Business acquisition: Free checklist

Business acquisition checklist

Acquiring a business can be a transformative move for growth, but it’s critical to make sure every part of the process is carefully managed. This business acquisition checklist helps you navigate the process, from assessing the structure of the deal to ensuring compliance with legal, tax, and financial requirements.

Using this due diligence checklist for business acquisitions helps you avoid common mistakes and ensures a smooth transition for both buyer and seller.

How to use this business acquisition checklist

Here’s how to use this business acquisition checklist effectively:

• Follow the steps: This checklist walks you through each key stage of a business acquisition, from preliminary considerations to post-closing. Use it to make sure you cover all necessary tasks and documentation.
• Tailor to your deal: Every acquisition is different. Adjust the checklist based on the specifics of your transaction—whether you’re acquiring through an asset sale, share purchase, or merger.
• Stay on top of tasks: As you move through the acquisition, mark off completed steps to stay organized and ensure nothing is missed, from due diligence to finalizing agreements.
• Consult advisors: Make sure to involve legal, financial, and tax advisors throughout the process to help identify any potential risks or compliance issues.

Checklist

Structural issues

[ ] Asset or share sale:

[ ] Decide if you're buying the business through an asset sale or a share sale.

[ ] Deal structuring factors:

[ ] Consider legal, tax, and commercial factors when deciding deal structure.

[ ] Shared assets or services:

[ ] Plan how to separate shared assets or services if the business is part of a larger group.

[ ] Pre-sale changes:

[ ] Consider if any pre-sale changes are needed, such as asset transfers or dividend payments.

Preliminary tax considerations

[ ] Holding structure:

[ ] Decide whether to structure the deal directly or through a holding company.

[ ] Tax treatment of deal type:

[ ] Asset purchases may offer depreciation benefits, while share sales may avoid double taxation.

[ ] Tax loss utilization:

[ ] Check if the buyer's group can use any tax losses in the target.

[ ] Pre-sale reorganizations:

[ ] Understand any tax-driven reorganizations like dividend distributions before closing.

[ ] Tax clearance:

[ ] Check whether tax clearance is required, especially in share-for-share deals.

[ ] Deductibility of payments:

[ ] Confirm deductibility of severance payments or restrictive covenant payments.

[ ] Group debt impact:

[ ] Consider tax impact of group debt repayments.

[ ] Payment for tax losses:

[ ] Decide whether tax losses should be separately valued in the purchase price.

[ ] Post-closing tax planning:

[ ] Optimize post-closing tax on profits and payments, considering anti-avoidance rules.

Financing issues

[ ] Acquisition funding:

[ ] Choose between self-funding, debt financing, or equity raising.

[ ] Regulatory requirements:

[ ] Confirm compliance with regulatory requirements for equity issuance.

[ ] Debt structure:

[ ] Ensure debt structure is tax-efficient and review lender requirements for security or guarantees.

[ ] Financial assistance laws:

[ ] Check for any restrictions on financial assistance under local law.

[ ] Target company loans:

[ ] Review existing loan terms and determine repayment or continuation post-acquisition.

Transaction process and planning

[ ] Sale process:

[ ] Determine whether the process is bilateral or competitive (e.g., auction).

[ ] Buyer type:

[ ] Identify whether buyer is strategic or financial investor.

[ ] Advisory teams:

[ ] Confirm advisors and compile a contact list.

[ ] Timeline planning:

[ ] Plan key milestones, including regulatory or shareholder approvals.

[ ] Engagement letters:

[ ] Ensure all advisors have signed engagement letters before work begins.

Pre-acquisition agreements

[ ] Confidentiality agreement:

[ ] Protect sensitive information before due diligence begins.

[ ] Exclusivity agreement:

[ ] Prevent seller from engaging with other buyers during negotiations.

[ ] Letter of intent (LOI):

[ ] Outline headline terms to guide negotiations.

[ ] Good faith negotiations:

[ ] Consider legal obligation to negotiate in good faith in relevant jurisdictions.

[ ] Formal offer process:

[ ] Confirm whether a formal or regulated process is required by law.

Due diligence

[ ] Legal due diligence:

[ ] Gather all legal documents related to the target company.

[ ] Review contracts, licenses, and regulatory compliance.

[ ] Assess any ongoing or potential legal disputes.

[ ] Ensure the company owns all necessary intellectual property.

[ ] Financial due diligence:

[ ] Review financial statements and audits.

[ ] Verify the company’s revenue and profit history.

[ ] Check outstanding debts or liabilities.

[ ] Assess cash flow and working capital needs.

