Due Diligence/Confidentiality Agreement

Conducting a due diligence is an integral part of the purchase of any business. It involves the gathering of all information in respect of the business.

Prior to the conduct of a due diligence it is common for the Purchaser and its advisor to enter into a Confidentiality Agreement to preserve the confidentiality of the information that may be disclosed by the Seller.

It is also common for a Seller to insist that a Contract be entered into prior to a due diligence being conducted on the basis that a sale may be subject to a satisfactory due diligence being conducted.

External factors

External factors that may impact on the growth of the business can include:-

  • The economy;
  • The nature of the industry whether competitive or declining;
  • Is the position or geographical location of any importance;
  • Is accessibility an issue for employees, customers and suppliers of goods and services.

Checklist of all Information to be reviewed includes:

There are a number of documents and aspects of a business which should be reviewed when acquiring that business, including:

  • All financials of the business including S.52 Statement (if the business to be purchased is under $350,000);
  • The fixed costs of the business;
  • What factors will impact on the business profitability;
  • Lease of the business premises and any variations and renewals;
  • Disclosure Statement accompanying the Lease to determine outgoings of the business premises;
  • List of plant and equipment and their suitability for the business;
  • List of employees reflecting their terms of employment and entitlements;
  • List of all material contracts;
  • List of all intellectual property including business name, trademarks, design and patents, logos and software licences;
  • List of key personnel involved in the conduct of managing the business;
  • The restraint and non-competition that will need to be imposed on the Sellers to quarantine the business goodwill;
  • Whether the sale is of a “going concern” so that no GST is payable by the Purchaser or alternatively is it a sale of assets only whereby GST is payable;
  • Is the Seller/Purchaser registered for GST?;
  • Are systems in place such that the business can continue to operate without significant attrition of clients.