Appendix
This appendix provides you with extra content to help get your M&A show on the road, including Web sites, sample M&A documents, and lists of the info you may need to gather for important M&A stages.
Online Resources
All M&A deal-makers need some extra help, so to that end I’ve compiled some resources, advisors, and private equity firms in this section.
Groups, associations, and networking organizations
M&A, as with most industries, has some networking and professional associations. If you’re thinking about pursuing a career in M&A, I suggest acquainting yourself with the following groups:
Alliance of Merger & Acquisitions Advisors: www.amaaonline.com
Association for Corporate Growth: www.acg.org
Association of Professional Merger & Acquisition Advisors: www.apmaa.com
Global M&A Network: www.globalmanetwork.com
Institute of Mergers, Acquisitions, and Alliances: www.imaa-institute.org
Merger Network: www.mergernetwork.com
Virtual data rooms
M&A deal-makers today utilize online data rooms for due diligence (see Chapter 14). Here are few of the commonly used rooms:
Firmex: www.firmex.com
Merrill Datasite: www.datasite.com
Share Vault: www.sharevault.com
V-Rooms: www.v-rooms.com
Periodicals
The following sections help you satisfy your nose for news. The first section lists some good sources of M&A-specific news, while the second provides some of my favorite sources for more-general business news.
M&A periodicals
Buyouts: www.buyoutsnews.com
The Deal: www.thedeal.com
Deal Reporter: www.dealreporter.com
Debt Wire: www.debtwire.com
Dow Jones LBO Wire: www.dowjones.com/privatemarkets/lbo.asp
Mergers & Acquisitions: www.themiddlemarket.com
Merger Market: www.mergermarket.com
Thompson Reuters: www.thomsonreuters.com
Business periodicals
Barron’s: www.barrons.com
Bloomberg: www.bloomberg.com
CFO: www.cfo.com
Financial Times: www.ft.com
Forbes: www.forbes.com
Fortune: www.money.cnn.com/magazines/fortune
Inc: www.inc.com
Investor’s Business Daily: www.investors.com
Wall Street Journal: www.wsj.com
Advisors
A deal-maker needs suitable counsel from lawyers and accountants. Some firms that focus on M&A transactions, especially for the middle market and lower middle market, include the following:
Accounting and auditing
Baker Tilly: www.bakertilly.com
BDO Seidman: www.bdo.com
Crowe Horwath: www.crowehorwath.com
Deloitte: www.deloitte.com
Ernst & Young: www.ey.com
Grant Thornton: www.grantthornton.com
KPMG: www.kpmg.com
PriceWaterhouseCoopers: www.pwc.com
RSM McGladrey: www.mcgladrey.com
Law firms
Baker McKenzie: www.bakermckenzie.com
Horwood Marcus & Berk: www.hmblaw.com
Morrison Foerster: www.mofo.com
Quarles & Brady: www.quarles.com
Ulmer Berne: www.ulmer.com
Ungaretti and Harris: www.uhlaw.com
Vedder Price: www.vedderprice.com
Wildman Harrold: www.wildman.com
Winston & Stawn: www.winston.com
Private equity firms
Private equity is one of the usual suspects when it comes to finding a Buyer for a company. The United States alone has hundreds of private equity firms. Here are just a few of them.
Audax Group: www.audaxgroup.com
Beecken Petty O’Keefe & Company: www.bpoc.com
Eos Partners: www.eospartners.com
Frontenac Company: www.frontenac.com
Gemini Investors: www.gemini-investors.com
Geneva Glen Capital: www.genevaglencapital.com
Harbour Group: www.harbourgroup.com
H.I.G. Capital: www.higcapital.com
Huron Capital Partners: www.huroncapital.com
LaSalle Capital Group: www.lasallecapitalgroup.com
Linsalata Capital Partners: www.linsalatacapital.com
Longroad Asset Management: www.longroadllc.com
Mason Wells: www.masonwells.com
McNally Capital: www.mcnallycapital.com
Monomoy Capital Partners: www.mcpfunds.com
Pfingsten Partners: www.pfingstenpartners.com
Prairie Capital: www.prairie-capital.com
Prospect Partners: www.prospect-partners.com
Saw Mill Capital: www.sawmillcapital.com
Sverica International: www.sverica.com
Svoboda Capital Partners: www.svoco.com
Trivest Partners: www.trivest.com
Wynnchurch Capital: www.wynnchurch.com
Regulatory agencies
An M&A advisor should be registered with the Financial Industry Regulatory Authority, Inc (FINRA). Visit FINRA’s Web site (www.finra.org) for more information. The Securities Investors Protection Corporation (SIPC) is a federally mandated entity charged with protecting investors from fraud, so you should be familiar with it as well. Check it out at www.sipc.org.