[ ] Accounting due diligence:

[ ] Confirm accounting methods and policies.

[ ] Review any tax liabilities or unpaid taxes.

[ ] Assess past and current audits for discrepancies.

[ ] Verify financial forecasts and projections.

[ ] Business operations:

[ ] Understand the company’s business model and operations.

[ ] Review customer and supplier contracts.

[ ] Assess the company’s market position and competitors.

[ ] Cross-border acquisition:

[ ] Check compliance with international laws and regulations.

[ ] Review local tax rules and potential liabilities.

[ ] Ensure all necessary filings or notifications are made.

Documenting the transaction

[ ] Documenting the transaction:

[ ] Confirm the share purchase agreement as the main document outlining the sale and purchase terms of the target shares.

[ ] Determine which company within the buyer’s group will acquire the target.

[ ] If the transaction spans multiple jurisdictions, decide if transfers will happen locally or at the parent company level.

[ ] Decide if a single agreement or multiple local agreements are needed.

[ ] Check if guarantees are necessary from a third party to secure obligations.

[ ] For multiple sellers:

[ ] Confirm if all sellers can be located and are willing to sign the agreement.

[ ] Consider using an alternative structure to handle minority sellers.

Purchase price

[ ] Purchase price:

[ ] Confirm how the purchase price will be paid: cash, shares, loan stock, or a combination.

[ ] Choose a price mechanism:

[ ] Pay all at closing or structure it with earn-outs.

[ ] Use a locked box or closing accounts for the price calculation.

[ ] Decide if there will be any escrow or retention arrangements.

[ ] Determine how the price will be split among multiple sellers and plan for tax implications.

Conditions

[ ] Conditions:

[ ] Determine if signing and closing will happen simultaneously or if there will be a gap to fulfill conditions.

[ ] Confirm if shareholder or regulatory approvals are needed.

[ ] Check for any change of control clauses in key contracts.

[ ] Assign responsibility for satisfying closing conditions.

[ ] Set a cut-off date if conditions are not met.

[ ] Ensure buyer protections during any gap between signing and closing (e.g., seller conduct, material adverse changes).

Warranties, disclosure and limitation of liability

[ ] Warranties, disclosure and limitation of liability:

[ ] Decide the level of warranty protection from the seller.

[ ] Include indemnities for areas like environmental liabilities.

[ ] Set terms for disclosure qualifications to warranties (e.g., in a disclosure letter or schedule).

[ ] Define limitations on the seller's liability (e.g., caps, claims period).

[ ] Determine if warranties can be assigned to other group members.

[ ] Consider security for warranty breaches (e.g., retention or set-off).

[ ] Review buyer remedies for warranty breaches (e.g., liquidated damages).

[ ] Explore warranty and indemnity insurance options.

Protection of goodwill

[ ] Include restrictive covenants to protect the target company’s goodwill post-closing.

[ ] Prevent the seller from holding itself out as connected to the target after closing.

Governing law and jurisdiction

[ ] Confirm the governing law of the acquisition agreement.

[ ] Decide the dispute resolution process (e.g., arbitration or court jurisdiction).

Ancillary documents

[ ] Prepare a disclosure letter, unless the acquisition agreement includes a disclosure schedule.

[ ] Draft a tax deed if the acquisition agreement doesn’t contain a tax covenant.

[ ] Prepare new service contracts for key individuals, if needed.

[ ] Obtain the latest bank statements.

[ ] Ensure a bank reconciliation statement is prepared.

[ ] Draft and approve shareholder resolutions as required.

[ ] Prepare board minutes documenting the transaction.

[ ] Complete a share transfer form if shares are being transferred.

[ ] Finalize agreements with outgoing officers or employees.

[ ] Arrange mutual releases for any non-trading indebtedness.

[ ] Secure resignations from current target officers.

[ ] Obtain resignations from the target's auditors, if necessary.

[ ] Arrange for the appointment of new officers, and if applicable, update bye-laws, registered office, bank mandates, and the accounting reference date.

[ ] Ensure any charges on the target’s assets are released.

[ ] Prepare a detailed agenda for the closing process.

[ ] Plan press, trade, or stock exchange announcements related to the transaction.

[ ] Secure powers of attorney for signatories not present at closing, directors signing on behalf of a corporate seller or buyer, or for the buyer if share transfer registration may be delayed.

Competition law issues

[ ] Consider potential merger control issues early on.

[ ] Determine if the transaction falls under supra-national regulations (e.g., EU Merger Regulation).

[ ] Check if national competition authorities have jurisdiction and if clearance is required.

