Preliminary Due Diligence Questionnaire for an M & A Transaction

Preliminary Due Diligence Questionnaire for an M & A Transaction

The following is a list of information materials and documents that are to be provided as a part of preliminary due diligence related to XXXX Inc. (the “Company”) in connection with the acquisition of a shareholding in the Company (the “Transaction”).  The listed categories of documents are requested for the Company and each subsidiary of the Company if any.Overview of production process

Strategy and business plan

  • Overview of corporate strategy and development plans
    • Detailed financial business plan covering full P&L and cash flow forecasts for the next 5 years with particular focus on
      • Capital investment profile
      • Working capital requirements and funding
      • Timetable to implementation
    • Organizational challenges and solutions, including human capital and key parties required for strategy implementation
    • Review of current subsidy regime and expected future changes and developments


  • Review of an internal employee organization
    • Production and supervisory staff
    • Reporting relationships (e.g. from plants to corporate)
    • Overview of the production process
      • Technology selection criteria
      • Relationships with technology providers
    • Overview of feedstock process
      • Location relative to plants and general availability
      • Supply contracts
      • Largest suppliers of the business detailing volumes and expenditure per supplier for CY2009 and 2010YTD
      • Supplier scoring system
      • Transportation options and associated costs
    • Plant operating history
      • For existing facilities, actual construction cost and timeline vs. schedule
      • Production history vs. nameplate capacity
      • Ratio of key inputs to outputs
      • Production of by-products, if any
    • Power supply
      • Supply of natural gas and electricity to plants
      • Structure of supply contracts
    • Marketing
      • Key customers
        • Volumes and revenue per customer detailing % offtake of Company’s production volumes for CY2009 and 2010YTD
        • Split between wholesale vs. retail customers
        • Potential future customers
      • Transportation arrangements and cost
      • Structure of a typical sales contract
        • Purchase order (i.e. please discuss how they originate)
        • Responsibility for delivery and risk of loss
        • Purchase price
        • Storage and logistics
        • Term and termination
        • Force majeure

Financials and accounting

  • Overview
    • Description of accounting environment (organization, internal reporting, management-reporting-system, control mechanisms, key-personnel and procedures of approval)
    • Impact of changes in accounting standards, if any
    • Key findings of auditors (incl. management letters, if any)
    • Key accounting policies
      • Impact of changes in accounting policies
      • Revenue and profit recognition
      • Depreciation methodology
      • Recognition of trading revenues and profits
    • Financial controls
      • Budgeting and reporting process
      • Hedging policies and accounting
      • Receivable controlling / failure insurance, customer limits
      • Treasury / cash management
    • Last 3 years of audited consolidated accounts
    • Last 3 years of monthly management budgets and review of actual vs budgeted performance, detailing in particular
      • Key operational and trading performance metrics
      • Financing and liquidity situation
      • Profitability and cash flow metrics
    • Monthly management budget for CY2010 and 2011, detailing in particular
      • Key operational and trading performance metrics
      • Financing and liquidity situation
      • Profitability and cash flow metrics
      • Overview of hedging positions and terms
    • Review of income statement
      • Overview of key line items
      • Review of cost of sales, marketing, SG&A, R&D and corporate overhead expenses
      • Review of margin trend
      • Description of special or non-recurring items
    • Review of balance sheet
      • Overview of key line items
      • Review of property, plant & equipment
      • Review of financial liabilities
      • Review of working capital management (historic and projected)
    • Tax status
      • Approach to managing tax position
      • Discussion of tax risks
      • Tax loss carry-forwards, if any
    • Review of financial projections and underlying assumptions
      • Production volumes and pricing
      • Government incentives
      • Variable costs (feedstock, power, chemicals, etc.)
      • Fixed costs (labour, maintenance, marketing, property taxes, etc.)
      • Capex
      • Working capital
    • All credit agreements, promissory notes, indentures, guarantees, lines of credit, letters of credit, bonds, debentures and any other evidence of indebtedness (whether or not drawn down or merely available) of the Company including government sponsored loans, government assistance programs, etc
    • List of all original and current amounts outstanding, with due dates and interest rates, for the Company
    • Description of all loans or other financing arrangements with non-arms length parties of the Company including directors, officers, affiliates and owners of more than 5% of the shares of the Company and copies of all relevant documentation
    • All guarantees granted by the Company for the indebtedness of any obligation of a third party (including related parties).
    • List of all security granted by the Company against their respective assets (including intellectual property and information technology assets) as well as copies of any security agreements, debentures, indentures, trust deeds, bonds, mortgages and any other security documents
    • All bank letters or agreements regarding lines of credit of the Company
    • All documents and agreements evidencing other material financing arrangements of the Company, including sale and lease back arrangements, instalment purchases, etc.
    • All material correspondence with lenders, including all compliance reports submitted by the Company or its accountants.
    • All computations demonstrating compliance by the Company with covenants in existing financing documents.

