Checklist
for company acquisitions
Acquiring a company is a strategically complex process. To avoid potential pitfalls and make the transaction process as smooth as possible, a detailed checklist is invaluable.
If you are a buyer or seller and would like customised advice, we are happy to assist you. With decades of expertise in the areas of commercial and corporate law as well as labour and tax law, we ensure that your interests are well represented.
Download checklist
The main advantage of taking over a company is the existing customer base. This eliminates many of the risks associated with setting up a new company. The major challenge lies in finding an attractive property at an acceptable price. Then the due diligence phase begins.
Due diligence is a comprehensive review process prior to a company takeover in order to collect and evaluate all relevant information about the target company. The aim is to make possible risks, opportunities and financial aspects transparent. Only in this way can well-founded decisions be made.
To provide an initial overview, we have created a general due diligence checklist for download:
Note: This due diligence checklist serves as a non-binding sample and does not claim to be exhaustive. The elements that actually need to be considered in a risk and due diligence assessment to determine the value of the company always depend on the object of purchase and the individual needs of the buyer and seller.
Phases of the company acquisition
In principle, a company acquisition can be divided into four phases:
- the acquisition of information by the buyer
- the economic agreement between buyer and seller
- the legal due diligence
- the drafting of the company purchase agreement
1. information gathering
| Step | Person responsible | Contents and notes |
|---|---|---|
| Confidentiality agreement (NDA) | Seller and buyer | Prohibition of the poaching of customers and employees and the use of information for competition purposes |
| Disclosure of information about the company | Seller |
|
| Examination of the feasibility of the company acquisition and the continuation of the company | Buyer | In the case of credit financing: Examination of whether financing can be secured within the schedule For operation requiring authorisation: Clarification of whether all necessary authorisations can be obtained within the time schedule |
In order to establish realistic expectations regarding the time frame and to avoid unsettling both customers and employees, tax and legal advice should definitely be sought. In this way, potential uncertainties can be cleared up at an early stage.
In addition, professional advice ensures that the buyer can actually guarantee the continuation of the company. The seller should also be made aware that the entire timeline depends on how quickly all the necessary documents for the due diligence are made available.
2. economic agreement
| Step | Person responsible | Contents and notes |
|---|---|---|
| Term Sheet | Seller and buyer | - Purchase price (definition and calculation model) - Guarantees on the part of the seller - Support from the seller - Non-compete clause - Transfer of customers and bank accounts - All other questions that are important for buyers and sellers |
| Economic due diligence, exclusivity period & purchase agreement | Seller and buyer | - The length of the exclusivity period should depend on the scope of the
economic due diligence and to allow sufficient time for all
necessary checks. - Draft of the purchase agreement based on the findings of the due diligence. |
As a rule, the economic agreement is reached subject to the proviso that neither the economic nor the legal due diligence reveals facts that negatively affect the company valuation and the purchase price. Should this nevertheless be the case, new discussions must be held. If the due diligence even leads to the negotiations being broken off, the buyer can, under certain conditions, expect the costs of the due diligence to be reimbursed because the knowledge gained would only benefit the seller.
Term sheet - the contents in detail
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 economic objective. Legal details such as securing the purchase price can be negotiated by experts at a later date. We would also be happy to advise you on this point. Typical contents for a term sheet are:
- Scope of the transfer: The term sheet provides information on 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 time of transfer of ownership, including any reservations or conditions that must be fulfilled.
- Transitional arrangements: Rules on how the transition from seller to buyer is organised in order to ensure a smooth process between seller and buyer. signing of the contract and complete transfer.
- Buyer's profit: This determines when profits or proceeds are due to the buyer and how to deal with prepaid costs and taxes.
- Purchase price structure: This deals with the financial aspects of the transaction, including the composition of the purchase price and any adjustments.
- Maturity of the purchase price:: The term sheet specifies when the purchase price is due and contains possible hedging mechanisms for both parties.
- Seller's warranties: Warranties are made by the seller regarding certain aspects of the company and the possible consequences of breaching these warranties.
