Seller's Perspective: Due Diligence

<p>In today's episode, we are talking about the due diligence process from the perspective of a seller and what to expect.</p><p><strong>What's in before an LOI:</strong></p><p>Corporate performance</p><ul><li>Market share</li><li>Leadership</li><li>Technical IP</li><li>Brand and intangibles</li><li>Key accounts</li></ul><p>Financial performance</p><ul><li>Revenue</li><li>Gross Margin</li><li>EBITDA</li><li>Operating Income</li></ul><p>Market conditions </p><ul><li>Market share</li><li>Comparative valuations / deals</li><li>Transaction motives</li></ul><p><br />Once a seller has disclosed with a degree of accuracy these 3 main metrics (with several sub metrics) it is acceptable to expect a letter of intent (LOI) surrounding a combination. In that letter a seller should expect a valuation (at least a range), a methodology for getting to the valuation (so that adjustment to the purchase price are based on actuals vs a change in perceived value levers), a list of terms including the currency (cash, equity, earn-out / or a combination of all) as well as a detailed allocation of where the IP value sits and how it is measured. <br /> </p><p><strong>Post LOI due diligence:</strong></p><p>An extensive list of disclosures, documents, and artifacts that verify the information gathered prior to the execution of an LOI.  </p><p>Below is a sample of the information gathered post LOI but ahead of definitive agreements (whether asset purchase or stock purchase):<br /> </p><table><tbody><tr><td><strong>Organization</strong></td></tr><tr><td>Articles of Incorporation</td></tr><tr><td>Company bylaws</td></tr><tr><td>Organization Charts</td></tr><tr><td>Capital structure</td></tr><tr><td>Certificate of Good Standing from state in which company is incorporated</td></tr><tr><td>List of regions in which the company is authorized to do business</td></tr><tr><td>List of regions in which the company has employees, contract relationships, leases facilities, or transacts business</td></tr><tr><td>List of any names (and documentation) under