Online business references
A few good sources for business information include the following. These sites don’t necessarily focus on M&A, but they provide great information and research tools for M&A-related work nonetheless.
Biz Stats: www.bizstats.com
Capital IQ: www.capitaliq.com
Deal Logic: www.dealogic.com
Ibis World: www.ibisworld.com
Investopedia: www.investopedia.com
OneSource: www.onesource.com
US Census Bureau – Business & Industry: www.census.gov/econ
Teaser
In this section, you find a mock teaser. This sample document can give you a basic idea of what to expect in a teaser; Chapter 7 covers teasers in more detail.
Indications of Interest
The following sections offer a couple of sample indications of interest (IOIs), one from a financial Buyer (private equity firm, for example) and one from a strategic Buyer (a company). The specific language of an IOI depends on the specifics of the deal, of course, but the basics are often very similar. For more information, head to Chapter 9.
Financial Buyer Indication of Interest
Strategic Buyer Indication of Interest
Letter of Intent
This section shows you a sample letter of intent (LOI). As with all M&A documents, the exact letter you use depends on your specific deal, but this example can give you a jumping-off point.
Due Diligence Checklist
The information in this section is a very detailed listing of typical due diligence information, split into common categories. Not all items apply to each situation, of course, but this appendix can give you an idea of the breadth and depth of needed materials. Flip to Chapter 14 for more on the due diligence process. Many thanks to Kinsella Group for supplying this list!
Note: Reporting period refers to the most recent financial period.
Corporate information
Copies of the company’s Articles of Incorporation, including all amendments.
Copies of the company’s bylaws and all amendments.
Copies of the company’s corporate minute books (including minutes of meetings of the shareholders, boards of directors, and committees thereof).
Copies of correspondence with shareholders, including proxy solicitations and annual reports, during the reporting period.
Listing of shareholders (including name, address, and telephone number) and number of shares held by each.
Listing of all directors and officers (including name, address, and telephone number).
Copies of all shareholders’ agreements, voting trust agreements, or other restrictive agreements relating to the sale, transfer, or voting of shares of capital stock of the company or any of its subsidiaries.
Certificate of Good Standing from the Secretary of State of the state where the company is incorporated.
Listing of the jurisdictions and copies of annual reports for each during the reporting period:
• Where the company is incorporated or qualified to do business.
• Any other jurisdiction where the company owns, stores, leases, or licenses properties or assets or has employees, agents, or customers.
Schedule of the company’s assumed names, division names, or other names under which the company is conducting or has conducted business and copies of registration.
Schedule of any corporations, partnerships, joint ventures, or other entities in which the company has a material interest or is affiliated.
Listing of all federal, state, local, and foreign governmental permits, licenses, and approvals (excluding those listed elsewhere herein) either held or required to be held by the company for the conduct of business.
A schedule of all law firms, accounting firms, consulting firms, and similar professionals engaged by the company during the reporting period.
Operations
Listing of all existing products or services and products or services under development.
Listing of major operations discontinued during the reporting period, or expected to be discontinued.
Copies of all correspondence and reports related to any regulatory approvals or disapprovals of any of the company’s products or services.
Summary of all complaints or warranty claims.
Summary of results of all tests, evaluations, studies, surveys, and other data regarding existing products or services and products or services under development.
Samples of all sales and promotional material utilized in marketing products and services (catalogs, brochures, sample kits, and so on).
Copies of all articles and press releases relating to the company published during the reporting period.
Schedule of any volume or sample rebate programs or special deals with customers (discounts, terms, and so on).
Copies of any contracts or agreements with customers, whether formal or informal, including pricing arrangements, incentive programs, inventory/supply arrangements, quality criteria, warranties, and so on.
Copies of the company’s quality and any similar manuals.
Schedule and copies of any customer quality awards, plant qualification/certification distinctions, quality certifications, or other awards or certificates that are reflective of superior performance.
Copies of internal and external quality audits performed during the reporting period.
Detailed listing of all business application software, vendor and version, number of licenses, and approximate acquisition date.
Financials
Accountant-prepared financial statements for the reporting period.
Most recent interim internal statements with comparable statements to the prior year.
Auditor’s letters and replies for the reporting period.
Credit report, if available.
Description of any change in accounting methods, policies, or procedures during the reporting period.
Description of the company’s internal control procedures.
Description of the company’s policy for capitalizing assets, including internal costs for internally constructed assets.
Description of depreciation and amortization methods.
Copy of the general ledger for each year-end of the reporting period and most recent month-end.
