2. Starting the Sale Process, Due Diligence Flashcards
(31 cards)
purpose of due diligence
for information gathering- furnishes buyer with essential info, to enable it to decide whether or not to proceed with proposed acquisition
what might DD prompt upon discovery
re-negotiation of price
purpose of warranties and indemnities
to provide buyer with contractual protection should the target not turn out as expected
role of business adviser in DD
prelim commercial assessment
consideration of market position, financial position and any business plan to which buyer may have obtained access
role of accountant
investigate target and produce a report
matters covered by the accounting report
commercial activities of target, mgmt structures, employees, taxation, profitability, balance sheet strength, accounting policies, premises
commercial activities which may be included in the report
details of the past, present and planned activities of target
analysis of market in which target operates and description of its main customers, geographical coverage, market share and principal competitors
details of pricing policy, terms of trade, significant agreements with suppliers
what type of info might be requested re management structure and employees
mgmt structure & details of the ages, qualifications, and service records of directors and senior management
details of service contracts (renumeration, commission, fringe benefits, profit sharing, pensions, share option schemes)
number of other employees and details of pay structure and staff relations
what info does tax DD cover
current tax position (liabilities, VAT and PAYE compliance, whether tax affairs are up to date)
what effect acquisition will have on tax affairs of target and of the buyer
likely future tax position
warranties and indemnities that should be obtained
what will need to be investigated to assess profitability
detailed review of audited results for previous 3/4 accounting periods
any unaudited info with a view to providing detailed breakdown of turnover, overheads, profit,
what does a report on accounting systems and policies do
assist buyer in understanding accounts & determining whether changes will be necessary after completion (eg to integrate with buyer systems)
info that needs to be collected re premises
detailed info about the properties owned or occupied by target, including location, use and tenure
what type of investigations will legal advisers conduct?
investigations into any legal issues that may affect value / prospects of target
what does legal due diligence focus on
constitutional framework, terms on which target does business, ownership of assets, any restrictions on use of assets, extent of any potential liabilities
considerations where target operates in a heavily regulated sector
explore grant of, and conditions attached to any necessary consents, licences or approvals
why might the scope of investigation be more extensive on a share acquisition
buyer acquires liabilities
when might a sale give way to very limited contractual reassurances
where the sale is by an insolvency practitioner
what is the most significant factor in determining the scope of buyer’s enquiries
time constraints, financial resources, manpower
public searches that will be undertaken at the outset
info held at CH
property details held at LR
details of any registered IP rights
how can the due diligence process be started
forwarding a due diligence questionnaire to seller’s lawyers
what considerations should be made when compiling the questionnaire
what’re the typical risks inherent in market and jurisdiction in which target operates
how can risk of confidential info being leaked be mitigated
information provided by way of a data room, with a definitive list of who will have access to the data room
why should the co’s constitution be studied
check that the co has power to carry on the business and discover post completion stems
are there pre-emption provisions, restrictions on transfer etc
useful starting point for buyer’s lawyers
co confirmation statement
