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.