outcome thereof (e.g., court orders, settlements, etc.).
Summary of the Target's process for generating/developing, recognizing, capturing, and protecting (for instance, via patents) IP assets.

Information Technology

Details of any current and planned IT initiatives/key projects.
Summary of all key IT resources.
Summary of the Target's policies and practices regarding the purchase and maintenance of software.
Summary of all material software utilized by the Target.
Summary of the Target's policies and practices regarding the purchase and maintenance of IT hardware.
Summary of all material hardware utilized by the Target, including the physical location thereof.
Diagram of the Target's technical architecture including servers, storage devices, operating systems and databases.
Description of the networking systems utilized by the Target.
Summary of any specific hardware configurations utilized.
Summary of any vendor support or other support services to which the Target is entitled.
Summary of annual costs associated with maintenance of IT hardware for the past 3 years.
Copies of all material contracts related to software and/or IT services obtained by the Company.
Summary of services provided by all external IT contractors/consultants.
Describe the capacity for growth in the Target's current IT environment.
Summary of how technology acquired by the Target.
Summary of the Target's support/help desk effectiveness and approach.
Summary of the role of technology/IT in the Target's strategic plan.
Describe the level of automation made possible via the Target's IT systems.
Description of any web-based or internet facing applications hosted.
Description of the key security protocols adopted by the Target.
Description of the Target's policies and procedures related to backups and/or disaster recovery.
Description of the Target's data privacy policies and procedures.
Summary of all personal and/or sensitive information held and/or processed by the Target.
Results of any stress test analysis undertaken by the Target.
Summary of all monitoring measures/tests conducted.

FAQ

What Is Due Diligence?

Due diligence is a critical aspect of any deal that begins very early in the process and can continue right up until closing. During due diligence, the potential buyer asks questions and requests documentation from the seller that helps the buyer understand the target company and its business. These requests are usually general to start and become more specific as the buyer develops a greater understanding of the target. Buyers use the information provided by the seller to evaluate the opportunities and risks associated with the potential transaction. It is important for sellers to stay organized throughout the process. Buyers often submit thorough, detailed request lists that require input from numerous members of the seller’s deal team.

What is a due diligence checklist?

As the name implies, a due diligence request list is a list of questions and requests for information and documentation that a buyer submits to a seller in order to learn about the target company, its business and its operations. The initial diligence request list tends to be broad and typically includes an extensive list of questions covering a wide range of subjects. This allows the buyer to gain a broad understanding of the target company and identify key issues that can be investigated and considered more closely. Because every deal is different, due diligence request lists have to be tailored to meet the needs of the buyer and address the unique circumstances of your transaction.
However, there is a variety of fundamental requests that are relevant in most deals. These are the types of requests that our templates are designed to address.

What Questions Does the Master Due Diligence Questionnaire Include?

Key considerations when using our m&a due diligence template

Our templates are drafted to provide an inclusive and wide-ranging list of initial due diligence requests. However, the templates, as well as the information contained therein, are not legal advice. They are not complete, and they are not specific to your transaction. The templates are designed to elicit general information from the seller that will provide the buyer with a broad overview of the target and it’s business and operations. You should review any template before using it, and it may need to be modified to ensure that it is suitable and relevant to your circumstances. Information provided by the seller will likely trigger additional questions that focus on specific aspects of the target’s business and issues identified during the due diligence process.

Are the requests in the template comprehensive?

No. Our Due Diligence Checklist is drafted to include typical requests that are relevant in most transactions. However, every deal and every target company is unique. Before utilizing any template, it is important that you review it with the help of your legal and other professional advisors to ensure that the requests are complete and tailored to the specific circumstances of your deal.

How to use the template with Dealroom

Start 14-day Free Trial of DealRoom and sign-up
Select a Master Due Diligence Template while creating a new room
Start assigning, adding to, and completing due diligence requests with needed documents by uploading them into the built-in virtual data room. The Requests tab is automatically populated with the requests from the due diligence template.

Can I change requests in this checklist or add new?

Every M&A 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 integration information?

This checklist was created by and for M&A professionals. It includes a comprehensive starting point for the integration process. However, every deal is different and may require additional requirements and tasks.

How to use this template with DealRoom?

Start 14-day Free Trial of DealRoom and sign-up
Select an Integration Template while creating a new workspace
Start planning, assigning, adding to, and completing integration tasks. The Requests tab is automatically populated with the tasks from the integration template.

Key considerations when using our m&a due diligence template

Are the requests in the template comprehensive?

How to use the template with Dealroom

Start 14-day Free Trial of DealRoom and sign-up
Select a Master Due Diligence Template while creating a new room
Start assigning, adding to, and completing due diligence requests with needed documents by uploading them into the built-in virtual data room. The Requests tab is automatically populated with the requests from the due diligence template.

