Streamlining sales due diligence in loan agreements

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so today i'm going to cover basically what is due diligence in mergers and acquisitions or m a transactions i'm going to share my screen show you just a quick outline of what we're going to go over so what exactly is due diligence in m a so what exactly is m a m a is typically mergers and acquisitions which can involve a lot of complex transactions however most cases it just comes down to somebody buying or selling a business what are the steps involved in buying and selling the business typically there's going to be an investigation which is considered due diligence and that's basically kicking the tires when you go and you want to buy something or sell something you want to know exactly you know what you're buying typically if you're selling you already know what you're selling but usually as the buyer you want to know okay what exactly am i getting myself into what are the risks uh you know know everything there is to know about the company and the underlying business everything about it typically this can occur uh both before or during a letter of intent or term sheet so you may already have a signed term sheet or letter of intent and then you start the due diligence process you might have already started it early on starting to talk to to different potential buyers or sellers you may have already gotten financials and things like that or it might be you know you've already got a signed term sheet and then you start the due diligence process and usually you will collect all kinds of information and documents about the company and you'll usually put together a request list that can be done through a broker yourself or an attorney would put something together a request list so what are commonly on the request list so for example when i put together a request list for a client entering into a let's say they're a potential buyer we want to know everything there is to know that you know fully discloses everything about the company risks legal issues their finances taxes so typically what we'll ask for and that will be uploaded into a data room or some shared folder uh things like corporate document so is it a corporation what state was it formed in your articles of incorporation bylaws so we want to see how it was formed whether it was properly formed what state it's formed in just some basics about the company itself other subsidiaries the organizational structure who are the owners and managers of that entity or if there's multiple entities who's in control of those and who are the owners if you've got a couple owners you know that's that may not be an issue but if you've got 50 or 200 owners uh and even some minority shareholders in a company you have to look at some potential legal issues with minor more minority shareholders and how to properly structure the transaction you want to look at contracts how they run their operations who their vendors are customers typically when you do the actual purchase agreement you're going to be putting together a list of your top vendors top customers larger contracts buyers are going to want to know what those are if they're being assigned over obviously one of the most important things is the finances financial statements of the company both recent and historical and a lot of times how they handle their accounting their tax filings make sure that everything is current so we want copies of tax returns and anything related to that tech look into intellectual property so if they own any trademarks or copyrights or patents what exactly is protecting their brand name or anything else involved in the business have they filed anything uh is it up to date and legal litigation regulatory issues so if they're in a business that's regulated have they had any issues in the past are they currently under investigation is there any pending claims or lawsuits that are going on or potentially coming up what about their employees and human resources a list of their employees employment contracts want to see kind of what the structure is and if there are any benefits employee benefits 401k retirement any obligations related to those you want to look into list of assets what exactly does this business own if you're doing an asset purchase obviously that's very critical to list exactly what assets you're buying if you're doing an entity purchase where you buy stock or the entire entity itself you still want to know what assets are being included and what they own what are their debts do they have loans out or any of their assets uh on any kind of lease or loan agreement that's secured with collateral so they have a lien against them list of their insurance are they currently insured underinsured pending claims that might be coming up so those are some of the more common issues or requests that are made typically my request lists are anywhere from five to ten pages very detailed so uh this is just the general categories to give you kind of an idea but you can get started preparing if you're thinking about selling your company you can start preparing for diligence by putting some of this stuff together so hopefully that answers some questions