6 Key Components of your Due Diligence List for an Asset Purchase.

FOR IMMEDIATE RELEASE
Boston, Massachusetts, United States of America (Free-Press-Release.com) October 24, 2011 -- To perform a reasonable due diligence before purchasing an asset (a business ), you really need to know what it is you are buying. To achieve this you need access to key business information and an expert team to help you assess the asset from different angles. Minimally the team should consist of individuals with market and product knowledge, legal and accounting expertise, manufacturing and distribution expertise, and if research and development is a major part of your purchase, an expert in the field will be necessary.

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6 Key Components of your Due Diligence List for an Asset Purchase.

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I recommend you request a list of due diligence materials as part of the process of assessing the business you want to purchase. The documentation will help you hone your concerns or issues that may be best addressed in a face-to face meeting. You should seek to obtain as much information as possible, but minimally the following list:

Financial Information
• Lasts three years financial statements (P&L, Cash Flow and Balance Sheet), with a breakout of sales, margins and profits by products, geography and distribution channel.
• Management reports: ask for budgets and planned versus actual management reports.
• Accounts receivable history and a list of delinquent customers.

• Financial statement projections (P&L; Cash Flow and Balance Sheet) for the next three years, with a breakout of revenues by product and key assumptions. An explanation of planned capital expenditures, depreciation, debt coverage and repayment, financing and working capital arrangements.
• Capital structure of the company showing all shareholders, warrants, options, and any dilutive securities and vesting schedules. Schedule of past financings and valuations.
• List of all debt instruments with terms and conditions, and any off balance sheet liabilities.
• Latest federal, state and foreign tax filings and carryovers.

Business & Product Related

• Business and Strategic plans: defining product definitions, positioning, pricing, distribution, marketing strategy, business drivers, economic and market trends, a competitive analysis, industry trends, customer demographics, customer feedback, government and legal aspects.
• Description of each product, customer demographics, historical and projected growth rates, market share, major competition, competitive advantages and differentiation, cost structure and profitability.
• New technologies and new products or product enhancements timing, advantages and costs and projections.
• Top 20 customers for each product with pricing and revenues, customer feedback, complaints, list of lost major customers.
• List of strategic relationships, structure, implications, history, and current issues.

• List of key competitors, products, strengths and weaknesses, basis for competition, market share and trend. Key concerns.
• Marketing plans for key products: positioning, pricing, promotion and advertising, distribution channels, results of different marketing activities (new customers and sales), new customer prospects, pipeline analysis, new business plans, sales force productivity and compensation plans.
• Disaster recovery plans.

Manufacturing
• Top 20 suppliers, purchase history, relationship, quality and delivery consistency. Back up plans.

• Sourcing of product, relationship, manufacturing process, quality control and systems. Compliance with all government regulations.
• Status of manufacturing facilities, plans to ensure standards and modernization. List of employees, status, pay levels, unionization. Disaster recovery plans.
• Cost history and trends by product.

R&D
• Overall strategy, plans and budget, past and present.
• New technology and product development plans, status, cost, timing, risks and likelihood of success.
• Specific rights or technologies required for current and future products.
• Key personnel, biographies, expertise, contracts and performance.

Management
• Organization chart with list of employees, status, pay level, duration of employment, function, and location.
• Historical and future headcount plans, along with turnover.
• Senior management biographies, compensation history, contracts and performance reviews.
• Compensation plans, benefits and management policies.
• Any serious personnel problems and resolution, past and present.

Legal
• List of issued and pending patents, licenses, trademarks, copyright and trade secrets. Any freedom to operate analyses.

• Copy of all contracts and agreements relating to the business.
• Copy of all insurance policies and history.
• List of all lawsuits filed by the company or against the company.
• Any SEC, tax or regulatory problems.

Due diligence is no easy task, but it is essential. The owner of the business may only let you view some of these materials at their location because of their concerns for secrecy, but the more you can review before visiting to discuss the acquisition, the more likely you will have a better sense of what you are buying and its strengths and weaknesses. Don’t forget to ask why they are selling the business and what value they put on the business. Both can be very revealing in influencing your decision to buy.

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MP Consulting Services specializes in the areas of strategic planning, leadership, marketing and social media. Mark Philip, principal at MPCS, has over 20 years experience in managing businesses, both small and large, has orchestrated multiple turnarounds, built product pipelines, launched new products, sold companies and created significant shareholder value. Let me know how I can help you with your business challenge

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