[ ] Verify if the acquisition involves a special sector (e.g., defense, financial services).

[ ] Check if restrictive covenants or agreements need to be notified or assessed by competition authorities.

[ ] Ensure the target company complies with competition laws.

[ ] Cover relevant subsidiaries and jurisdictions in competition-related due diligence.

[ ] Include necessary conditions in the agreement for competition clearance in relevant jurisdictions.

Employment

[ ] Identify employees and ensure key employees stay with the company post-transaction. Consider incentive plans.

[ ] Check if employee consultation or consent is required for the transaction.

[ ] Amend restrictive covenants or draft new service contracts if needed.

[ ] Address required dismissals and their associated costs.

[ ] Review employment-related issues during the due diligence process.

[ ] Define the scope of employment warranties in the acquisition agreement.

Employee share schemes

[ ] Assess employee share plans during due diligence to identify potential issues.

Pensions

[ ] Investigate pension-related liabilities and issues during due diligence.

[ ] Ensure seller warranties cover pension liabilities and information accuracy.

[ ] Consider indemnities for potential claims under EU laws (e.g., part-time employees).

[ ] Plan for bulk transfers from the seller’s pension schemes and agree on an actuarial basis for calculations.

Intellectual property rights

[ ] Identify relevant IP owned by the target company and assess its dependencies.

[ ] Confirm ownership of IP and make provisions if IP is owned by other group members.

[ ] Determine if IP needs to be shared between seller and buyer after the transaction.

[ ] Include IP-related warranties in the acquisition agreement.

Information technology

[ ] Review IT systems, including ownership, functionality, and software licensing.

[ ] Assess IT security and data protection policies.

[ ] Plan for shared infrastructure and licensing arrangements if needed.

[ ] Obtain IT-related warranties for systems and services.

Environment and health and safety

[ ] Review EHS risks during due diligence.

[ ] Ensure EHS warranties are comprehensive and assess indemnity scope.

[ ] Check if environmental permits need to be transferred or applied for post-transaction.

[ ] Assess impact of upcoming EHS laws on the target’s business.

Anti-corruption

[ ] Conduct anti-corruption due diligence to assess risks.

[ ] Consider impact of identified risks and buyer’s liability.

[ ] Include anti-corruption representations and warranties.

[ ] Determine reporting obligations for bribery or corruption findings.

Real estate

[ ] Identify properties used or owned by the target and related liabilities.

[ ] Conduct real estate due diligence for share and asset purchases.

[ ] Determine inclusion of real estate warranties and need for purchase condition modifications.

[ ] Pre-closing actions:

[ ] Update earlier property searches and perform any additional pre-closing searches.

[ ] Obtain required consents or approvals before closing.

[ ] Ensure properties are free of charges, liens, or encumbrances before closing.

[ ] Confirm all necessary deeds and documents are available for closing.

Signing and closing

[ ] Prepare closing agenda to guide the process.

[ ] Signing and closing process:

[ ] Determine if signing and closing are simultaneous or separated.

[ ] Decide if signing and closing will take place in person or virtually.

[ ] Finalize transaction documents including the share purchase agreement.

[ ] Agree on legal opinion format required at signing or closing.

[ ] Confirm signatories for each document and arrange necessary signatures.

[ ] Ensure correct document execution by all relevant parties.

[ ] Verify closing conditions are met or properly waived.

[ ] Confirm corporate approvals such as board and shareholder resolutions.

[ ] Agree on funds flow and ensure required funds are available.

[ ] Coordinate release of charges or security over the target company at closing.

Post-closing considerations

[ ] Determine if press releases or public announcements are needed after closing.

[ ] Assign responsibility for preparing transaction bibles and ensure they are compiled and distributed promptly after closing.

Benefits of using a business acquisition checklist

When acquiring a business, the process can be complex with numerous tasks to manage. A checklist provides structure, ensuring nothing gets overlooked. Here’s how it helps:

• Avoid missing steps: Acquisitions involve many details and deadlines. A checklist ensures all tasks are covered, preventing important steps from being forgotten.
• Save time: With a clear roadmap, a checklist helps you focus on tasks and avoid delays, keeping the acquisition process on track.
• Minimize risk: Following a structured list reduces the chance of errors or missteps that could lead to costly consequences down the line.
• Stay organized: A checklist organizes each stage of the acquisition, helping manage tasks efficiently, especially when multiple teams are involved.
• Improve efficiency: With everyone clear on what needs to be done and by when, a checklist ensures the team works together seamlessly.

Frequently asked questions (FAQs)