Copies of any projections, capital budgets, and business/strategic plans.
Copies of any analysis of fixed and variable expenses.
Copies of any analysis of gross margins.
Listing of all bank accounts and safety-deposit boxes, including authorized signatories.
Accounts receivable aging at each year-end of the reporting period and each month-end of the current year.
Detailed breakdown of the basis for the allowance for doubtful accounts.
Listing of bad debts during the reporting period.
Analysis of all accounts receivable currently in dispute and/or greater than 90 days old.
Schedule of prepaid expenses with backup documentation and accumulated amortization.
Schedule of deferred income at most recent year-end and month-end.
Schedule of security deposits at most recent year-end and month-end.
Schedule of all indebtedness and contingent liabilities.
Accounts payable aging at each year-end of the reporting period and each month-end of the current year.
Description of accounts payable year-end and month-end cut off policy and procedures.
Detail of accrued expenses as of the most recent year-end and month-end.
Detail of any customer advances, deposits, credit balances as of the most recent year-end and month-end.
Listing and detail for all related party transactions during the reporting period.
Listing of any adjustments to EBITDA and provide substantiation for those adjustments.
Sales and marketing info and documents
Complete customer list, including name, address, telephone number, and contact name.
Listing of major customers (by major product line, if applicable) and percentage of sales to each for each year-end of the reporting period and the most YTD. (A major product line means any product or service of the company contributing 5 percent or more of the revenues of the company. A “major customer” means the top 50 customers [by sales volume] of the company.)
Schedule of open orders.
Copies of all supply or service agreements.
Description or copy of the company’s credit policy.
Listing and explanation for any major customers lost, or who have notified the company (orally or in writing) of a proposed adverse change or modification to the relationship during the reporting period.
Copies of all surveys and market research reports relevant to the company or its products or services.
Schedule of the company’s current advertising programs, market plans and budgets, and printed marketing materials.
Schedule and description of the company’s major competitors.
Real estate and facilities
Schedule of the company’s business locations.
Listing of all owned or leased real estate including location, date, term, termination rights, renewal rights, rent amount, unusual provisions (for example, purchase options), and existence of defaults or breaches.
Copies of all real estate appraisals, leases, deeds, mortgages, title policies, surveys, zoning approvals, variances, or use permits.
Listing of current and pending construction in progress, including date commenced, expected completion date, and further required financial commitment to complete.
Fixed assets
Schedule of fixed assets, owned or leased, to include description, date acquired, price, depreciation years, accumulated depreciation, net book value, and location.
Copies of any equipment appraisals performed during the reporting period.
Copies of all U.C.C. filings.
Schedule of sales and purchases of major capital equipment during the reporting period.
Schedule of unpaid balances and open purchase commitments for any capital equipment.
Listing of any surplus or idle equipment and the dollar value of such equipment.
Copies of any vehicle registrations.
Inventory and costing
Inventory listing (by location if applicable) including item description, item number, date, units, and cost for the most recent year-end and month-end.
Description of practices regarding inventory aging, valuation, and obsolescence and any methodology changes during the reporting period and the related effect on reported performance.
Details of inventory reserves and/or write-offs during the reporting period.
Summary of physical inventory count results (by location if applicable), including explanation of significant book-to-physical adjustments for the most recent year-end and month-end.
Details of any consigned inventory arrangements.
Purchasing and suppliers
Listing of major suppliers and dollar volume of purchases from each for each of the last three fiscal years. (A major supplier means the top 30 suppliers [by purchase volume].)
A separate list of any supplier to the company where practical alternative sources of supply are not available.
Schedule of open purchase orders, to include item number, description, quantity, price, and value.
Summary or copy of the company’s purchasing policies.
Copies of any supplier contracts or descriptions of any significant supplier agreements.
Intellectual property
Schedule of domestic and foreign patent registrations and applications identifying each patent by title, registration/application number, date of registration/application, initial expiration, and country of registration.
Schedule of all trademarks, trade names, and service marks held or applied for, including maintenance and status on registrations, applications, and licenses.
Schedule of all copyrights held or applied for, including maintenance and status on registrations, applications, and licenses.
Schedule and copies of all consulting agreements, agreements regarding inventions, and licenses or assignments of intellectual property to or from the company.
Schedule of domain name registrations, including status on renewal.
Description of methods used to protect trade secrets and know-how.
Description of any material trade secrets or know-how held by the company or provided to or by the company under any agreement.
Copies of any work-for-hire agreements.
Schedule and summary of any claims or claims threatened by or against the company regarding intellectual property.
Copies of any communication to or from third parties relating to the validity or infringement of the company’s patents, technology, trade secrets, trademarks (service marks), trade dress, and copyrights.
