buying a business: the purchase process and due diligence
TRANSCRIPT
Buying a Business: The Purchase Process and Due Diligence
P. Haans Mulder, JD, MST, CFP®
Cunningham Dalman, [email protected]
• Attorney and Partner at Cunningham Dalman, P.C.
• Have a Masters in Tax, am a Certified Financial Planner, have almost completed a MBA in finance, and specialize in business transactions as well as estate planning.
• Cunningham Dalman, P.C. is located in Holland and has been serving West Michigan area since 1900.
• Have 16 attorneys specializing in all areas of the law.
Background
Stages in the Process
• Pre-Letter of Intent
• Post-Letter of Intent and Purchase Agreement
• Closing
Pre-Letter of Intent
Commitment from Financing Source
Post-Letter of Intent
Closing
Due Diligence and Process
Pre-Letter of Intent Due Diligence
Post-Letter of Intent Due Diligence
Personal Property Due Diligence
• Lien searches
• Obtain appraisals
• Review equipment leases
Real Estate Due Diligence
• Lease v. purchase
• Title search, zoning, survey, inspections and environmental assessment
• Obtain appraisal
Employee Due Diligence
• Key employees
• Employee handbook
• Review I-9s
Closing
• Pay purchase price, sign purchase agreement and closing documents
• Transfer titles
• Discharge liabilities
Questions…
BUYING A BUSINESS: THE PURCHASE PROCESS AND DUE DILIGENCE
Purchase Process
1. Pre-letter of intenta. Non-disclosure agreement (NDA)
b. Review the letter of intent (LOI)i. What terms are binding (i.e. confidentiality, non-solicitation, and
exclusivity)?
ii. Is it an asset or entity interest purchase?
iii. What is payment structure?
iv. Are liabilities being assumed?
v. Is there a non-compete?
2. Post-letter of intenta. Conduct due diligence
b. Negotiate the purchase (i.e. definitive) agreement
3. Closing
Due Diligence
1. What is due diligence?a. Definition
b. Why is it important?
c. Who are you doing due diligence on?
d. Asset v. entity interest purchase
P. Haans Mulder, JD, MST, CFP®
321 Settlers RoadHolland, MI [email protected]
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e. Result may be to: do further due diligence, include on disclosure schedule, pursue a lower purchase price, or abandon the deal
2. Create a system for managing the process
3. Determine who is on your due diligence team
4. Bank or financing source will dictate this process as well
5. How are reps and warranties as well as indemnification related to due diligence?Generally includes requesting or getting information, evaluating it, and determining what to do with it
Due Diligence Process
1. Pre-letter of intent a. Valuation and review financial statements
b. Working capital requirements (cash held back at closing)
2. Post-letter of intenta. Review further financial issues (tax returns, audits, pricing policies,
projections, etc.)
b. Understand the optimum allocation of the sales price
c. Agree on accounting principles for financial statements
d. Review tax liabilities
e. Review material contracts
f. Determine what licenses need to be obtained or transferred
g. Evaluate customers and suppliers
h. Review contracts and commitments
i. Assess pending or threatened litigation
j. Determine who has authority to approve transaction
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k. Assets purchasedi. Personal property
1. Do lien search
2. Obtain appraisals
3. Review equipment leases
ii. Real estate 1. Lease versus purchase
2. Obtain appraisal
3. Do title search
4. Have survey done
5. Do inspection
6. Have environmental assessment done
7. Review zoning
iii. Intellectual 1. Determine what intellectual property the business has (trademarks,
patents, copyrights, or trade secrets)
2. Do not forget about websites
3. Assess what rights you need
4. Determine if there are any registrations and claims
l. Employees1. At will-status
2. Employee handbook
3. I-9s
4. Key employee agreements
5. Non-compete agreements
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6. Non-solicitation agreements
7. Consultants/independent contractors
8. 401k and employee benefit plans
3. Purchase agreement and closinga. Sign purchase agreement and closing documents
b. Inventory valuation
c. Working capital
d. Transfer titles
e. Assign intellectual property
f. Title policy issued
g. Discharges/releases for liabilities