Transaction Lists: Diligence and Integration

|Advisor Corner

There are two common lists a Buyer and Seller work through during a transaction – the Diligence checklist and the Integration checklist. What are these and why are they important?

Seller’s Perspective: The Diligence Checklist.

Once you go under contract and sign a Letter of Intent you formally move into the due diligence process. This 60-90 day period is where the Buyer provides you with a Diligence Checklist – a very thorough list of document requests and questions related to the state of your business. The purpose of the diligence process is for the Buyer to take a “look under the hood” and confirm everything provided when marketing the business is true and to understand any liabilities or areas of concern. You do this when you’re buying a house – an inspector checks all the systems to make sure everything is in good working order.

Typical diligence procedures include: verifying historical financials and forecasts/budgets, reviewing environmental matters, discussing any litigation issues, digging into insurance and benefit policies and claim history, assessing employees, and much more. This portion of the process is like a root canal – the Buyer will keep digging to make sure they’ve done a thorough review of all areas of the business. As you work to provide the buyer with all the information they need in order to close, it is easy (and normal) to feel overwhelmed. Trust that as you work through the Diligence Checklist, you’re getting closer to the finish line. Use your checklist to stay focused on what you can provide and do it in a timely manner while also keeping a firm eye on business activities.

Buyer’s Perspective: The Integration Checklist. As a Buyer, the post-closing checklist is just as important as the pre-closing diligence activities. The Integration Checklist is a document that outlines all activities the Buyer needs to work through from 30 days pre-closing to 60/90 days post-closing. It’s a safeguard to ensure all systems and processes continue running smoothly on closing day and the weeks to come. Every facet of your new business must be thoroughly evaluated for holes and potential change-of-ownership issues. Communication to employees, customers and suppliers must be carefully planned and tactfully executed.

An Integration Checklist includes items related to: Financials, Taxes, Banking, Communication, Human Resources, Information Technology, Operations and Facilities, Products and Services, Brand and Intellectual Property, Risk and Insurance, Customers and Suppliers, Contracts, Permits and Licenses, Organization and Corporate Form, Inventory, Sales and Marketing, Research and Development, and anything else that is specifically relevant to your business.

Each category of business has specific requirements that must be handled to transition the business smoothly. For example, if the business operates with specific permits and licenses, the Buyer needs to review these before closing and determine if they can be transferred or if they need to refile for new ones. The various steps to review these licenses, their requirements and then take action to have them transferred or refiled will all be outlined specifically within the Integration Checklist.

It’s important for the Buyer to work through the checklist with full support of the Seller, executing the following steps:

  1. Divide lists into areas of expertise (i.e. Finance, HR, Sales).
  2. Delegate a responsible party for each area.
  3. Define a verifiable goal or target for each task.
  4. Set a timeline with milestones for each deliverable.
  5. Designate regular check-in times (i.e. weekly calls) and a person to enforce deadlines for all areas.

Don’t underestimate the power of a list! They keep the transaction on track and all parties focused during a busy diligence, closing and transition period.

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