- Establish Objectives and Scope
- Define Goals: Clarify the objectives of the acquisition and focus on specific financial areas (e.g., financial health, tax liabilities).
- Scope Definition: Determine the scope based on the target company’s size, complexity, and industry.
- Gather Information and Documentation
- Financial Statements: Review past financial statements (balance sheet, income statement, cash flow statement).
- Tax Returns and Compliance: Examine tax returns and potential tax liabilities.
- Contracts and Agreements: Analyze key contracts (leases, customer/supplier agreements) for risks.
- Legal and Regulatory Compliance: Check for regulatory compliance and pending legal issues.
- Financial Performance Analysis
- Revenue and Profitability: Assess revenue trends, profit margins, and profitability drivers.
- Cost Structure: Evaluate COGS, operating expenses, and cost management.
- Cash Flow Analysis: Review liquidity, cash flow patterns, and working capital.
- Financial Ratios: Calculate liquidity, profitability, and leverage ratios to gauge financial health.
- Asset and Liability Review
- Asset Valuation: Verify the existence and valuation of assets like inventory and equipment.
- Liability Review: Identify all liabilities, including debts, contingent liabilities, and accruals.
- Management and Operational Assessment
- Management Team: Evaluate the qualifications and experience of key management personnel.
- Operational Efficiency: Review operational processes and identify potential synergies.
- Risk Identification and Mitigation
- Risk Assessment: Identify risks such as financial, market, and legal challenges.
- Risk Mitigation Strategies: Propose mitigation tactics like contract renegotiations or insurance.
- Integration Planning
- Integration Strategy: Develop a post-acquisition plan for operations, systems, and personnel.
- Financial Projections: Create financial projections to estimate ROI and integration costs.
- Documentation and Reporting
- Due Diligence Report: Summarize findings, risks, and recommendations.
- Legal and Financial Advisors: Engage experts to ensure regulatory compliance and minimize legal risks.
- Negotiation and Closing
- Negotiation: Use findings to adjust purchase price, warranties, or indemnifications.
- Closing: Ensure smooth closing with all necessary legal, financial, and regulatory approvals.
- Post-Acquisition Monitoring
- Monitoring and Evaluation: Track performance against projections and integration milestones.
- Adjustment Strategies: Implement adjustments to achieve synergy and efficiency goals.
