Due Diligence Checklist

Example due diligence checklist used for investment banking transactions.

Due diligence checklist

Below is an example of a due diligence checklist for mergers & acquisitions, capital raising, and other transactions.  The due diligence checklist includes over 25 items that range from financial to legal to operations items that should be verified before completing the transactions.

 

due diligence checklist

 

Example due diligence checklist items

  1. What is the bank’s current and historical involvement with the corporate issuer and its management?
  2. Has the lead underwriter/agent reviewed the issuer’s business and operations with the issuer’s management?
  3. Does management have a written business plan, corporate strategy and/or internal budget/forecast? If so, were such materials reviewed by the lead underwriter/agent in the context of this transaction? {optional for bought deals}
  4. What are the key factors for issuer/ industry success?
  5. Has the lead underwriter/agent reviewed the issuer’s current and historical financials? Were any material issues identified that have not been disclosed adequately?
  6. Has the lead underwriter compared the issuer’s actual financial performance against the issuer’s plan? {optional for bought deals}
  7. Has the lead underwriter/agent been provided with any forecast financial information?
  8. Review of TTM financials and monthly performance plan.
  9. Has the lead underwriter/agent conducted any site visits? {optional for bought deals}
  10.  Has the lead underwriter/agent consulted with any experts (e.g. Independent engineers, environmental consultants, tax accountants, forensic investigators, etc.) In connection with the offering?
  11. Has the lead underwriter completed any customer / supplier checks to determine relationships/ reputation? {optional for bought deals}
  12. How well does the bank know the issuer’s management team? Does the bank have any reason to be concerned about the competence or integrity of the issuer’s management?
  13. How much time has the bank spent with the issuer’s management in connection with the offering and/or any historical transactions? Has the issuer’s CEO/ CFO been involved in preparing the issuer’s public disclosure documents?
  14. In the case of an issuer that is already a public company, is the lead underwriter aware of any concerns about the issuer’s disclosure history?
  15. Has the issuer’s management and external advisors been fully cooperative with the underwriters and underwriters’ counsel during the due diligence process?
  16. Has the bank equity research department been involved in the due diligence process? Does the bank equity research department cover the issuer’s securities? Is the bank equity research department familiar with the issuer’s business generally, as a result of covering some of its competitors or otherwise? {optional for bought deals}
  17. Has the issuer’s independent auditor been involved in the due diligence process and/or participated in drafting any of the issuer’s public disclosure documents? Has the issuer instructed the auditor to deliver an auditor’s long form comfort letter to the underwriters/placement agents in connection with the offering? Does the bank have any reason to be concerned about such auditor’s competence?
  18. Has the lead underwriter/placement agent reviewed the auditors’ management letters for the preceding three years?
  19. Has the issuer changed any of its accounting policies in the preceding three years where such changes were material to the issuer’s financial statements? Has the issuer indicated any intention to change its current accounting policies during the next 12 months?
  20. Has the lead underwriter/placement agent reviewed the issuer’s management information systems and technology infrastructure?
  21. Who are acting as external legal counsel (name of firm and lawyers principally involved) for the underwriters/placement agents? Has external counsel completed a customary legal due diligence review of the issuer? Has the lead underwriter/placement agent indicated any dissatisfaction with the degree of counsel’s participation in the prospectus process, the extent of counsel’s access to the issuer’s management, litigation records, material contracts and minute books or the results of counsel’s due diligence investigation? Does the bank have any reason to be concerned about such counsel’s competence?
  22. Who are acting as external legal counsel (name of firm and lawyers principally involved)’ for the issuer? What is such counsel’s history with issuer? Has such counsel been involved in the due diligence process and in drafting the offering memorandum or prospectus used to complete the offering? Does the bank have any reason to be concerned about such counsel’s competence?
  23. Who are the issuer’s directors? Does the bank have any reason to be concerned about the competence or integrity of the issuer’s management?
  24. In the case of an initial public offering or a secondary offering by a major shareholder, has the major shareholder(s) been involved in the due diligence process and/or participated in drafting the offering memorandum or prospectus used to complete the offering? Is the major shareholder providing any representations, warranties or indemnities in connection with the offering? {optional for bought deals}
  25. Has the lead underwriter/placement agent and/or external counsel reviewed the issuer’s material contracts to confirm that they are disclosed sufficiently and accurately?
  26. Does the issuer’s success depend significantly on any proprietary intellectual property including relevant patents, trademarks or websites? If so, has counsel to the underwriters/placement agents reviewed the adequacy of the issuer’s legal protections and any related risk disclosures?
  27. Apart from the offering, what are the issuer’s other sources of material financing?
  28. Has the financial modeling and valuation work been vetted by multiple parties?
  29. Does the issuer have any significant environmental issues, liability or exposure?

 

Additional resources

Thank you for reading this guide to CFI’s example of a due diligence checklist.  To keep learning and advancing your career in corporate finance, these additional resources will help you on your way: