Trade Due Diligence
Table of contents
What are the Types of Due Diligence?
One of the most important and lengthy processes in an M&A deal is Due Diligence. The process of due diligence is something that the buyer conducts to confirm the accuracy of the seller’s claims. A potential M&A deal involves several types of due diligence.
Types of Due Diligence
Due diligence (DD) is an extensive process undertaken by an acquiring firm in order to thoroughly and completely assess the target company’s business, assets, capabilities, and financial performance. There may be as many as 20 or more angles of due diligence analysis.
The main types of due diligence inquiry are as follows:
1. Legal Due Diligence Documents
These documents generally cover all legal aspects of a company’s operations. These are one of the most important documents that a buyer would ask during this process, which are essential for the seller’s business. Here are the key types of legal due diligence documents:
- Shareholder certificate documents
- Local/state/federal business licenses
- Occupational license
- Building permits documents
- Zonal and land use permits
- Tax registration documents
- Power of attorney documents
- Previous or outstanding legal cases
Don’t miss our complete legal due diligence checklist.
2. Financial Due Diligence Documents
Financial due diligence documents are essential in assessing the financial health and viability of a company. These documents provide a clear view of the target company’s financial status and performance history. Here are some of the most important financial documents commonly requested during M&A:
- Up to date tax returns documents
- Audited financial statements (at least 3 years)
- Auditor’s correspondence for last five years
- Copies of all loans and credit agreements
- Details of company investments (bonds, marketable securities, etc.)
- Capital structure
- Projections, capital budgets, and strategic plans
- Up to date tax and pension liabilities
- Details on when contracts and leases are renewed and whether the terms change
- Details of stockholders (percentage holdings, voting rights, etc.)
- Foreign exchange reserves
- List of unrecorded liabilities
- List of collateral for debt
- Details of owner withdrawals (if any)
- Revenue by client (if possible)
- Gross margins analysis
- Fixed/variable expenses analysis
- List of non-operational expenses
- General ledger
3. Sales and Marketing Due Diligence Documents
- Detailed overview of sales and marketing strategy
- Marketing/sales coordination protocols
- Revenue listed by customer
- Exhibit relationship between marketing expense and revenue growth
- Details of existing sales contracts (and when they expire)
- List of top 10 suppliers
- Sales reports by category of product or service
- Details of credit terms with customers
- Current market share (if possible)
- Percentage of sales owing to each sales channel (e.g. online, offline, direct sales, etc.)
4. Human Resources Due Diligence Documents
- Provide a list of current employees and independent contractors
- Employee rules of conduct handbook and safety policies
- Detail past employee disputes (if any)
- Detail employee and independent contractor terms of employment
- Detail updated employee resumes
- Outline policy of working with labor union (if any)
- Outline training conducted with existing employees
- Worker’s compensation/unemployment claims history
- Outline policy of bonuses, incentives, commissions and deferred commissions
- Detail policies for sick days, paid holidays, paid vacations and overtime pay
5. Property, Plant, and Equipment Due Diligence Documents
- Equipment
- Real estate
- Technology
- Inventory
6. Contract Due Diligence Documents
- Customer contracts
- Supplier contracts
- Joint venture/partnership agreements
- Settlement agreements
- Franchising agreements
- Accounts receivable schedule
- Accounts payable schedule
- Equipment leases
- Non-compete agreements
- Employee contacts
- Loans, credits, and guaranties agreements
7. Intellectual Property Due Diligence Documents
- Trade secrets
- IP claims and litigation
- Domain names
- Issued patents
- Patent applications
- Design patents
- Design patent applications
- Industrial designs
- Industrial design applications
- Liens on intellectual property
- Copyrights
- Licenses
- Licensing agreements
- Trademarks
- Agreements/documents regarding ownership and rights of use of advertising copy, trade-marks, logos, and slogans
8. Company's Good Standing and Organization Due Diligence Documents
- Organizational Chart
- Shareholders/percentages owned
- Voting trusts, subscriptions, calls, puts, options, and convertible securities agreements
- State of incorporation status reports for the last three years
- Assumed names
- Company minutes book
- Company bylaws and amendments
- List of the states and countries where the company has employees, owns assets, leases assets, and does business
- The Articles of Incorporation/amendments.
- Annual reports for the last three years.
- A Certificate of Good Standing from each Secretary of State where the company conducts business
EXPERIENCE
that makes it very easy for you to delight your customers
Our team moves beyond theory. Our consultants have more than twenty years’ experience in your industry and an average of eight years of experience in consulting, creating results and implementations that are practical and actionable. Our team has performed hundreds of engagements with over 200 shippers, logistics providers and investment clients, to help them reach their business objectives.
EXPERTISE
and fresh thinking that improves your organization’s performance
Our team moves beyond theory. Our consultants have more than twenty years’ experience in your industry and an average of eight years of experience in consulting, creating results and implementations that are practical and actionable. Our team has performed hundreds of engagements with over 200 shippers, logistics providers and investment clients, to help them reach their business objectives.
EXCELLENCE
you can trust
Our strongest source of business continues to be repeat and referral clients, demonstrating an earned trust among CEOs and senior executives across our highly demanding client base.