Best Practices

The Complete M&A Due Diligence Checklist for 2021

Jonathan Friedman
June 5, 2021
The Complete M&A Due Diligence Checklist for 2021

You can't afford to be lax and make mistakes with Mergers and Acquisitions (M&A). Due diligence is an absolute must, no matter how well you think you know your subsidiary or partner organization. As a result, you need an M&A due diligence checklist to ensure you are successful any your deals.


Below is everything we will cover. Feel free to skip ahead.



Why you need an M&A due diligence checklist


Proper due diligence before and during an M&A transaction can be stressful and overwhelming. It is, however, necessary. If you want to ensure that all parties agree to an equitable deal, you need to ensure that you've checked and double-checked everything. 


This is why having an actual physical checklist is so vital. It gives each of the responsible parties an itemized list of all the info they need before they can comfortably proceed with the M&A deal. 


How due diligence works


The bulk of due diligence activities consists of gathering information from each party involved in the merger or acquisition. This information must be reviewed and verified for complete accuracy. Otherwise, the consolidated company may face financial or legal repercussions. 


The information required from each party spans multiple business activities and departments. The best way to ensure that all of the necessary information has been collected is to obtain copies of documented evidence. Examples of due diligence documents include financial statements, tax paperwork, and legal agreements. 


Sections to include in your M&A due diligence checklist


Based on these due diligence activities for collecting business data, your checklist should contain at least the following sections:


M&A Due Diligence Checklist Sections


This is not a static list. It is just a guide. You may need to add sections or remove them from the list.


It depends on the industry/industries the M&A parties belong to and how many departments will be involved.


Regulations and compliance


This section refers to the regulatory policies with which each party in the M&A must comply. It includes both internal regulations and external regulations (ex. American National Standards Institute).


Legal matters


Legal matters cover everything from identifying information to existing agreements between each party and external entities. 


These documents are among the most vital for M&A due diligence. This is because they provide insights into how legitimate, viable, and trustworthy an organization may be. In other words, how risky is each M&A party as a potential party?


Numerous factors could indicate that an organization is high-risk. These include multiple pending lawsuits and a history of broken agreements. 

 

Financial matters


Before completing any M&A activities, you want to ensure that the organizations you plan to interact with have a respectable financial standing. The best way to do that is to collect each organization's financial statements.


Financial statements describe the gross profits, revenue, income, assets, liabilities, equity, and cash flow for each organization. As such, they are the best way to glean long-term market value for each organization. They also portray how capable and stable each organization is.


Taxes


Taxes are the responsibility of the financial team behind M&A activities. Defining and calculating taxes is a complex process, however. For the interest of everyone involved, you should separate your tax activities into a separate section of the checklist. 


Commercial position


An organization's commercial position forms the bridge between its financial standing and marketability. It describes how well the organization performs in the market and what kind of organizations it interacts with as customers, suppliers, and competitors. Both of these go a long way in describing the organization's public appeal.


Intellectual property rights


Intellectual property rights are a subset of legal matters that warrant their own section in the checklist. They are non-physical assets, meaning that they can be challenging to define in comparison to other assets. However, they are within the full ownership of each organization involved in the M&A activity. 


Health and safety protocols


Environmental health and safety (ES&H) is closely related to legal matters. ES&H protocols describe each separate party's health and safety measures.


There are three components to ES&H protocols. They don't just cover the party's efforts to keep its employees safe. They also concern about their efforts to protect their customers and the overall operating environment.


Human Resources (HR)


M&A ventures inherently require organizations to integrate differing workforces and organizational cultures. No matter how similar these cultures may seem at the forefront, there will always be disparate areas that could cause potential conflict.


To avoid this, the best action is to compare the HR policies for each party in the M&A. This helps executives and HR managers understand how each organization differs in the treatment of its employees. As such, it also helps them determine which policies will cause the least friction when adopted by all organizations as a whole

 

Information Technology (IT)


As mentioned with intellectual property rights, M&A activities combine more than just physical assets for multiple organizations. They also combine technology and technological processes. Therefore, understanding how each organization conducts itself in the IT-sphere and secures its intellectual assets is necessary.


Marketing


Finally, your checklist should cover any strategic marketing decisions made by each party involved in the M&A. 


M&A due diligence checklists


We have compiled the following items for a thorough M&A due diligence checklist. Bear in mind that, while comprehensive, this checklist may not cover the entire gamut of operations involved in your specific M&A activity. You may need to tailor this list to make it fully applicable to your organization.


Legal due diligence checklist


Corporate organization



Management



Capital structure



Legal



Regulatory and compliance



Real estate


 

Financial due diligence checklist


Accounting



Finance



Operations



Insurance


 

Tax due diligence checklist



Intellectual property due diligence checklist


Intellectual property registrations



Intellectual property contracts



Intellectual property development



Intellectual property litigation



Health and safety due diligence checklist



Human Resources (HR) due diligence checklist


General Human Resources



Benefits and compensation



HR agreements



HR policies



Information Technology due diligence checklist


General IT



IT security



Commercial due diligence checklist


Supply chain



Marketing



Customers



M&A due diligence checklist templates


You know the information you need, but formatting and tracking your due diligence checklist might be a little more complicated. To that end, why should you try to reinvent the wheel and cause yourself more stress by developing your template? It's much simpler to base your checklist on a template that already exists. 


A variety of programs offer M&A due diligence checklist templates. On the simpler end of the spectrum, examples include Excel templates and program add-ons. These perform the full functionality of a checklist but do not enable any integrations with project data.


If you want an interactive list that connects to live data for your M&A activities, you'll want to use a more robust template.


TrueNxus: The single platform solution for all of your project management needs


In the virtual age, M&A activities and other sensitive projects require a high degree of sophistication and detail. A flat M&A due diligence checklist is no longer sufficient for proper project management at any level. 


That's where TrueNxus comes into play. Our cloud-based project management solution has helped dozens of companies manage the entire M&A process.


For more information on our product, offers, and pricing, contact us today.