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The AMA Handbook of Due Diligence by Andrew J. Sherman, William M. Crilly

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ENTITY Form 4-03
REF.
PREPARED BY REVIEWED BY
REVISION DATE SECTION PAGE
38
POTENTIAL IMPACT OF EXTERNAL FACTORS (Continued)
POTENTIAL BENEFIT NO
IMPACT
NEGATIVE SOMEWHAT
POSITIVE
VERY
POSITIVE
MAJOR DOMESTIC ECONOMIC AND DEMOGRAPHIC FACTORS
Changing age distribution of the U.S. population
Population movement toward sunbelt regions
Business relocation away from congested urban areas
Increasing participation of women in government,
management and the professions
Increasing number of two-wage-earner families
Increasing home employment opportunities
Increasing requirement for child day care facilities
Increasing cost of medical procedures
Increasing trend toward telecommuting
Legislation re balancing the budget
Legislation re health-care reform
Legislation re improving education
Increasing energy costs
Increasingly stringent environmental regulations
Increasing highway congestion
Increasing waste disposal problems
TECHNOLOGICAL FACTORS
Integration of computer and communications systems
Increasing power and lower cost of personal computers
Utilization of world wide web and internet
Development of multimedia technology
Miniaturization of electronic components and equipment
Advances in fiber optic technology
Advances in genetic engineering
Development of electric powered vehicles
Advent of an economic supersonic transport
Development of high speed rail services
Deregulation of previously regulated industries
ENTITY Form 4-04
39
REF.
PREPARED BY REVIEWED BY
REVISION DATE SECTION PAGE
POTENTIAL BENEFIT NO
IMPACT
NEGATIVE SOMEWHAT
POSITIVE
VERY
POSITIVE
POTENTIAL ADMINISTRATIVE BENEFITS
Source of needed management skills
Improves age distribution of management staff
Improves depth of management
Enhances individual managers growth opportunities
Permits consolidation of management functions
POTENTIAL DATA PROCESSING BENEFITS
Increases utilization of existing facilities
Justifies acquisition of more powerful system(s)
Permits sale of surplus equipment
POTENTIAL MARKETING BENEFITS
Eliminates a competitor
Improves competitive position
Improves market share
Expands products/services offered to existing customer
base
Expands customer base
Extends geographic boundaries of market - Domestic
Extends geographic boundaries of market - Foreign
Reduces volitility of sales due to economic conditions
Reduces seasonal variation in sales
Reduces impact of inflation
Permits replacement of obsolete and/or slow growth
products or services
Reduces dependency on sales to the defense industry
Reduces dependency on sales to other government
agencies
Permits consolidation of sales facilities
Permits consolidation of sales personnel
Gains valuable patents, copyrights and/or trademarks
POTENTIAL BENEFITS FROM ACQUISITION
ENTITY Form 4-04
REF.
PREPARED BY REVIEWED BY
REVISION DATE SECTION PAGE
40
POTENTIAL BENEFITS FROM ACQUISITION (Continued)
POTENTIAL BENEFIT NO
IMPACT
NEGATIVE SOMEWHAT
POSITIVE
VERY
POSITIVE
POTENTIAL FINANCIAL BENEFITS
Increase growth in earnings
Increase earnings per share:
Immediate post acquisition
Near term expectation
Improve earnings ratios:
Return on equity
Return on assets
Return on sales
Improve stability of revenues and earnings
Reduce seasonal variation in revenues and earnings
Increase cash flow
Enhance cash position from sale of surplus assets
Improve debt/equity ratio
Enhance borrowing capacity
Potential for upgrading undervalued assets
Sale of underperforming activities
Utilization of tax loss carry forwards
Improve credit standing with suppliers
Improve credit rating of debt securities
Improve market valuation of equity securities
Improve price/earnings ratio of shares
Obtain listing on public exchange:
To provide liquidity for existing shareholders
To have vehicle for future public offerings
To provide shares for subsequent acquisitions
To broaden ownership in Company
Qualify for listing on higher level exchange
Reduce ownership of major existing shareholder(s)
ENTITY Form 4-04
41
REF.
PREPARED BY REVIEWED BY
REVISION DATE SECTION PAGE
POTENTIAL BENEFIT NO
IMPACT
NEGATIVE SOMEWHAT
POSITIVE
VERY
POSITIVE
POTENTIAL PRODUCTION BENEFITS
Utilization of excess capacity
Obtains needed additional capacity
Increased volume provides economies of scale
Obtains advanced production skills and/or equipment
Justifies purchase of advanced state-of-the-art
equipment
Retirement of obsolete facilities and/or equipment
Increased volume results in more favorable prices and terms
from suppliers
Reduces impact of increasing union demands
Obtains access to lower cost production labor
Reduces inventory levels through elimination of one
complement of “safety” stocks
POTENTIAL DISTRIBUTION BENEFITS
Consolidation of warehouse facilities and/or equipment
Justifies acquisition of more automated warehouse
equipment
Permits sale of surplus facilities and/or equipment
Increased volume improves ability to negotiate
reductions in freight rates
Candidate’s distribution facilities closer to customers
POTENTIAL NEW PRODUCT DEVELOPMENT BENEFITS
Consolidation will Increase utilization of surplus capacity
Adds additional and/or complementary research skills
Adds additional research facilities and equipment
Permits sale of obsolete and/or redundant facilities
Reduction of redundant personnel
Obtains access to candidate’s secret technology
Reduces product development time
POTENTIAL BENEFITS FROM ACQUISITION (Continued)
ENTITY Form 4-04
REF.
PREPARED BY REVIEWED BY
REVISION DATE SECTION PAGE
42
POTENTIAL BENEFITS FROM ACQUISITION (Continued)
POTENTIAL BENEFIT NO
IMPACT
NEGATIVE SOMEWHAT
POSITIVE
VERY
POSITIVE
POTENTIAL HUMAN RESOURCE BENEFITS
Improve job security for employees
Opportunity to improve fringe benefit package
Enhance employees’ life style through relocation
Reduce vulnerability to increasing union demands
POTENTIAL PUBLIC RELATIONS BENEFITS
Enhance public image
Enhance investor image
OTHER POTENTIAL BENEFITS

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