Human resources
Organizational chart by department showing all positions within the department. All open positions should be noted as such.
Listing of employees including hire date, job title/position, job description, and current pay rate.
Copies of all employment, consulting, non-disclosure, non-solicitation, or noncompetition agreements between the company and any of its employees.
Résumés of key employees.
Summary and copies of executive compensation plans, including salaries, bonuses, commissions, vacations, club memberships, and so on.
Copy of the company’s employee handbook, including all employee benefits and holiday, vacation, and paid time off policies.
Copies of all documentation for qualified and nonqualified retirement plans; any IRS determination letters; the most recent Form 5500, 5500-C, or 5500-K; and for each multiemployer plan, a statement of the employer’s “withdrawal liability” within the meaning of ERISA section 4211.
Copies of collective bargaining agreements.
Listing and description of benefits of all employee health and welfare insurance policies or self-funded arrangements.
Schedule of costs associated with the aforementioned plans during the reporting period.
Summary of all employee problems within the reporting period, including alleged wrongful termination, harassment, and discrimination.
Summary of any labor disputes, requests for arbitration, or grievance procedures currently pending or settled within the reporting period.
Listing of company-provided vehicles, including individual assigned to the vehicle.
Schedule of worker’s compensation claim history for the reporting period.
Schedule of unemployment insurance claim history for the reporting period.
Copies of all stock option and stock purchase plans and a schedule of grants.
Copies of all OSHA examinations, reports, or complaints during the reporting period.
Copies of all policy and/or procedure manuals.
Description of all performance bonus plans in place and listing of bonuses paid during the reporting period.
Debt and financings
Schedule and copies of all promissory notes, bonds (including industrial development revenue bonds), commercial paper, loan/credit agreements, indentures, and other agreements or instruments relating to the short-term and long-term borrowing of money involving the company and existing at any time during the reporting period.
Schedule and copies of any guaranties, repurchase obligations, and other arrangements whereby the credit of the company is obligated for the indebtedness of a person (including one of the company) and subordination and inter-creditor agreements involving the company.
Schedule and copies of all security agreements, pledge agreements, mortgages, and other agreements or instruments whereby the properties or assets of the company are subject to the indebtedness of a person (including one of the company).
Schedule and copies of any letters of credit, financial surety/performance bonds or similar credit support devices outstanding for the benefit of the company and related reimbursement or indemnification agreements.
Copies of any compliance certificates, including borrowing base certificates and covenant compliance calculations, supplied to any creditor during the reporting period.
Copies of material correspondence with any creditor during the reporting period.
Schedule and details of any existing defaults under credit arrangements and any events that have occurred that, with the giving of notice or the passage of time, will become such a default.
Environmental
Copies of any environmental reviews or inspection reports relating to any of the properties owned or leased by the company during the reporting period.
Copies of any applications, statements, or reports filed or given by the company with or to the Federal Environmental Protection Agency, any state department of environmental regulations or any similar state or local regulatory body, authority, or agency.
Copies of any notices, complaints, suits, or similar documents sent to, received by, or served upon the company by the Federal Environmental Protection Agency, any state department of environmental regulations, or any similar state or local regulatory body, authority or agency.
Copies of outside reports concerning compliance with waste disposal regulations, hazardous or otherwise.
Listing of hazardous substances, including, but not limited to, asbestos, PCBs, petroleum products, herbicides, pesticides, or radioactive materials, used in the company’s operations.
Listing of permits, licenses and agreements of the company relating to air or water use or quality, solid or liquid wastes, hazardous waste storage or disposal, or other environmental matters.
Description of the company’s disposal methods.
Description of any adverse environmental or occupational safety or health condition or concern of the company not previously requested.
Listing and description of any environmental litigation or investigations.
Listing and description of any known Superfund exposure.
Listing and description of any contingent environmental liabilities or continuing indemnification obligations.
Copies of all correspondence, notices, and files related to the Federal Environmental Protection Agency, state, local, or similar foreign regulatory agencies.
Copies of all annual reports, manifests, or other documents relating to hazardous waste or pesticide management during the reporting period.
Copies of the workplace safety and health programs currently in place, with particular emphasis on chemical handling practices.
Taxes
Copies of all federal, state, local, and foreign tax returns during the reporting period and for all open years.
Copies of state sales tax returns during the reporting period and for all open periods.
Copies of any audit and revenue agency reports.
Copies of any tax settlement documents for the reporting period.
Copies of all employment tax filings for the reporting period.
Copies of real estate, property, or any other tax filings for the reporting period.
Copies of any tax liens.
