• The Due Diligence Process

    Tue/04/2017 Corporate
    THE FOLLOWING IS A LIST OF THE INFORMATION YOU SHOULD COMPILE FOR THE DUE DILIGENCE PROCESS This is not a complete list, as certain additional information will be required depending on the industry sector. Therefore, this should be used as a guide only to assist you in preparing for a transaction. FINANCIALS (USE YOUR ACCOUNTANT) 1. Profit and Loss Account 1. The company’s Profit and Loss Account going back as far as possible, preferably 5 years 2. Company tax returns going back as far as possible but a minimum of 3 years 3. Comparative report outlining all Income and Expense items from one year to the next. This will an item by item comparison (eg in Advertising costs) from one year to the next. 4. Projected Profit and Loss Accounts if any available. SALES 1. List of sales by customer for the current year and prior year. 2. Sales policies and credit terms. 3. Discount/pricing structure 4. Sales Report by sales rep including details of their performance for the year to date MARKETING 1. Copy of current Marketing Plan if available 2. Detailed commentary on the MP-results of each campaign, costs, business generated, etc. 3. Copy of all company marketing materials 4. Any current year reports from sales/marketing employees on marketing activity and suggestions for the future EMPLOYEES 1. Organisational Chart outlining the reporting lines 2. For each employee, a. a Job Description, b. details of the compensation (itemised between salary, bonus, non financial compensation such as car allowance, expense account, etc.), c. years of service, d. and details of any with commitments or promises made to any of them (e.g. future bonuses, share options or cash payments) 3. Copies of any Employee Contracts 4. Copies of any Consulting Agreements 5. Employee files with memos for any disciplinary action or warnings if any 6. Listing of any labour disputes, work stoppages, or any other related issues (pending, considered or otherwise) 7. Copy of Employee Benefit Schemes (e,g. medical, pension etc) 8. Summary of company incentive plans, including profit sharing if any 9. Confidentiality Agreements if any 2. The Balance Sheet 1. A copy of the Balance Sheet going back several years, preferably 5 2. A copy of the most recent Balance Sheet from the Management accounts PREMISES 1. If freehold, a copy of the most recent valuation 2. If leasehold, a copy of the lease agreement 3. Details of any improvements carried out in the last 3 years. MACHINERY, FURNITURE AND EQUIPMENT 1. Listing of all items 2. Valuation report 3. Depreciation schedule indicating accumulated and remaining 4. Lease contracts, including monthly repayments and term remaining 5. Details of any maintenance contracts in place DEBTORS (Accounts Receivable) 1. Summary of the amounts due from all customers, employees or any other party. 2. Detailed Aged listing of balances due by each customer for the current period and at last year end date. 3. Details of any bad debt provisions made in the current or last financial year. 4. Copies of customer invoices, lodgement books and bank statements for the current year. STOCK AND WIP 1. Stock and WIP Report, by item 2. Sales report by item for the past 12 months 3. Details of how often stock is counted, and by whom. 4. Confirmation of the basis of valuation of stock and WIP. 5. Details of any obsolete stock. BANKING 1. Copies of all bank statements for the past 3 years 2. Documentation on any existing loan or overdraft facilities (including rate of interest, loan terms, annual repayments and security held) 3. Listing of all company bank accounts, numbers, institution and account signees. LIABILITIES 1. Summary of amounts owed to third parties or the directors for the current year and last financial year end. 2. Aged analysis of the current trade creditors listing. 3. Details of credit terms received from suppliers. 4. Supplier statements for the current year, and details of any reconciling items. 5. Details of all amounts due to the Revenue, including VAT, PAYE/PRSI and CT, including dates. 6. Details of any payment plans entered into with any suppliers including the Revenue Commissioners. 7. Letter/Documentation from any other parties to whom you are obligated financially (eg staff or family loans) 3. Operational SYSTEMS 1. Contracts for any equipment leases, maintenance contracts 2. Software manuals (where available) 3. Website access, pass code (when purchase completed) 4. Copies of all reports currently being produced 5. Copies of any professional accreditation (e.g. ISO etc) documentation COMPETITION 1. All competitor marketing materials available 2. Listing of all major competitors, phone numbers and website address, profiles CONTRACTS 1. Copies of all contracts in the following categories: 1. Leases 2. Insurance Policies 3. Customer Contracts 4. Supplier Contracts If these are not all readily available, at a minimum, provide details of the contract term, expiry date and relevant third party contact name. LEGAL AND CORPORATE (USE YOUR SOLICITOR) 1. Copy of company minute books 2. Incorporation documents (Memo and Arts, Cert of Incorporation, Reg. of Business Name etc) 3. Copies of all documents related to any ongoing or potential legal proceeding 4. Copies of any contracts with suppliers, customers or partners (see Contract section above) 5. Copies of any trademarks, patents, license agreements etc
  • Understanding an Asset sale and a Share sale