Corporate and shareholder structure

  • Organizational chart for the Company including its shareholders, subsidiaries and other affiliates, including a list of operating divisions.  For each subsidiary provide the structure and percentage of the Company’s ownership, the structure of outside holdings and details of any other owners.  For non-corporate entities please provide a copy of the agreement governing such entity and details of any other owners.
    • List of all entities which the Company has a (direct or indirect) substantial investment
    • All partnership or joint venture agreements entered into by the Company
    • Articles of Incorporation, Articles of Amalgamation, Articles of Continuance or equivalent legal  documents of the Company with all amendments to date
    • By-laws of the Company with all amendments to date
    • Written consents or minutes of meetings relating to actions by the Board of Directors, any committee of the Board of Directors, and shareholders of the Company
    • All shareholders’ agreements, voting agreements, trusts, rights of refusal, stock option plans, stock purchase plans, pledges, etc. affecting the securities of the Company
    • Lists of all holders of options, warrants, convertible shares, convertible debt and other rights to acquire securities of the Company with details as to numbers of securities covered, exercise prices, vesting and other terms and copies of all agreements relating thereto
    • Agreements, indentures or other instruments which contain restrictions with respect to payment of dividends or other distributions in respect of shares of the Company
    • Any agreements relating to proceeds of sale of the Company, and any affiliate

Directors, officers and employees

  • Management team structure / organizational charts
    • Management team biographies
    • Management contracts and compensation / incentive programs
    • Dependency on key people (management, key technical staff, other)
    • Employee locations and headcount (salaried / non-salaried)
    • Status of labour relations
    • Employee training and development programs

Material contracts

  • All pending or existing contracts or commitments related to the business of the Company, in particular with respect to
    • Significant contracts for the purchase of materials, supplies, or equipment.
    • Significant customer contracts
    • Agency, sales, marketing, commission, export, customs, distribution, advertising dealer, manufacturer’s representative or franchise agreements.
    • Lease agreements
    • Transportation agreements
    • Management, service, consulting or any other similar type of contracts
    • Outsourcing, strategic alliance or any other similar type of agreements
    • Agreements, contracts or commitments involving the Company with an aggregate obligation greater than $100,000
    • Principal documents relating to any investments, acquisitions, mergers or dispositions of businesses or assets involving the Company out of the ordinary course of business during the last 5 years
    • Summaries of any current or future proposals to dispose of any businesses or assets of the Company not in the ordinary course of business
    • Documentation, agreements and contracts with respect to capital expenditures or commitments for additions or improvements to property, plant or equipment
    • Related party agreements


  • List and description of any significant assets, properties and holdings of the Company and its subsidiaries and its importance as part of the business
  • All mortgages, deeds of trust, leasehold mortgages or other encumbrances with respect of the real property used by the Company and provide details of any defaults with respect to the obligations secured thereby

HSEQ & Insurance

  • Overview of Safety, Health and Environment policies

1. government regulations, e.g., emissions standards

2. Preventative operations with respect to plant operations

 3. Incident history

 4. Recent/upcoming regulatory inspections, other regulator inspections/reports

  • Overview of Quality management system/procedures
  • Certifications (e.g. ISO standards)
  • Overview of Insurance policies

Environmental Matters

  • Any government notices, orders, enquiries, material correspondence or third party complaints concerning environmental matters (such as air emissions, wastewater management, water use and treatment systems, waste management, etc.), including those related to real property wholly or partly owned by or under the management or control of the Company (including real property managed by outside parties).
  • Any environmental audits, site assessments or reports in the possession of the Company or that the Company is aware of having been conducted, including those related to real property wholly or partly owned by or under the management or control of the Company  (including any real property managed by outside parties).
  • Any internal reports on environmental matters that have been presented to the management of the Company during the last 5 years or have been prepared for presentation to management.
  • List of all existing aboveground storage tanks that contain or contained chemicals or hazardous materials and all underground storage tanks located at or on real property that is owned or leased by the Company.

Corporate governance, internal controls, and IT environment

  • Current and planned corporate governance structure
  • Description of the risk management system
  • Internal auditing process
  • Overview of IT environment

Regulatory matters

  • List of all licenses, permits, authorizations, etc. issued by any governmental authority or other body related to the business or the ownership and use of the assets of the Company
  • List of all licenses, permits, authorizations, etc. which the Company believes that it may need but does not have
  • List details of any defaults, violations, etc., or any adverse proceedings pending or threatened with respect to revocation or renewal, of licenses, permits, authorization, etc
  • Blending regulations per operating location and expected changes and developments
  • Overview of any other tax incentives available to the business

Legal matters

  • Summaries of any active, pending or threatened material claims, actions, arbitrations, or other proceeding, involving the Company. Include parties, nature of proceedings and issues involved, date of commencement, current status, relief sought, estimated actual liability, estimated maximum liability, insurance coverage, if any, and any legal opinions rendered, in the summaries
  • Description of any convictions or fines levied against the Company any directors, officers or employees of the Company during the last 5 years.
  • All orders, rulings, judgments, consent decrees or other decrees of all courts, administrative agencies or tribunals and all settlement agreements or other agreements requiring or prohibiting any present or future activities or imposing any continuing obligations or restrictions on the Company
  • Information as to any actual or potential contingent liabilities of the Company which would not be included in any of the above

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