Manufacturing Due Diligence Playbook

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Requests

Documents

Groups

Analytics

Overview

Progress

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All Requests

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Breakdown by manufacturing site of the products manufactured, personnel employed, number of shifts and capacity.
List of major suppliers showing total and type of purchases from each supplier during the last and current fiscal years, indication of which suppliers are sole sources, and contact names and phone numbers.
Description of any toxic chemicals used in production and manner of storage and disposition. Description of any EPA or other investigation or claim.
List of contract manufacturers or assemblers showing total and type of purchases from each contract manufacturer or assembler during the last and current fiscal years.
List of product fabrication facilities used and contracts, investments, and loans related to the use of such facilities.
Material or outside of ordinary course of business contracts with suppliers, manufacturers, etc.
Form or agreement relating to the sale or lease of equipment.
What is the extent of future capital expenditure “sustaining versus expansion”?
Are there any important plant and equipment which are currently being leased?
What are the implications of a change in control (sale of shares) or transfer of ownership (asset sale)?
Will the lessor agree to any changes and on what terms?
Are there competent management and staffing involved in production process?
How is product manufactured?
What is the interaction between materials, manufacturing space, equipment, human resources and data?
What is the capacity of the plant?
To what extent can the target decrease production costs without major machinery upgrades?
What quantity of inventory is necessary for ongoing operations?
How does the stockholding policy compare to that of competitors?
Who are the major suppliers and are they financially stable?
Is there any overdependence on a specific supplier or continuity issues?
What is the impact of international competition on the manufacturing processes’ sustainability?
Does the target have a good safety record?
Does this provide insight into the possibility of other problems (eg poor management, systems etc)?
What is the individual profitability of each manufacturing division?
How are overheads allocated?
Are there plans to discontinue or improve certain cost centres?
What is the relationship between fixed and variable costs and at what level is break-even achieved?
What is the quality of products produced?
Are credit notes regularly issued because of defective products?
Is there risk of exposure-based product liability eg defective ladders?
Does the entity have documented quality policies and/or industry quality certifications (e.g. ISO 9000)?
Are there opportunities for sub-contracting to organisations that are part of the acquirer’s group?
What is the extent of purchase of material used in the production process from BEE partners?

Organizational chart showing the corporate structure of the Target and all subsidiaries and affiliates.
Copies of all joint venture agreements, partnership agreements or agreements involving the sharing of profits or technology
Applicable governing documents for the Target and all subsidiaries and affiliates
List of all jurisdictions in which the Target and its subsidiaries and affiliates are licensed to do business.
Minutes and/or resolutions for all meetings of the board and shareholders/members, as applicable.
Ccopies of any contracts relating to any material acquisitions and/or divestitures of equity and/or assets
Summary of all related party transactions entered into in the past 3 years, including the key terms thereof and review/approval procedures applicable thereto.
Professional biography for each member of the management team and any other key employees identified by Buyer.
Professional biography for each member of the board.
Documentation evidencing each issuance of equity for the Target and each subisidiary and/or affiliate.
Summary of all oustanding options, warrants, covertible notes, and any other right entitling the holder to obtain equity in the Target or any subisidiary or affiliate.
Copy of all outstanding debt instruments.
Summary of all material litigation.
Summary of all permits, licenses, and other authorizations that are required for the Target to conduct its business.
Copies of all agreements or instruments that place restrictions or encumbrances on assets.
Copies of all material contracts that are terminable upon a change of control or other corporate transaction.
Copies of all contracts that restrict the right to conduct its business.
Copies of all contracts under which the Target has any continuing obligations.
Copies of all indemnification agreements between the Target and any officers, directors or agents thereof.
Summary of the Target's compliance program and copies of all policies, procedures.
Summary of all material regulations applicable to the Target and/or its business.
Please provide copies of any material correspondence with any regulatory agencies or authorities.
Summary of all product recalls conducted by the Target in the last 5 years.
Summary of all material warranty claims brought within the last 5 years.

List of the top 25 customers for each of the past 3 years, including revenue.
List of all material customers that have ceased doing business with the Target in the past 12 months.
List of all material sales channel partners for each of the past 3 years.
Breakdown of sales and gross profits by: Product Type; Geography; Sales Channel.
Copies of all material customer contracts.
Copies of all contracts with material sales channel partners
Copies of all contracts with government customers.
Copies of all material contracts that have remaining terms longer than one year.
Copies of policies and procedures related to credits, returns, warranty claims, etc.
Copies of policies and procedures related to pricing.
Copies of any strategic plans.
Copies of any marketing/advertising plans.
Summary of anticipated new products and/or product improvements.
Copies of all brochures, presentations, sales sheet, and other advertising and/or marketing materials.
Product descriptions for all material products and product lines.
Summary of all ongoing R&D projects, including an estimated timeline for completion thereof.
Summary of all marketing risks and opportunities.
List of the top 15 suppliers for each of the past 3 years, including spend.
Copies of all material supplier contracts.
Copies of all material subcontractor contracts.
Summary of the policies and procedures utilized when evaluating and onboarding any new supplier or subcontractor.

