Due diligence report

What is a due diligence report?

 

This section describe what a due diligence report covers and what questions need to be answered with mergers and acquisitions. A due diligence report is sent as an internal memo to members of the executive committee who are assessing the transaction and is a requirement for the closure of the deal.

 

What are the sections of a due diligence report?

 

Corporate Records

  • The condition of incorporation and its standing
  • The capitalization authorized and the issued shares of stock and the vendor of each subsidiary
  • Articles of incorporation and bylaws
  • Copies of all correspondence with shareholders and obtain a shareholder’s list
  • The existence of any warrants, options, or other potentially liquidate securities

 

Financial Information

  • Copies of audited financial statements of the past five years including all analysis notes and management’s decision.
  • All internally generated financial models and forecasts
  • Copies of correspondence between management and auditors
  • List of federal and state jurisdictions where the seller has filed taxes for the past 5 years
  • All board of directors’ presentations

 

Indebtedness

  • We investigate indebtedness of seller and subsidiaries, including loan agreements, notes, mortgages and security agreements.
  • We review correspondence with lenders showing compliance with financial rules
  • We order uniform commercial code searches with each subsidiary

 

Employment and Labor

  • Examine the list and biographies of staff, directors and employees of a certain level
  • Check the list of all employees, their job functions, departments, locations and compensations
  • Check the documents detailing any profit sharing, pensions, deferred compensation, stock plans and other non-salary compensation or benefits
  • Check the copies of all employee handbooks, codes of conducts and policies.
  • Check the copies of employment, consulting, termination and indemnity agreements
  • Check the pending lawsuits related to labor and employment law

 

Real Estate

  • We check the address and legal description for all real property
  • We check the copies of title issuance policies with respect to real property
  • We check the copies of all appraisals
  • We check the copies of all studies, site evaluations and government filings and reports prepared by consultants.

 

Agreements

We check and investigate the following:

  • All agreements entered into by the company and its subsidiaries
  • All brokerage or investment banker agreements
  • All licenses and subscriptions
  • All real estate leases
  • All partnership or joint venture agreements
  • All marketing, sales, commission, distributor, franchise agreements
  • All customer or client agreements
  • All licenses and subscriptions
  • All material contracts not otherwise obtained from this list

 

Supplier and Customer Information

We provide the following:

  • Correspondence with customers or suppliers related to complaints or disputes
  • List of all material customers including dollar and volume of sales
  • List of all material suppliers assets in and volume of purchases

 

Real Estate

We check the following:

  • Descriptions of all litigation, administrative proceeding and governmental investigations
  • Copies of all government licenses
  • Environmental liability assessments and environmental compliance audits
  • Copies of each report or document filed with government agencies

 

Who generate a due diligence report?

Many groups can be involved in preparing the due diligence document. Companies may carry out the analysis internally with their corporate development team or they may hire external advisers like investment bankers or the Due Diligence Team at an accounting firm.