Use this checklist to effectively investigate target companies

This Acquisition Due Diligence Checklist is a useful guide to effectively and efficiently gain an in-depth understanding of target companies. Collecting and reviewing these items is an essential part of the many acquisition due diligence process steps, helping you ultimately verify, identify and mitigate risk.

Before fully committing to a transaction, you must prepare an acquisition due diligence report. As part of this, please provide copies of the indicated documents or the information requested below, as appropriate.

  1. Basic Corporate Documents and Documents for Any Subsidiary:
    1. Articles of Incorporation and By-laws.
    2. Minutes of all meetings of directors, committees of directors and shareholders.
    3. List of all states and/or countries where property owned or leased or where employees are located, indicating in which states the Company is qualified to do business.
    4. Samples of common and preferred stock certificates, warrants, options, debentures and any other outstanding securities.
    5. Copies of:
      • Any voting trust, shareholder or other similar agreement covering any portion of the Company's shares.
      • All agreements relating to repurchases, redemptions, exchanges, conversions or similar transactions.
      • All agreements containing registration rights or assigning such rights and preemptive rights or assigning such rights.
      • Stock books of the Company.
      • All quarterly and annual reports and any other communications to the Company's shareholders within the past five years.
      • All press releases issued by the Company within the past five years.
      • List of all subsidiaries.
  2. Securities Issuances:
    1. Equity Financings: copies of any stock purchase agreements.
    2. Debt Financings: copies of convertible debt agreements.
    3. Stock option or purchase plans and forms of option or purchase agreements which have been or may be used thereunder.
    4. Any other agreements relating to sales of securities by the Company.
    5. Blue Sky permits, notices of exemption and consents for issuance or transfer of Company's securities and evidence of qualification or exemption under other applicable state blue sky laws.
    6. Forms D or any other forms filed to establish an exemption under the Securities Act of 1933.
  3. Shareholder Information:
    1. Records setting forth all issuances or grants of stock, options and warrants by the Company, listing the names of the issuees or grantees, the amounts issued or granted, the dates of the issuances or grants, the number of shares presently exercisable and the consideration received (or to be received) by the Company in each case.
    2. Lists of all current shareholders.
    3. Numerical listing of stock certificates showing certificate number and date, name of shareholder, number of shares, date of Board approval and permit and tracing transfers.
    4. Lists of all options proposed to be granted.
  4. Material Contracts:
    1. Bankline of credit agreements.
    2. Other agreements evidencing outstanding loans to or guarantees by the Company.
    3. All outstanding leases for real and personal property.
    4. Material contracts with suppliers or customers, indicating which suppliers are sole source.
    5. Model sales or manufacturing contracts.
    6. Agreements for loans to and any other agreements with officers, directors or employees.
    7. Schedule of all insurance policies in force covering property of the Company and any other insurance policies such as ''key person'' policies, director indemnification policies or product liability policies.
    8. Partnership or joint venture agreements.
    9. Bonus plans, retirement plans, pension plans, deferred compensation plans, profit sharing and management incentive agreements.
    10. Form of employee confidentiality invention assignment agreement.
    11. Any other material contracts outstanding.
  5. Patent and Trademark Matters:
    1. List of:
      • All foreign and domestic patents and patent licenses held by the Company.
      • Any trademarks, trade names or service marks.
      • Any copyrights.
    2. Copies of all material agreements for licensing of Company technology to and from third parties.
    3. Describe importance of existing patents and whether additional patents are necessary.
    4. Any correspondence from third parties regarding potential infringement of intellectual property right of others.
    5. List of proprietary processes controlled by the Company.
    6. The contact and the name of the law firm which handles patent and trademark matters for the Company.
  6. Manufacturing:
    1. A breakdown by manufacturing site of the products manufactured, personnel employed, number of shifts and capacity.
    2. List of major suppliers and/or contract manufacturers or assemblers, showing total and type of purchases from each one during the last and current fiscal years. Indicate which are sole suppliers.
    3. Material or outside of ordinary course of business contracts with suppliers, manufacturers, etc.
    4. Description of all toxic chemicals used in production and manner of storage and disposition. Description of any EPA or other investigation or claim.
  7. Operations:
    1. List of third party developers, software duplicator and manual publishers, showing total and type of project for each one during the last and current fiscal years. For third party developments, include contact names, phone numbers and forms of agreements.
    2. Form of agreements relating to the sale or lease of material capital equipment.
    3. List of top 20 accounts payable with contact names and phone numbers.
