DUE DILIGENCE
Due Diligence can often be the most stressful time during a business sale.
When considering the possibility of acquiring a business or company, it is essential that the prospective buyer ensures that all facts regarding the target firm are available and have been properly verified. This applies whether the acquisition is by way of assets or shares, although due diligence is far more important in the latter event due to the fact that when acquiring the shares in the company one also acquires its liabilities.
Due diligence is a legal term, originally borrowed from the banking industry, which means carrying out full enquiries before investing time and money on a potential acquisition. When making a significant investment of this nature it is essential that a buyer carries out the necessary checks in order to ensure that any information provided by the potential seller is correct.
When considering acquiring the business, the potential buyer should undertake accounting, financial and legal due diligence. Financial and accounting due diligence considers balance sheets, cash flow statements, tax issues and the like. Legal due diligence extends to the following:-
1. The identity of the seller and its ownership. The seller may be an individual or a company. If the former, then background checks may be undertaken, including bankruptcy searches. If it is a partnership then similar considerations apply but it is necessary to confirm that all partners agree to sell. If the seller is a company then appropriate searches need to be made at Companies House and it must be established that the full shareholding is being transferred.
2. The sellers must produce details of any court proceedings which are current or threatened. A risk assessment needs to be undertaken as to the possibility of damages arising.
3. Are there any pension schemes in place and is the employer contributing? If there is no such pension scheme in place, will it be necessary to establish one?
4. It is necessary to obtain full details of the employees and their contracts of employment. Key employees need to be identified. Under the Transfer of Undertakings (Protection of Employment) Regulations 2006 the employees will be automatically transferred unless they resign. Full consultation must be undertaken with the employees by the seller and it is essential to ensure that this has taken place. In addition, it must be established that there are no actual or potential claims being made by employees against the company.
In addition to the above, appropriate consideration must be given to any commercial property held by the company, its intellectual property, its environmental record, its health and safety policy and various other similar matters arising.
For an idea of the process we have attached a very simple Due Diligence Questionnaire here - this is only a 7 page document. If you want we can provide a more comprehensive 27 page version. For larger companies there are even more rigorous questionnaires available.
ATTACHMENT SAMPLE DUE DILIGENCE QUESTIONNAIRE
Buyers If you have found a business for sale which is not a client of ours we can provide a comprehensive valuation report as the start of the due diligence process. Please see our Business Valuations page.
All Anderson Moore clients benefit from full support through the Due Diligence process.
Due Diligence can often be the most stressful time during a business sale.
When considering the possibility of acquiring a business or company, it is essential that the prospective buyer ensures that all facts regarding the target firm are available and have been properly verified. This applies whether the acquisition is by way of assets or shares, although due diligence is far more important in the latter event due to the fact that when acquiring the shares in the company one also acquires its liabilities.
Due diligence is a legal term, originally borrowed from the banking industry, which means carrying out full enquiries before investing time and money on a potential acquisition. When making a significant investment of this nature it is essential that a buyer carries out the necessary checks in order to ensure that any information provided by the potential seller is correct.
When considering acquiring the business, the potential buyer should undertake accounting, financial and legal due diligence. Financial and accounting due diligence considers balance sheets, cash flow statements, tax issues and the like. Legal due diligence extends to the following:-
1. The identity of the seller and its ownership. The seller may be an individual or a company. If the former, then background checks may be undertaken, including bankruptcy searches. If it is a partnership then similar considerations apply but it is necessary to confirm that all partners agree to sell. If the seller is a company then appropriate searches need to be made at Companies House and it must be established that the full shareholding is being transferred.
2. The sellers must produce details of any court proceedings which are current or threatened. A risk assessment needs to be undertaken as to the possibility of damages arising.
3. Are there any pension schemes in place and is the employer contributing? If there is no such pension scheme in place, will it be necessary to establish one?
4. It is necessary to obtain full details of the employees and their contracts of employment. Key employees need to be identified. Under the Transfer of Undertakings (Protection of Employment) Regulations 2006 the employees will be automatically transferred unless they resign. Full consultation must be undertaken with the employees by the seller and it is essential to ensure that this has taken place. In addition, it must be established that there are no actual or potential claims being made by employees against the company.
In addition to the above, appropriate consideration must be given to any commercial property held by the company, its intellectual property, its environmental record, its health and safety policy and various other similar matters arising.
For an idea of the process we have attached a very simple Due Diligence Questionnaire here - this is only a 7 page document. If you want we can provide a more comprehensive 27 page version. For larger companies there are even more rigorous questionnaires available.
ATTACHMENT SAMPLE DUE DILIGENCE QUESTIONNAIRE
Buyers If you have found a business for sale which is not a client of ours we can provide a comprehensive valuation report as the start of the due diligence process. Please see our Business Valuations page.
All Anderson Moore clients benefit from full support through the Due Diligence process.