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Due Diligence Checklist

Here is reproduced the Manager's due diligence checklist.

Company: Name



If not relevant
Give Reasons


Senior Management:
1. Obtain CV’s
2. Obtain organization chart
2. Meeting with Directors
3. References taken up
4. Determine any gaps/potential weaknesses
5. Determine requirements for NEDs
6. Determine salaries and remuneration packages


Products & Production Facilities:

1. Detail main product areas
2. Examine margins on product lines
3. Review forecast R & D expenditure
4. External review of production facilities
5. Obtain external valuation of production
facilities and site
6. Quality of products compared to competition


Customers & Markets:

1. Obtain customer references (by telephone),
How long have you been a customer?
Why use x ltd.? Compared with competition
Which products do you use?
Is service up to expectation?
Comment on quality
2. Check percentage of sales to each customer i.e. Who are major customers?
3. Competition. Determine size of market and who are main competitors.
4. Commission a marketing report covering:
Size of market including trends in past and future.
Products, including life span, market share and future product development.
Competition, names, products and market share.
Sales force and distribution channels.



1.Who are main suppliers?

2.Are there adequate alternative suppliers?

3.What is their future commitment?


Historical Accounts:

1.Obtain and review last 3 years audited

2.Obtain and review last 12 months monthly
management accounts.

3.Assess reliability of management accounts.

4.Accountants report.



1.Obtain company’s 5 year forecasts:-
Profit and Loss
Balance Sheet
Cash Flow
2.Build a financial model.
3.Perform sensitivity analysis on among other things:
Sales volumes
Margin variances
Interest rates
Tax rates
Capital expenditure requirements


Sundry Matters:

Review franchise agreements
Review patents/copyrights
Review product rights
Is there any litigation outstanding
Contingent liabilities


Pension Fund:

1.Is an actuarial valuation required?
2.Is the pension fund adequately funded?
3.Independent advice
4. Can manage the pension fund?


Financial Structure:

1. Conditions

1.1 General requirements not usually negotiable:

(a)Commitment fees (especially if leading)
(b)Payment of legal fees and other costs
(c)Right to appoint a non-executive director, and often approval of final Board structure (e.g. Avoid Chairman also being MD)
(d)Right to monthly management information and all other reasonable information
(e)Keyman insurance on certain individuals

1.2Evidence to be supplied prior to completion:

(a)All other sources of finance committed, e.g.
Grants, equity, loan, leasing, overdraft, guarantees, etc.
(b)Essential agreements/contracts, e.g. leases,
Supply, planning, sales, service, etc.
(c)Insurances on key assets
(d)Other key fundamentals assumed by the investment

2.Finance to be Supplied

2.1Share class rights:

(a)Dividends – fixed, participating (and basis of calculation), net or gross, cumulative, payable at what intervals and commencement date
(b)Preference on repayment (priority over other classes)
(c) Voting
(d)Conversion – into what, when on what terms
(e)Redemption – term, branches, price
(f)Subscription – number of shares and at what price
(g)Equity – stake represented by the class

3.Standard Terms

Should discuss particularly with
unsophisticated management who are not
aware of institutional requirements.

3.1Consents needed for:
(a) Disposals
(b) Acquisitions
(c) Exceeding borrowing limits
(d) Exceeding directors remuneration limits
(e) Alterations to share capital or class rights
(f) Dealings not at arms length
(g) Developments not within the invested vehicle
(h) Lending money

3.2Rights to:
(a) Sale of shares on change of control of company
(b) Pre-emption over other shares in the class
(c) Transfers with the “ Group”
(d) Information within specified time scale

3.3 Warranties


Manager's Signature



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