Considerations in Selling Your Business - Part 10: Buyer’s Post-Letter of Intent Due Diligence
- Created: Friday, 21 October 2016 00:00
by Patrick B. Mathis, Shareholder at Mathis, Marifian and Richter, Ltd.
Buyer’s Post-Letter of Intent Due Diligence
Following the parties entering into a letter of intent, in most cases the buyer will conduct a detailed due diligence review of the seller’s business to ensure a comprehensive understanding of the business being acquired and that the business to be transitioned supports the purchase price.
In this review the buyer will focus on a variety of areas, some of which are applicable to virtually every business, while others are unique to the particular transaction.
This due diligence may include:
- A thorough review of the financial statements and underlying accounting records for several prior years.
- Sales and customer account records.
- Customer, distributor, sales representative and supplier contracts.
- Patents, copyrights and other intellectual property.
- Inventory records.
- Equipment depreciation schedules.
- Real estate information.
- Environmental surveys.
- Workmen’s compensation history.
- Litigation history.
- Regulatory history.
- Pending litigation and regulatory matters.
- Employment contracts, including non-compete agreements covering key employees.
- Retirement and other benefit plans.
- Contingent liabilities.
- Product liability matters.
A careful and comprehensive due diligence review is critical to a buyer’s approach to the acquisition and therefore can be a long process.
Every seller should carefully consider a buyer’s anticipated due diligence review before entering the marketplace to ensure that the necessary information is compiled and complete, and the potential issues may be addressed before beginning buyer discussions.
Professional Services Disclaimer: Please note that the information presented here is as an educational service, and while it contains information about legal issues, it is not legal advice. No warranty is made regarding the applicability of the information presented to a particular client situation, and the information set forth is not a substitute for original legal research, analysis and drafting for a particular client situation.