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A Due Diligence list for M&A transactions

A Due diligence describes the characteristics of an examination of the company to be acquired by the buyer. Within the framework of a due diligence, the information provided by the buyer is checked. This concerns legal issues, business management issues, IT systems, regulatory issues and others, in short, all those issues that are relevant to the acquisition of the company and can have an influence on the purchase price. The buyer wants to be convinced that the information provided by the seller is correct and complete.

As a starting point for a Due Diligence this list can be used. However it needs to be adapted to the takeover target. A final Due Diligence list will be significantly longer than the one shown here:

Due diligence list
Group structure
The current organizational chart of the Group
Corporate governance and capital structure
Recent excerpts from the commercial register of the Group
Articles of association
Bylaws (or equivalent documents) and all amendments
Minutes of meetings of the Board and any committees
Minutes of meetings of shareholders and all material reports
Copies of all material agreements headquarter and its subsidiaries
Agreements with shareholders and related parties, relating to the management, ownership, voting or else
Copies of all joint ventures, alliance and cooperative agreements, partnership agreements and additional agreements with joint venturers and partners.
Agreements with creditors and other financings
List of all material: debt instruments, guarantees, letters of credit, receivables or inventory financing arrangements, bonds, sale and leasebacks, or other commitments to extend credit and similar instrumentsleases (capital or operating), rental contracts, instalment sales contracts, sale and leaseback arrangements and similar arrangements relating to personal property.agreements with creditors representing obligations or contingent obligations, including mortgages, pledges, encumbrances, deeds of trust and other agreements
Regulatory matters
Examination reports by regulatory authorities
Material filings with any regulatory agencies
Material correspondence between management and regulatory agencies
List of licenses or other permits necessary for the conduct of the Group’s principal operations
Directors, employees and affiliate transactions
Employment agreements: standard form agreements, deviations therefrom, agreements with management; union/collective bargaining agreements.
Description or summary of compensation, bonus, incentive, retirement, benefit (eg, life or health insurance, medical reimbursement plan, etc) or other service and severance agreements or similar plans
All documents relating to employee and management stock option plans, stock purchase plans, salary bonus plans, pension plans or profit sharing plans for employees of the Group.
Copies of material collective bargaining agreements and labor contracts
Material contracts
All material contracts, agreements and arrangements, including amendments thereto (together with relevant material correspondence), between the Group and its suppliers, agents or vendors, including a description of any oral agreements.
Any material agreements, including amendments thereto, restricting the ability to sell or otherwise dispose of assets, borrow money or issue debt or equity securities
Lawyers’ litigation letters prepared for auditors
A schedule and summary description of pending or threatened litigation
Schedule and summary description of other disputes (pending or threatened) with governmental agencies, including, but not limited to, those relating to compliance with regulatory obligations, securities laws, taxes and anti-competitive practices.
Overview of IT organisation.
Any material documents or other information related to lease (including lease agreements, which are still in force) or purchase (including purchases of computer or data processing equipment), or any third party’s provision of computer data processing services.
List of material software agreements essential for business operations.
Real estate
Schedule and summary description of all owned or leased real estate material to the business including square meters, annual rental payments, expiration date of leases and a description of the form of ownership and material restrictions or limitations on the use thereof.

A Due Diligence needs to be coordinated in a proper way. An IT Solution needs to be chosen (for transferring the documents) and the consultants to conduct the Due Diligence and review and asses the Due Diligence material need to be hired. Between Signing and Closing you are not allowed to exchange competitively sensitive information, because both businesses do not form a single economic entity yet and the exchange of competitively sensitive information can lead to a restriction or elimination of competition before closing. You may have to set up Clean Teams to overcome this problem. Contact us before starting a M&A transaction, so that we can support you with the preparation.

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Georg Tichy

Georg Tichy is a management consultant in Europe, focusing on top-management consultancy, projectmanagement, corporate reporting and fundingsupport. Dr. Georg Tichy is also trainer, lecturer at university and advisor on current economic issues. Contact me or Book a Meeting