Checklist for Company Acquisitions | Reef Rechtsanwälte Düsseldorf

The key advantage of acquiring an existing company is its established customer base. This eliminates many of the risks that would come with founding a new business. The major challenge lies in finding an attractive target at an acceptable price. This is when the due diligence phase begins.

Due diligence is a comprehensive review process prior to a company acquisition, aimed at gathering and evaluating all relevant information about the target company. The goal is to make potential risks, opportunities and financial aspects transparent. Only in this way can well-informed decisions be made.

To provide an initial overview, we have created a general due diligence checklist available for download:

Step	Responsible Party	Contents and Notes
Non-Disclosure Agreement (NDA)	Seller and Buyer	Prohibition on soliciting customers and employees and on using information for competitive purposes
Disclosure of information about the company	Seller	Value of the company Reason for the sale Willingness to onboard the buyer Timeline for the company acquisition
Assessment of the feasibility of the company acquisition and continuation of the business	Buyer	In the case of debt financing: Verification that financing can be secured within the timeline In the case of a licensed business: Clarification that all necessary permits can be obtained within the timeline

Step	Responsible Party	Contents and Notes
Term Sheet	Seller and Buyer	- Purchase price (definition and calculation model) - Seller's warranties - Seller's support obligations - Non-compete clause - Transfer of customers and bank accounts - All other matters of relevance to buyer and seller
Commercial Due Diligence, Exclusivity Period & Purchase Agreement	Seller and Buyer	- The length of the exclusivity period should be guided by the scope of the commercial due diligence and allow sufficient time for all required reviews. - Draft of the purchase agreement based on the findings of the due diligence.

Which aspects the term sheet contains in detail depends on the individual parameters of the respective company acquisition. It is advisable to focus on the commercial objective. Legal details such as securing the purchase price can be negotiated by experts at a later stage. We are happy to advise you on this point as well. Typical contents of a term sheet include:

Scope of transfer: The term sheet specifies which parts of the company or which assets are to be transferred, and defines the scope of the transaction.
Transfer of ownership: This sets out the conditions and the timing of the transfer of ownership, including any reservations or conditions that must be met.
Transitional arrangements: Provisions governing how the transition from seller to buyer is structured, to ensure a smooth process between contract signing and full transfer.
Buyer’s profit: This determines from when profits or proceeds are due to the buyer, and how prepaid costs and taxes are to be handled.
Purchase price structure: This covers the financial aspects of the transaction, including the composition of the purchase price and any potential adjustments.
Due date of the purchase price: The term sheet specifies when the purchase price is due and includes possible security mechanisms for both parties.
Seller’s warranties: Warranties given by the seller regarding certain aspects of the business are recorded, along with possible consequences in the event of a breach of these warranties.
Support obligations: What onboarding and support obligations does the seller have towards the buyer after completion of the transaction, and for how long do these continue? Any possible remuneration of the seller for these services is also addressed.
Non-compete clause: This covers non-compete restrictions for the seller and measures to protect customer relationships.
Tax clauses: Provisions relating to incorrect tax assessments, subsequent claims and the allocation of tax refunds.

Legal due diligence is the responsibility of lawyers and tax advisors. A report on the current status is prepared, which may include recommendations for action. In addition to commercial and legal due diligence, a technical due diligence may also be necessary if plant and machinery are being sold as part of the transaction. A technical expert should be consulted for this purpose.

All information must be provided truthfully and in full. Subsequent contractual amendments or supplementary agreements must be disclosed. This includes written, oral and tacit arrangements.

Area	Contents
Inventory list	- All transferred assets - Third-party rights over transferred assets
Real property	- All transferred real property - Third-party rights over real property (leases, tenancies etc.)
Contracts	- Existing contracts (loans, customer contracts, insurance policies etc.) - Are there any irregularities or unfulfilled liabilities?
Corporate law	- Company registration - All business premises of the company - Articles of association - Shareholders' list - Shareholders' resolutions - Scope and extent of powers of representation - Corporate law agreements (shareholder loans, profit transfer agreements etc.) - Applications for insolvency proceedings
Employment law	- Number of employees - Employment contracts (including collective agreements) - Is there a transfer of undertaking pursuant to § 613a BGB? - Works agreements - Entitlements under occupational pension schemes - Are there any outstanding claims against employees?
Tax law	- When was the last tax audit? - Annual financial statements and, where applicable, tax assessments for the years since the last tax audit - Are there any irregularities? - Does the transaction constitute a business transfer pursuant to § 1 para. 1a UStG? - Are there any tax liabilities for which the buyer would be liable pursuant to § 75 AO?
Intellectual property and copyright	- Required rights, patents and licences (for images, texts, software, trademarks etc.) - Patents, rights of use and licences granted by the company to third parties
Public law	- Necessary permits (Can these be transferred?) - Notification obligations to authorities - Grants or subsidies - Liability for environmental contamination
Consent requirements	- What consent requirements exist? (Shareholders' meeting, supervisory board, bank, competition authority etc.)

Step	Questions and Contents
1. Evaluation of the due diligence	- Have any issues arisen? - Proposed solutions including clarification of responsibilities and cost allocation
2. Drafting the purchase agreement	- Who prepares the draft and by when? - By when will the other party review and comment on the draft? - What tasks (including timeframes) arise from the purchase agreement for both parties? - When and where will outstanding matters be renegotiated to produce a purchase agreement ready for signature?
3. Contents of the purchase agreement	- Addresses, applicable law, jurisdiction, date - Scope of transfer - Purchase price - Transfer of ownership (when and how) - Transitional arrangements - Details on the transfer of profit and proceeds to the buyer - Taxes (advance payments, subsequent claims) - Seller's warranties - Onboarding and support obligations - Non-compete clauses and customer protection - Confidentiality obligations

On the path to a successful company acquisition, diligence and strategic considerations are of decisive importance. A thorough analysis of the target company is essential to avoid unpleasant surprises at a later stage. It is therefore indispensable to involve specialist experts for legal, tax and financial matters, particularly in the context of due diligence.

Only with the support of experienced lawyers and tax advisors can you ensure that you fulfil your duty of care. Regardless of whether you are a buyer or seller, as a law firm specialising in corporate and tax law we offer comprehensive advice from planning through to the signing of the purchase agreement. In doing so, we develop a tailored due diligence checklist for your company acquisition.

Checklist

Download Checklist

Phases of a Company Acquisition

1. Information Gathering

2. Commercial Agreement

Term Sheet – Contents in Detail

3. Legal Due Diligence

Reviews During the Due Diligence

4. Drafting the Company Purchase Agreement

Your Path to a Successful Company Acquisition

Team Corporate Law / M&A

Urs Breitsprecher

Reinhold Poppek