Due diligence for the acquisition of a Greek company
The due diligence checklist below is a general (non-restrictive) list of issues that ought to be explored as part of the due diligence process. Certain points may need to be added depending on the area of business activity. Issues relevant exclusively to financial auditing have been omitted.
Financials – Tax Obligations
• Cash restrictions. Is cash restricted from use in any way? For example, the local bank may have issued a performance bond on behalf of the company, and has restricted a corresponding amount of the company’s cash.
• Audit of compliance with tax obligations for all types of tax up to the statute-barring date.
• Detailed audit for all years not yet audited by the tax authorities.
• Accounts payable. Examine whether there are unpaid, overdue debts and the reason why they were not settled.
• Loans. Examine whether there are provisions forcing early settlement in the event of a change in control of a business. Examine whether personal guarantees have been provided, which will need to be removed.
• Loans to related parties. Examine whether the company has received a loan from managers, owners or shareholders.
• Verify any assets that have been blocked to secure lender’s claims.
• Valuation. The net book value of inventories and assets recorded in a company’s accounting books rarely reflects the actual value they would be valued at if sold on the open market.
• The fixed assets register must be compared to the actual assets which exist.
• Maintenance. Examine equipment and the maintenance log.
General legal issues
• Identify pending litigation / administrative cases and what stage they are at. Estimate the outcome and roughly work out the financial exposure.
• Contract review. Review contracts currently in force, especially contracts entailing fixed/periodic payments, or royalty payments.
• Company charter and bylaws.
• Minutes of the Board of Directors. Examine the minutes of the Board of Directors for at least the last five years, and perhaps previous years too if there are special reasons for doing so.
• Minutes of the General Meeting of Shareholders. Examine all minutes of the General Meeting of Shareholders for at least the last five years, and perhaps previous years too if there are special reasons for doing so.
• Leases. Examine the terms of leases and finance leases.
Special legal issues
• Examine the file of certificates from certification bodies (ISO / HACCP)
• Examine insurance contracts (for civil liability, assets, fire, employer’s civil liability).
• Examine operating licenses for branches and warehouses.
• Trademarks. Check whether the company has registered its trademarks.
• Types of employees. Identify the number of employees in the various sectors of the company such as branches, marketing, supply management, logistics, drivers, accounting, financial management, legal department, etc.
• Total compensation. Compile the total cost of top employees. Salaries, commissions, bonuses, stock options, benefits in kind and all manner of remuneration.
• Pay level philosophy. What level of compensation does the company pay its employees? Is it near the median pay rate for most positions, or substantially higher or lower?
• Pay freezes. Examine whether the company has imposed a pay freeze for its employees.
• Employment agreements. Examine whether agreements have been signed with certain employees that would entitle the employees to a specific amount of severance pay.
• Unions. Examine whether groups of employees within the company are represented by trade unions.
• Injury records.
• Policies affecting labour costs, such as paid vacations and sick pay, vacation carry-forward, etc.
Shareholders – Dividend Policy
• Shareholder list.
• Class of stock. Verify the ownership of all classes of stock, and the voting rights associated with each class.
• Conversion rights. Examine whether there are debt agreements to see whether debt can be converted into stock in the company.
• Unpaid dividends. Examine whether dividends have been declared but not paid. Examine whether there is preferred stock with a set annual dividend percentage.