Copies of audited financial statements and each subsidiary and affiliates.
Copies of unaudited financial statements.
Detailed description of any off-balance sheet/statement of financial position items, liabilities or obligations of any nature.
Schedule and description of any contingent liabilities not disclosed or referred to in the financial statements.
Detailed schedule of the components of all prepaid expenses and deposits.
Copies of any letters issued by the Target’s auditors during the last 5 years regarding the Target’s accounting controls, method of accounting and other procedures, including all Management Representation Letters.
Summary of all material changes to accounting policies adopted.
Copies of all budgets and operating plans.
Copies of all financial projections.
Summary of any cash management controls and practices.
Summary of the Target's investment policies.
Summary of the Target's hedging policies.
Report reflecting all aged accounts receivable trial balances.
Summary of the Target’s inventory costing system and other procedures and policies related to inventory.
Schedule and detailed description of any reserves/contingency funds established for specific risk situations.
Copies of recent bank reconciliations and bank statements for all material bank accounts.
Summary of all capital expenditures planned in the next 12 months.
Current fixed asset register and/or copy of latest physical inventory of all equipment and other assets.
Summary of all current insurance coverages and copies of all policy documents related thereto.
Summary of all claims made against any insurance policy within the last 5 years.

Copies of all employment agreements and indicate those affected by the transaction.
Copies of all consulting agreements.
To the extent not already provided, copies of all agreements relating to any compensation arrangements between the Target and any third party.
Copies of all collective bargaining agreements.
Copies of all confidentiality, non-competition, nondisclosure, non-solicitation, intellectual property, or similar agreements.
Copies of any severance agreements under which the Target has or may have outstanding liabilities whether as a result of the proposed transaction or otherwise.
Summary of any current recruitment initiatives.
Summary of all benefits.
Copies of plan documents for all benefit plans.
Copy of the Target's compensation policy.
Details of bonus or other profit-related schemes and details of beneficiaries/participants.
Summary of all incentive stock option plans.
Summary of all outstanding stock option awards and copies of any award documents related thereto.
List and detailed summary of all pension pension plans.
Summary of all litigation against the Target brought by any current or former employee.
Description of any court judgement or current employment tribunal award in respect of any employee dispute.
Headcount by function and location.
Schedule of any employees suspended – including reasons for suspension and salary implications.
Schedule of employees dismissed in the last 12 months.
Schedule of all employees absent from work due to disability, long-term illness, or otherwise.
Schedule of employees covered by any disability legislation applicable in the jurisdiction in which the Target operates.
Copies of all employee handbooks and other employee policies.
Detailed summary of the Target's hiring practices and policies.
Summary of any changes that have been agreed within the past 12 months.
Detailed schedule of any loans granted to employees.

Summary of all patents and registered trademarks held by the Target.
schedule of all websites and domains owned or run by the Target and any terms and conditions related thereto.
Copies of all agreements under which the Target is granted the right to use IP owned by a third party.
Copies of all agreements under which a third party is granted the right to use IP owned by the Target.
Summary of any IP that is not solely owned by the Target (e.g., joint ownership, non-exclusive license, etc.), including any contracts or other documentation related thereto.
Summary of any past or current instances where any third party actually or allegedly infringed on the Target's IP or where the Target actually or allegedly infringed on a third party's IP.
Detailed summary of any restrictions to which IP assets of the Target are subject.
Summary of all IP litigation in which the Target is or has been involved, including the current status or outcome thereof (e.g., court orders, settlements, etc.).
Summary of the Target's process for generating/developing, recognizing, capturing, and protecting (for instance, via patents) IP assets.

Details of any current and planned IT initiatives/key projects.
Summary of all key IT resources.
Summary of the Target's policies and practices regarding the purchase and maintenance of software.
Summary of all material software utilized by the Target.
Summary of the Target's policies and practices regarding the purchase and maintenance of IT hardware.
Summary of all material hardware utilized by the Target, including the physical location thereof.
Diagram of the Target's technical architecture including servers, storage devices, operating systems and databases.
Description of the networking systems utilized by the Target.
Summary of any specific hardware configurations utilized.
Summary of any vendor support or other support services to which the Target is entitled.
Summary of annual costs associated with maintenance of IT hardware for the past 3 years.
Copies of all material contracts related to software and/or IT services obtained by the Company.
Summary of services provided by all external IT contractors/consultants.
Describe the capacity for growth in the Target's current IT environment.
Summary of how technology acquired by the Target.
Summary of the Target's support/help desk effectiveness and approach.
Summary of the role of technology/IT in the Target's strategic plan.
Describe the level of automation made possible via the Target's IT systems.
Description of any web-based or internet facing applications hosted.
Description of the key security protocols adopted by the Target.
Description of the Target's policies and procedures related to backups and/or disaster recovery.
Description of the Target's data privacy policies and procedures.
Summary of all personal and/or sensitive information held and/or processed by the Target.
Results of any stress test analysis undertaken by the Target.
Summary of all monitoring measures/tests conducted.

Prepare for your due diligence

DealRoom’s diligence template for manufacturing is designed to help teams have an efficient due diligence process from the beginning. By providing your team with a pre-made professional diligence checklist, you can get a jump start on fulfilling diligence requests.

The template can act as a guide for common diligence requests categories such as legal, financial, HR, IT, commercial and more. And when you use a diligence tracker inside DealRoom, everything will be in one centralized space.