Listing of returns and years thereof that have been audited by any tax jurisdiction and copies of related determination letters.
Listing and description of any pending or threatened disputes with regard to tax matters.
Copy of Form 2553 (S-corp Election), if applicable.
Contracts
Schedule of all subsidiary, partnership, or joint venture relationships and obligations with copies of all related agreements.
Copies of all contracts between the company and any officers, directors, 5 percent shareholders, or any of their respective families or affiliates and a written description of oral agreements or arrangements between the company and any related party.
Copies of any license, sublicense, royalty and franchise agreements, or equipment leases involving the company.
Schedule of all distribution, agency, manufacturer representative, marketing, and supply relationships and obligations with copies of all related agreements.
Copies of any letters of intent, contracts, and closing transcripts from any mergers, acquisitions, or divestitures during the reporting period.
Copies of any options and stock purchase agreements involving interests in other companies.
Copies of all standard forms and agreements used by the company.
Copies of all non-disclosure or noncompetition agreements to which the company is a party.
Copies of any agreements affected in any manner by a change in control of the company.
Copies of all management contracts involving the company.
Copies of any brokers or finders agreements applicable to the company.
Copies of any hold harmless indemnification or similar agreements of the company.
Copies of any contracts relating to other material business relationships, including, but not limited to
• Copies of any current service, operation, or maintenance contracts.
• Copies of any current contracts for purchase of fixed assets.
Listing of all contracts and agreements subject to renegotiation.
Copies of all contracts and agreements not previously requested.
Insurance and risk management
Schedule and copies of the company’s general liability, personal and real property, product liability, errors and omissions, key-man, directors and officers, worker’s compensation, and other insurance policies currently in effect.
Listing of risk management advisors and copy of recent coverage/exposure reviews.
Description of the current status of the payment of premiums related to insurance, including a specific description of any premiums which are subject to retroactive adjustment.
Schedule of insurance claims filed during the reporting period.
Schedule of the company’s loss experience per insurance year during the reporting period.
Listing of areas of self-insurance and schedule of related costs during the reporting period.
Listing and description of any outstanding premium adjustments (audits, retros, and so on).
Litigation and contingent claims
Schedule of all litigation, arbitration, and other proceedings to which the company is a party or by which its properties are bound and all pleadings and other material papers related thereto existing at any time during the reporting period.
Listing and description of all pending or threatened claims, lawsuits, arbitrations, or investigations involving a claim for relief against the company, any subsidiary, or any of their respective officers or directors.
Description of settlements of litigation, arbitration, and other proceedings during the reporting period and copies of settlement agreements, releases, and waivers related thereto.
Description of bankruptcy proceedings in which the company is a creditor or otherwise interested.
Description of any contingent liability of the company not referenced herein or in the financial statements provided hereunder, including those arising from or out of
• Contracts and agreements.
• Price redetermination, renegotiation, or escalation clauses.
• Sales subject to warranty or service agreements.
• Sales to foreign buyers.
• Product liability.
• Unfunded pension liability, other retiree health or insurance benefits, or similar matters.
• Antitrust, Robinson-Putmon, or other trade regulation matters.
• Equal opportunity/anti-discrimination matters.
• Environmental matters.
• Any other matter which, in the judgment of the company, is significant with respect to the company or which should be considered and reviewed in making disclosures regarding the business and financial condition of the company.
Listing of unsatisfied judgments, orders, and decrees to which the company is subject.
Copies of all orders, injunctions, judgments, or decrees of any court or regulatory body applicable to the company or any of its properties.
Copies of all agreements whereby the company agrees to indemnify or hold harmless another person or entity for claims against that person or entity.
Schedule of any litigation involving an officer or director of the company concerning bankruptcy, crimes, securities law, or business practices at any time during the reporting period.
Description of any investigations of the company, pending or threatened, by any governmental authority.
Governmental filings and reporting
Copies of any governmental licenses, permits, and authorizations of the company not otherwise provided hereunder.
Copies of all filings with, and notices to or by, governmental agencies or authorities by or to the company during the reporting period not otherwise provided hereunder, and all material documents and correspondence, including those of or in connection with Hart-Scott-Rodino, Securities and Exchange Commission, Blue Sky Administrators, Internal Revenue Service, Equal Employment Opportunity Commission, Food and Drug Administration, Environmental Protection Agency, any state or local environmental agency or authority, Occupational Safety and Health Administration, Immigration and Naturalization Service, Federal Trade Commission, or National Labor Relations Board.
Description of any complaints, investigations, or other informal or formal proceeding involving the company by or before a governmental agency or authority, and copies of all material pleadings, filings, correspondence, or other papers related thereto.