Acquisition Due Diligence

Robert P. Mino, PA, are highly skilled in providing support for acquisition due diligence on the buyer or seller side of the equation.  Some due diligence requires fleets of consultants and attorneys, other sales only require two agreeable people and their advisor.  Regardless of the size sale, Robert P. Mino, PA, can be an asset to your side.  May issues are important considerations for buyers and sellers.  We can help.

Acquisition Target Company Due Diligence Overview

  • Business plans. The current and earlier business plans are can be very valuable.  We can compare the earlier plans to the company’s actual performance and activities, to determine if the management team is capable of implementing its own plans and can better evaluate the likelihood of success of the current plan.
  • Complexity. How complex is the business?  The ability to grow a business becomes exponentially, not linearly, harder to grow as it gets larger and adds more products and services.  Can the buyer handle the business?
  • Ease of entry. Is this an industry in which competitors can enter and exist easily?  If so, what competitive advantages does the target company have to maintain or grow market share?
  • Geographical structure. Is there an adequate infrastructure to support sales, marketing, distribution, and customer touch points?  Does the buyer have the skills to maintain this business structure or improve profits?
  • Market review. Evaluate the market, including technology and market shifts.  With changes in the market affect the company’s future profitability?  How will the company adapt?
  • Organizational legal structure chart. Obtain a chart that states which subsidiary entities are owned by which parent companies, where each one is incorporated, and the ownership of each one. Are there any hidden majority or minority investors buried in the organizational structure of the company?  Lawsuits?  Debts?
  • Prior sale efforts. Have the owners of the target company attempted to sell it before? If so, what happened?  Former prospective buyers are unlikely to disclose their rationale for backing out, but a series of failed sales points to a market valuation issue.  As a seller, secure evidence the buyers are qualified before going through due diligence.
  • Related acquisitions. Is there an industry trend toward consolidation?  Are sellers missing out on value or buyers being into an industry entering a new era?  Will new competitors be more formidable than those against which projects were made?
  • Reporting relationships chart. Who is responsible for what and what is the leadership structure?
  • Why are the sellers selling?  The seller will offer a story – personal needs, retirement, divorce, new business, etc.  Is this the real reason?  If not, the real reason might be important to the buyer prior to a purchase.

Intellectual Property Due Diligence

  • Patents. Does the company have any patents? A patent attorney, like Robert P. Mino, is best suited to review the patents to understand their coverage and risks.  Does this coverage meet the company’s needs?
  • Trademarks. Has the company registered its trademarks? If not, Robert P. Mino, PA, can help file the necessary marks or evaluate the landscape of others using the mark.  Are these marks necessary for the businesses success?
  • Licensing. The company may be making revenue from out-licensing its IP.  What are the terms of the licensing agreements?  How do the licenses affect the landscape?  The company may also need to spend money to license key IP from others.  If so, Robert P. Mino, PA, can evaluate the contact, the licensor’s ability to retract the license rights, increase in fees, milestones, and other hidden costs and risk.

Due Diligence Legal Issues

  • Audit committee minutes. If the board of directors has an audit committee, it can be useful to review its minutes for the past few years to see if the committee was made aware of any control-related issues.
  • Board minutes. The board of directors must approve a number of decisions, such as the authorization of more stock, the repurchase of existing stock, certain compensation packages, acquisitions, and so forth.  We can help review board minutes to uncover other issues not readily apparent in other due diligence activities.
  • Charter and bylaws. The most recent version of the company’s charter and bylaws, and review them in detail. They state voting procedures for key events, such as the sale of the business.
  • Contracts review. We are highly proficient at examining all contracts that the target has entered into within the past five years to understand ongoing risks.
  • Current lawsuits. Understand the status and claims of any current lawsuits.
  • Discrimination claims. Are there pending discrimination claims against the company? Has there been a history of such claims in the past? If so, are the claims related to a specific person, or are they spread across the management team?
  • Injury records. If there are injury records or claims, estimate the cost of adding any needed safety equipment, personnel, procedures, or training.
  • Legal invoices. Our firm can review all invoices paid to law firms in the past three years to determine if prior legal issues were fully addressed.
  • Prior lawsuits. Obtain copies of the settlement agreements.  Robert P. Mino, PA, can help evaluate the ongoing costs of prior settlements
  • Shareholder meeting minutes. Obtain the meeting minutes for the past few years of shareholder meetings.  We can review to spot issues not noticeable in other due diligence areas.

Human Resources Due Diligence

  • Benefits. What are the benefits and how do they compare to the standard amount of benefits offered in the target company’s industry different from what is offered in other industries in which the acquirer competes?
  • Employment agreements. There may be agreements with some employees, under which they are entitled to a certain amount of severance pay if the company elects to terminate their employment. The team should locate all of these agreements and document the amount of severance payments, in case the acquirer decides to eliminate their positions or replace them as part of the acquisition.
  • Employee manual. Obtain a copy of the employee manual. Consider policies that impact the costs associated with employees, such as vacation and sick pay, vacation carry-forward, annual reviews, jury duty, military pay, bereavement pay, and severance pay.
  • Key employees.  Who are the people who actually run the business, top workers, people relied upon, holders of tribal knowledge, and, importantly, super-valuable employees – those who can successfully transition into multiple leadership roles across the organization.
  • Customer linkages. Do any employees have such close contacts with customers that they could take the customers with them if they were to leave the company and go into business elsewhere?
  • Pay freezes. If the target company has been in financial difficulty recently, it may have imposed a pay freeze on its employees, with the promise of immediate increases as soon as the financial situation improves. This creates an expectation that the acquirer will immediately increase pay.
  • Pay history. Construct a chart detailing the last date when each person was given a pay increase, and the amount of the increase.
  • Pay level philosophy. What is the company’s philosophy for the level of compensation it pays to employees? Is it near the median pay rate for most positions, or substantially higher or lower?
  • Strong Customer Connections. Do any employees have such close contacts with customers that they could take the customers with them if they were to leave the company and go into business elsewhere?  What is the risk of losing them?
  • Total compensation. Compile the total cost of the top employees. This means not only their base pay, commissions, bonuses, stock options, and payroll taxes, but also benefits and any reimbursements for a variety of personal expenses.
  • Types of employees. List the number of employees in the various functional areas of the company, such as production, materials management, accounting, treasury, etc.
  • Vacations. Determine the amount of vacation time to which each employee is entitled, and how that compares to the industry average and the company’s stated vacation policy.

As a former Sales and Marketing executive himself, Robert P. Mino offers consulting services supportive of due diligence activities in Sales and Marketing Fields.

Sales Structure Due Diligence

  • Compensation plan. Does the reward system properly motivate the sales staff?  This is a quintessential concern because loyalty for the seller might not translate to the buyer is compensation is not aligned.
  • Organization. How is the sales department organized, and how does it make sales?
  • Productivity. Should anything be done to support the top salespeople?
  • Skills match. Does the sales team have the appropriate skillset or are they over/under educated for the product line?

Due Diligence of Marketing Activities

  • Branding. Is there a focus on branding on every facet of a product’s touch points with customers?  If not, why?  Do customers recognize the brand?  Is the brand controlled?
  • Comparative analysis. How do the marketing efforts of the company compare to those of its competitors?  Is the company competitive in reach and marketing investment?
  • Coordination. How well do marketing, sales, public relations, operations, and service support work together?

Robert P. Mino, PA, can also support an accounting team due diligence of equity issues, financials, information technology, liabilities, materials management, and taxes.

Due Diligence