    Mon/04/2017 Corporate
    When buying or selling a business, it is important to understand the difference between selling the assets of the business and selling the shares of the business (i.e. the limited company). If selling the assets, then any proceeds received will be paid to the limited company. Tax may be payable on the capital gain by the company as a result, based on the difference between the tax written down value and the proceeds. It is then a matter for the seller to extract the funds from the limited company, in a tax efficient manner. If there are no remaining assets in the company, then once the company has ceased trading, it can be dissolved. This may result in an extra cost to the seller, or an additional tax liability. From the buyer’s perspective, an asset sale is preferred as they can effectively cherry pick what assets they wish to take over. For example, they may decide that they will not take over the trade debtors, and it then is up to the seller to collect these amounts, including amounts from the slow payers. As the buyer is only purchasing certain assets of the company, they therefore pay less upfront, so reduce the level of finance required. VAT may also be payable on the asset sale. If selling the shares, then all of the assets and liabilities transfer as part of the transaction. This means that all of the trading history transfers on completion. For example, there could be a pending insurance claim against the company, which the buyer is now taking on. In practical terms, the buyer would seek an indemnity from the seller for these issues. Therefore, the contract will be far more detailed, as it will need to potentially disclose, quantify and cover off certain historical issues. If the company shares are sold, then the funds are paid directly to the seller (i.e. the shareholders). Personal tax would be payable on the uplift in the value of the shares by the seller, but there are a number of reliefs available to reduce or eliminate the tax payable. There is no VAT on a share sale. However, perhaps the most important distinction is in the treatment of employees. When a limited company is bought, all existing employment terms and conditions are preserved, including years of service, for all employees. Therefore, the buyer could potentially be taking on a large future redundancy exposure, or an exposure to claims from previous employees. If the assets are being sold, it would still be normal practice for employees terms and conditions to be preserved. In practical terms, this is done by way of TUPE regulations, where the employees are given notice, a month in advance of the transfer, of the details of the new employer, and the transfer does not affect their rights. However, because the buyer can pick and choose what is taken over, it may be that only certain employees are transferred and then the seller deals with the redundancy of the additional employees. Therefore, at first glance it would appear that the buyer will prefer an asset transfer, but the seller will favour a share sale. However, for the deal to be brokered successfully, one option must be chosen and it is then a matter for both parties and their team of legal and professional advisers to agree a contract which mitigates some of the risks identified, and meets both parties (after tax) valuation expectations. For further information or advice, please call Shane Connors on 086 3835138 or email
  • Earnouts

    Wed/03/2017 Corporate
    THE VALUE OF USING EARNOUTS TO FINANCE A TRANSACTION Earnouts are becoming increasingly popular as a means of financing transactions, and also reducing the business risk for the purchaser. They are typically used to bridge valuation gaps between both parties. An earnout allows the purchaser to pay less up front today, in return for a promise of a share in the future profits or cash flow of the business. There are a number of reasons why you should consider earnouts: From the sellers perspective It offers an opportunity to share in the future profits of the business. So for example, if the business is being sold to a much larger entity, the seller may be able to share in a % age of a much larger profit than if it were a standalone basis. This gives them an upside to the transaction, which otherwise might not have been achieved by simply using the traditional EBITDA valuation methodology. It may also afford the seller the option of remaining on in the business for a period of time, to manage the transition to the new owners, or to work part time for an agreed tenure, with a specific brief (such as business development, new product development, R&D, tendering etc). It also could allow the seller to remain on working, but not to have to worry about the day to day administration of the business, and focus on the areas they enjoy, adding significant value. From the buyers perspective It offers the buyer the opportunity to pay less upfront and therefore commit less cash flow or borrowings, so that there is enough cash to invest in strategic development. This reduces the risk while the business is in transition. It may also make it easier to raise third party (ie bank or equity) finance. The earnouts are usually paid from profits generated by the business, so there is no need to raise additional finance to pay for these. If they are based on profits, then if things don’t work out, they do not become due. However, there are a few issues which need to be addressed when considering the earnout option: • Basis of the calculation- eg is it based on profits and if so how exactly are these calculated? Ideally, they will be on a consistent basis as prior years, but that is not always the case. This needs to be agreed as part of the deal, and should be kept as simple as possible. • In some cases, the earnout can be based on % of business retained, or new business generated. This will require a sharing of information between both parties. • Security of payments – the seller needs to know that by deferring some of the consideration until a later date, they will still receive the full amount, as it falls due. There are ways of protecting this when agreeing the legal contract, such as taking security over certain assets, or company shares. • Length of time of the earnouts payments. Typically, the shorter the better. The buyer will want to Skillful negotiation will be required to get the optimal deal structure. Your professional advisers can assist with this, and in ensuring that each parties’ interests are protected as much as possible. For further information or advice, please call Shane Connors on 086 3835138 or email
  • 90 Days That Will Define Your Business Forever

    90 Days That Will Define Your Business Forever

    You've done the hard work of winning a new customer, but it's what you do in the next 90 days that determines if it'll stick around.
  • How Your Age Shapes Your Exit Plan

    How Your Age Shapes Your Exit Plan

    Thu/05/2016 Corporate
    How much does your ages shape how and when you will leave your business?