  8. Sales and Marketing:
    1. Copies of all market research or marketing studies conducted in the last three years.
    2. List of the Company's products, services and competitors.
    3. List of the Company's 20 largest customers or groups in each of the last two fiscal years, indicating the types of products and the amounts of each purchased, and contact name and phone number for each customer.
    4. All material licensing agreements, franchises, and conditional sales contracts to which the Company is a party.
    5. Agreements with distributors, VAR's, OEM's, dealers and sales representatives.
    6. Copies of long-term sales contracts.
    7. Company-financed customer purchase agreements.
    8. Service and support contracts and marketing agreements.
    9. All material agency and advertising contracts to which the Company is a party.
    10. Forms of warranties and guarantees provided to customers.
    11. Copies of all market research/marketing studies and sales literature and forms.
    12. List of top 20 accounts receivable with contact names and phone numbers.
    13. Backlog at end of the most recent fiscal year and most recent fiscal quarter.
  9. Tangible Property:
    1. List of real and material personal property owned by the Company and documents of title, mortgages, deeds of trust and security agreements pertaining to the properties.
    2. All outstanding leases for real and personal property to which the Company is either a lessor or lessee.
    3. List of any security interests in personal property.
    4. Documentation of significant acquisitions or dispositions of assets.
  10. Litigation and Audits:
    1. All letters which have been sent to auditors in connection with year-end and current interim audits.
    2. Copies of any auditors' letters to management regarding internal accounting controls.
    3. Descriptions of (and reasons for) any change in accounting methods in the past three years.
    4. Active litigation files.
    5. Any litigation settlement documents.
    6. Any decrees, orders or judgments of courts or governmental agencies.
    7. Description of any warranty claims which have been made against the Company, any subsidiary, or any partnership/joint venture and the resolution of such claim.
    8. Information regarding any material litigation to which the Company is a party or in which it may become involved.
  11. Environmental:
    1. Schedule of Hazardous Materials stored, manufactured or located at any facility of the Company either now or in the past, or that the Company ships or transports (Hazardous Materials means any substance or any material containing a substance that could be considered toxic or hazardous under Federal or state law.
    2. Schedule of:
      • Chemicals, toxic substances or air contaminants which are regulated by OSHA present in any facility of the Company.
      • Any incidents involving the release of a potentially hazardous amount of any carcinogen into, or presence of asbestos in, the workplace.
      • All instances in the past in which the Company has corrected unsafe working conditions.
      • All the facilities of the Company that discharge waste into any body of water, stream or any sanitation systems.
      • All permits or approvals obtained from any governmental body responsible for environmental or health regulation.
      • All occasions in which a liquid or solid waste material or any fuel or other Hazardous Material was accidentally or intentionally spilled or released.
    3. Any notices of violation or requests for information that have been received or threatened at any time for alleged failure of any facility to comply with applicable air pollution laws or with any air quality permit.
  12. Employees:
    1. Description of any significant labor problems or union activities the Company has experienced.
    2. Number of employees broken down by major types of employees and a management organization chart.
  13. Management:
    1. Completed copies of Directors' and Officers' Questionnaires.
    2. Detailed resume of directors and top management personnel.
    3. Founders’ agreements, management employment agreements, indemnification agreements, and ''golden parachute'' agreements.
    4. Schedule of all compensation paid in the most recent fiscal year to officers, directors and key employees showing separately salary, bonuses and non-cash compensation.
    5. Bonus plans, retirement plans, pension plans, deferred compensation plans, profit sharing and management incentive agreements.
    6. Agreements for loans to and any other agreements with officers or directors.
    7. Description of any transactions between the Company and any insider.
  14. Other Review:
    1. Copy of any internal or outside studies of the Company or the market for its products.
    2. Summary of all OSHA, EPA, EEO, DOL inquiries.
    3. Status of contracts subject to Renegotiation Act.
    4. Summary of Federal, State, local and foreign income tax status.
    5. Permits for conduct of business.

While it’s imperative to collect and review all the documents on this acquisition due diligence list from the company being acquired, you also must do your own enhanced due diligence on the company to uncover additional data or verify information provided. This data could include corporate structure, public record information, news coverage, especially negative news to uncover potential risks, or case laws to identify litigation history. When it comes to merger and acquisition due diligence, verifying all this information is a crucial part of an effective investigation of a company.

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