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

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ENTITY Form 4-05
43
REF.
PREPARED BY REVIEWED BY
REVISION DATE SECTION PAGE
LOCATIONAL FACTOR NO
IMPACT
NEGATIVE SOMEWHAT
POSITIVE
VERY
POSITIVE
Environment for production personnel
Environment for professional personnel
Proximity to customers
Proximity to suppliers
Availability of advanced communication services
Transportation facilities:
Proximity to expressways
Proximity to rail facilities
Proximity to air transportation facilities
Proximity to water transportation facilities
Ability to accommodate expansion:
Availability of existing facilities
Availability of vacant land for new construction
Local construction restrictions
Local construction costs
Local weather conditions
Local energy costs
Local environmental restrictions
Local government financial incentives
Tax concessions
Investment incentives
Revenue bond financing
Underwrite relocation costs
Underwrite training expenses
POTENTIAL IMPACT OF LOCATIONAL FACTORS ON A PROSPECTIVE INVESTMENT
ENTITY Form 4-06
REF.
PREPARED BY REVIEWED BY
REVISION DATE SECTION PAGE
44
CHARACTERISTICS YOU MAY WISH TO AVOID
CHARACTERISTIC DOES ENTITY HAVE
THIS
CHARACTERISTIC
AVOID WILL
CONSIDER
GENERAL
Business you don’t know.
MANAGEMENT
One man company.
Lack of management depth.
Significantly different management style.
TYPE OF BUSINESS
Short product life cycle
Highly cyclical.
Highly seasonal.
High technology.
Mature product lines.
Heavy government regulation.
Heavy reliance on defense business.
COMPETITIVE ENVIRONMENT
Low market share.
Much larger and/or stronger competitors.
Competitors have significant cost advantage(s).
Poor reputation vis-a-vis competitors
ENTITY Form 4-06
45
REF.
PREPARED BY REVIEWED BY
REVISION DATE SECTION PAGE
CHARACTERISTIC DOES ENTITY HAVE
THIS
CHARACTERISTIC
AVOID WILL
CONSIDER
PRODUCTION CHARACTERISTICS
Obsolete or rundown facilities.
Obsolete or rundown equipment.
Processes involve environmental problems.
Labor intensive.
High labor cost environment.
Unionized.
Energy intensive.
High energy costs.
FINANCIAL CHARACTERISTICS
Capital Intensive.
Highly leveraged post-acquisition.
Acquisition involves substantial goodwill.
Acquisition will dilute earnings and/or book value per share.
Poor record of meeting financial projections.
OTHER CHARACTERISTICS TO BE AVOIDED
Past hazardous waste disposal practices.
Potentially costly litigation.
CHARACTERISTICS YOU MAY WISH TO AVOID (Continued)
ENTITY Form 4-07
REF.
PREPARED BY REVIEWED BY
REVISION DATE SECTION PAGE
46
WHY IS THE ENTITY AVAILABLE?
REASON NOT
APPLICABLE
STATED
REASON(S)
OTHER
POSSIBLE
REASONS
OWNERS PERSONAL REASONS
Wishes to retire:
Has no heirs to take over.
Employees are not financially able to fund the acquisition.
Wants to “go fishing.
Has a health condition.
Tired of working long hours.
Wishes to get into less demanding activities.
Tired of the heavy responsibility.
Desire for liquidity:
To get estate in order.
To invest in another activity.
Offered a more attractive opportunity.
Involved in a divorce settlement.
BUSINESS REASONS
Business is not currently producing adequate level of earnings.
Increasing competition from stronger and/or lower cost
producers.
Future earnings are expected to deteriorate due to:
Increasing wage and/or benefits demands by labor.
Increasing operating costs.
Increasing debt service costs.
Increasing taxes.
Cannot, or does not wish to make the heavy expenditures
required to:
Expand and/or automate facilities to remain competitive.
Develop new and/or updated products.
Meet new environmental regulations.
Meet new OSHA regulations.
ENTITY Form 4-07
47
REF.
PREPARED BY REVIEWED BY
REVISION DATE SECTION PAGE
REASON NOT
APPLICABLE
STATED
REASON(S)
OTHER
POSSIBLE
REASONS
BUSINESS REASONS (Continued)
Dispute between partners or controlling shareholders.
Expectation that the current selling price is potentially greater
than can be anticipated in the future.
Poor market conditions for raising needed capital infusion.
Deteriorating revenue and/or earnings trend.
Unsettled market for equity offering.
Potential loss of control to obtain required funds.
High interest cost associated with debt offering.
Severe restrictions imposed by potential lenders.
Anticipated benefits from being associated with a stronger, more
diversified, firm.
To avoid having to file for bankruptcy.
To avoid an unfriendly takeover.
OTHER REASONS
EXPERIENCE TO DATE IN SELLING THIS ENTITY
Is it common knowledge that this entity is available? [ ] Yes [ ] No.
How long has the entity been on the market? __________ months.
What other companies are known to have looked at this entity? __________________________________
Is the entity known to have received any firm offers? [ ] Yes [ ] No.
If so, from whom? ______________________________________________________________________
WHY IS THE ENTITY AVAILABLE? (Continued)

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