Review Checklist
Mark Blayney trained as an accountant with PricewaterhouseCoopers, and has specialised in the area of restoring the value of companies in difficulty for the last ten years. He runs Creative Strategy, a business strategy turnaround consultancy; Creative Finance, an asset-based finance brokerage raising cash for businesses; and Creative Bridging Finance, a specialist property lender.
REVIEW CHECKLIST
Set out over the next pages is an outline checklist that you may wish to use to review the overall strategic position and strengths and weaknesses of the businesses that you are looking at in a consistent way.
Confidential
Target |
|
Contact |
|
First visit date |
|
Basis of valuation |
|
Target valuation |
|
Walk away valuation |
|
Offer made |
|
Decision |
|
1 Business background
What is the business?
Summary of the business’s history |
Summary of current ownership |
Group structure (if applicable) |
Products/services & markets (see 4) |
Conclusion re business |
Attach a copy of:
- the organisation chart
- financial summary from Chapter 6.
2 The owner
Who are you dealing with?
Personal details |
|
Your impression of character |
|
Reason for selling |
|
Key requirements from a sale |
|
Preferred deal structure |
|
Other key shareholders? |
|
Third party consents required? Any issues? |
|
How critical to the business is the owner? |
|
Are they needed in the business afterwards? If so, how long? |
|
Advisers in place? |
|
Is the business privately owned or is it a quoted entity (even if only on OFEX)? Note that additional advice, time and costs will be required when dealing with the regulatory issues around any quoted business |
|
Estimated likelihood of completing |
|
3 Summary business healthcheck
Record an overview of the business.
Is the industry, sector or market going through significant change?
|
|
What is really different about the business, that makes people buy from it rather than its competitors?
|
|
Does the business have a clear vision/strategy (does it have a map of where it is going?) Is it realistic? Is it a formal plan (can you obtain a copy)? |
|
Does the business know how it compares to its competitors? Does it use market research? Or benchmarking? |
|
Is it investing enough for the future (in training its people; upgrading its processes and spending on capital equipment, development of new products and marketing)? |
|
Does it have a strong enough management team with all the necessary functional skills? Does it work as a team?
|
|
Is the business going through any major change (e.g. high growth, a move of premises or a major acquisition) that is stretching its management and/or financial resources? |
|
Is it facing up to any necessary changes (e.g. bringing in external management experience whereneeded)?
|
|
Is its financial management strong enough?
|
|
Has it got all its eggs in one customer or supplier basket? |
|
Are there hidden assets?
|
|
Are there hidden liabilities?
|
|
Are there hidden risks not covered elsewhere?
|
|
Is there really a business here to buy? |
|
How robust are the business’s systems? |
|
How robust is the business’s financial performance and stability? |
|
Is it suffering from some catastrophic event (e.g. a fraud, fire or flood)? |
|
Is it an attractive business to buy? |
|
4 Product/market matrix
What products or services does the business supply to what markets?
Market |
Product A |
Product B |
Product C |
Product D |
Product E |
1 |
|
|
|
|
|
2 |
|
|
|
|
|
3 |
|
|
|
|
|
For each product/market, estimate:
- market size and rate of growth
- the business’s percentage share of the market (and rate of growth)
- levels of profit generated
- value of assets employed.
5 Business environment
Are any changes happening or likely in the future that will significantly affect the industry/business?
Political – legislation |
|
Economic |
|
Social |
|
Technological |
|
Industry realignment |
|
6 Industry characterisation
How is the industry structured?
Who has the power in the market? suppliers?
|
|
How easy is it for new competitors to enter the market? |
|
What alternative products exist for consumers? |
|
How intense is competition within the industry?
|
|
How rapid is growth in the industry? |
|
What is the basis of competition?
|
|
Who are the key competitors? |
|
Are there any particular environmental or legislative risks? |
|
7 Competitive edge
Why do customers buy from the business? What are its strengths that give it an edge over the competition?
Is it better – how do the products differ significantly in the eyes of customers from the competitors? |
|
Is it cheaper – does the business produce/sell at significantly lower costs than its competitors? |
|
Is it different – does it meet the needs of any particular group(s) of customers significantly better than its competitors? |
|
Which if any of the above is the basis of its current strategy? |
|
Is this sustainable in the future? Why? (Can it be copied?) |
|
How does the business market and sell its products? What is its strategy on:
|
|
What particular strengths/advantages does it have in comparison with its competitors?
|
|
Has it been investing enough in protecting its position to sustain its advantages into the future? |
|
In what ways are its competitors stronger (and why)? |
|
What are the key constraints on the business?
|
|
What is the attitude towards the company of:
|
|
Are there any key suppliers/customers that will need to be retained to make the business a success? |
|
8 Management team
Which members of staff make up the management team? Who is responsible for which aspects?
|
Name |
Qualification |
Responsibility |
Chief Executive |
|
|
|
Operations |
|
|
|
Sales |
|
|
|
Finance |
|
|
|
HR |
|
|
|
IT |
|
|
|
Other key |
|
|
|
Obtain an organisation chart. As you review the business, judge how accurately it reflects what actually occurs in the business day to day.
How well do the management team appear to communicate with each other and the staff? Do they operate as a team?
Are there any key staff whose departure would hurt the business? What do you need to do to retain them?
9 Business issues
What are the main issues facing the business?
What are the key issues and challenges facing the business? |
What are the critical factors for the business to achieve success? |
|
|
|
|
|
|
|
|
|
|
CONFIDENTIALITY
To make any progress in moving towards a purchase you will need to obtain confidential information about the company’s affairs. Before long you should therefore expect that the owner will require you to sign a confidentiality letter or non-disclosure agreement (NDA) in respect of any information that they are going to give you.
This is not an unreasonable request and in practice maintaining confidentiality is actually normally as much in your interests as the prospective purchaser as it is in the seller’s. Remember that until there is certainty as to the sale being completed, any knowledge that discussions about a sale are underway will almost invariably have an adverse impact on the business. If, for example, employees find out that a sale is being contemplated, this can only cause them uncertainty about their future and the future of the business. This will be communicated to both the customers and the suppliers, who will also become concerned about the prospects and future of the business, and also to its competitors, who will seek to take advantage of the situation by poaching good staff and customers.
Other than individuals who actually need to be brought into the loop, sellers will only want to inform their staff about the deal once it is agreed, at which point they can announce the name of the buyer and can also provide staff with security as to the timetable for any changes and knowledge about what to expect.
You may therefore find that a certain amount of ‘cloak and dagger’ tactics will be employed to maintain confidentiality. A meeting and a tour of the plant may be arranged under a variety of pretexts (for example you may have to pretend to be prospective customers who want to meet with the senior management and also tour the premises). Key information that you will need to review in detail can be provided through a data room arranged off-site, say at the office of the seller’s advisers, where if necessary follow-up meetings can also be held.
A confidentiality agreement can take the form of either a formal non-disclosure agreement, as in the example, in Appendix A on page 423, or a less formal confidentiality letter (for an example of such see page 115 of Selling Your Business For All It’s Worth).
