Private Equity Due Diligence Template
The Private Equity Due Diligence Checklist provides a framework of initial due diligence requests. These are tailored specifically to transactions involving private equities or privately-owned companies.
- Most suitable for transactions that involve private equities
- Initial requests help prompt basic information for a general overview of the target company
- Playbooks may be customized to accommodate your team’s or deal’s unique needs
What Questions does Private Equity Due Diligence Checklist Include
Understanding the target company and its business model is the foundational phase of the diligence process. It helps you glean an over-arching understanding of their potential investment. Data required ranges from general information about the company and their culture to conducting more in-depth surveys on internal processes.
ITEMS IN COMPANY/BUSINESS MODEL DUE DILIGENCE INCLUDE:
- Gather general company information — Name, Mission, Values, etc.
- Examine corporate bylaws
- Identify corporate identity and culture
- Evaluate business model
- Pinpoint and assess key internal processes
Legal/IP due diligence helps you deduce whether the target company is sound and complaint or riddled with statutory issues. Additionally, evaluating the target company’s intellectual property (IP) will aid in estimating overall business value. Information required often include various contracts, IP documentation, litigations, and licenses and permits.
ITEMS IN LEGAL/IP DUE DILIGENCE INCLUDE:
- Review labor/unionization relations and general employee contracts
- Examine and assess applicable intellectual property (IP) documentation — patents, copyrights, trade secrets, etc.
- Review lease and property agreements
- Assess supply and distribution contracts
- Scrutinize current collateral pledges, security agreements, indentures, and mortgages
- Investigate current/past disputes and litigations
- Identify governmental regulatory or administrative orders
- Assess governmental licenses & permits
Auditing the target company’s financial situation is an integral factor in valuing a company. Financial due diligence brings validity to the confidential information memorandum (CIM) and helps forecast potential financial risks. The documents required include audited/unaudited financial statements, tax documents, sales projections, and long-term debt agreements.
ITEMS IN FINANCIAL DUE DILIGENCE INCLUDE:
- Audit audited/unaudited financial statements
- Comprehensive audit of tax statements and practices
- Inspect historic and projected sales
- Scrutinize financial projections
- Assess debts and asset liquidity
- Inspect promissory notes and loan agreements
Human resources play a key role in an integration’s ultimate success. Examining HR practices and the target company’s people will help you understand the company culture, procedures, and indispensable personnel. Information collected org charts, benefits and compensation packages, employee contracts, and performance appraisals.
ITEMS IN HR DUE DILIGENCE INCLUDE:
- Evaluate the organizational structure and upper management
- Audit and evaluate HR policies and practices
- Evaluate HR metrics and statistics
- Scrutinize benefits and compensation packages
- Scrutinize pension and retirement plan options
- Review employee agreements and contracts — employee, compensation, collective bargaining, severance
- Assess Human Resources Information System (HRIS)
- Review performance appraisals
- Pinpoint key personnel
- Create an organizational restructuring strategy
Property, Plant, & Equipment
A company’s intangibles can be a costly investment. Appraising a company’s property, plants, and equipment will help safeguard against unforeseen expenses for faulty assets. Data required includes asset policies, depreciation methods, and physical inspections.
ITEMS IN PROPERTY, PLANT, AND EQUIPMENT DUE DILIGENCE INCLUDE:
- Evaluate ICT infrastructure and processes
- Assess fixed asset policies and depriciation methods
- Appraise current machinery and equipment
Hidden environmental and safety liabilities can result in thousands of lawsuits and fines. Verifying the target company’s compliance will protect against headaches and unnecessary expenditures down the line. Documents required include accident histories and material safety data sheets.
ITEMS IN ENVIRONMENTAL DUE DILIGENCE INCLUDE:
- Review safety hazards and on the job employee accident history
- Inspect Materials Safety Data Sheet (MSDS)
- Appraise the overall environmental impact of the company
After investing in a company, it would be devastating to find out their product, service, or idea is a complete flop. Evaluating the company’s market and competitive scape offers insight on the investment’s viability and long-term success. Items required include information on the current market, risks, trends, and competitors.
ITEMS IN MARKET/COMPETITION DUE DILIGENCE INCLUDE:
- Identify and evaluate current market
- Conduct SWOT analysis
- Catalog key competitors
- Pinpoint market trends and risks