- Support obligations: What familiarisation and support obligations does the seller have towards the buyer after completion of the transaction and how long do these last? Possible remuneration of the seller for these services is also regulated.
- Non-compete clause: This section deals with non-compete clauses for the seller and measures to protect customer relationships.
- Tax clauses: Provisions relating to incorrect tax assessments, subsequent claims and the distribution of tax refunds.
3. legal due diligence
Legal due diligence is the task of legal and tax lawyers. This involves preparing a report on the status quo, which may contain recommendations for action. In addition to the economic and legal due diligence, a technical due diligence may also be necessary if plant and machinery are also being sold. A technical expert should be consulted for this.
All information must be truthful and complete. Subsequent contractual amendments or supplementary agreements must be disclosed. This includes written, verbal and tacit agreements.
Audits during due diligence
The exact structure of the legal due diligence depends on the circumstances of the individual case. In principle, it is always necessary to check whether legal disputes already exist or whether potential legal disputes could arise as a result of the sale.
The following table provides an overview of the common areas that are analysed as part of a legal due diligence:
| Range | Contents |
|---|---|
| Inventory list | - All items sold - Third-party rights to sold items |
| Real estate | - All properties sold - Third-party rights to properties (rental agreements, leases, etc.) |
| Contracts | - Existing contracts (loans, customer contracts, insurance policies, etc.) - Are there any anomalies or unfulfilled liabilities? |
| Company law | - Registration of the company - All operating sites of the company - Articles of association of the company - List of shareholders - Shareholder resolutions - Content and scope of powers of representation - Company law contracts (shareholder loans, profit transfer agreements, etc.) - Applications for insolvency proceedings |
| Labour law | - Number of employees - Employment contracts (incl. collective labour agreements) - Is there a transfer of business pursuant to § 613a BGB? - Company agreements - Claims from company pension schemes - Are there any outstanding claims against employees? |
| Tax law | - When was the last tax audit? - Annual financial statements and, if applicable, tax assessments for the years since the last tax audit - Are there any irregularities? - Is there a sale of business pursuant to Section 1 (1a) UStG? - Are there any tax debts for which the buyer would be liable under § 75 AO? |
| Industrial property rights and copyright | - Necessary rights, patents and licences (for images, texts, software, brands, etc.) - Patents, rights of use and licences granted by the company to others |
| Public law | - Necessary authorisations (can these be transferred?) - Duty of disclosure to authorities - Subsidies or grants - Liability for environmental pollution |
| Consent requirements | - What authorisation requirements exist? (shareholders' meeting, supervisory board, bank, cartel office, etc.) |
4. the drafting of the company purchase agreement
| Step | Questions and contents |
|---|---|
| 1. evaluation of the due diligence | - Have any problems occurred? - Solution approaches including clarification of responsibilities and assumption of costs |
| 2. draft of the purchase agreement | - Who creates the draft and by when? - Until when will the other party review and comment on the draft? - What tasks (including time horizon) result from the purchase agreement for both parties? - When and where are open issues renegotiated for a purchase agreement that is ready to be signed? |
| 3. content of the purchase contract | - Addresses, applicable law, place of jurisdiction, date - Scope of the transfer - Purchase price - Transfer of ownership (when and how) 9 - Transitional arrangements - Details on the transfer of profit and proceeds to the buyer - Taxes (advance payments, additional claims) - Guarantees on the part of the seller - Familiarisation and support obligations - Non-compete clauses and customer protection - Duties of confidentiality |
Your path to a successful company acquisition
Care and strategic considerations are crucial on the way to a successful company acquisition. Thoroughly analysing the target company is essential to avoid any unpleasant surprises later on. It is therefore essential to involve experts in legal, tax and financial matters, especially during the due diligence process.
Only with the support of experienced lawyers and tax advisors can you ensure that you fulfil your due diligence obligations. Regardless of whether you are a buyer or a seller, as a law firm specialising in corporate and tax law, we offer comprehensive advice from planning to signing the purchase agreement. We develop a customised due diligence checklist for your company acquisition.
