The AMA Handbook of Due Diligence
Authors: William M. Crilly, Andrew J. Sherman
Pub Date: June 2010
Print Edition: $295.00
Print ISBN: 9780814413821
Page Count: 848
Edition: Revised and Updated Edition
e-Book ISBN: 9780814413852
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Common Due Diligence Problems and Exposure Areas
There are virtually an infinite number of potential problems and exposure areas for the buyer which may be uncovered in the review and analysis of the seller’s documents and operations. The specific issues and problems will vary based on the size of the seller, the nature of its business and the number of years that the seller (or its predecessors) have been in business.
• “Clouds” in the title to critical tangible (real estate, equipment, inventory) and intangible (patents, trademarks, etc.) assets. Be sure the seller has clear title to these assets and that they are conveyed without claims, liens and encumbrances.
• Employee matters - there are a wide variety of employment or labor law issues or liabilities which may be lurking just below the surface which will not be uncovered unless the right questions are asked. Questions designed to uncover wage and hour law violations, discrimination claims, OSHA compliance, or even liability for unfunded persons under the Multi-Employer Pension Plan Act should be developed. If the seller has recently made a substantial workforce reduction (or if you as the buyer are planning post-closing layoffs), then the requirements of the Worker Adjustment and Refraining Notification Act (WARN) must have been met. The requirements of WARN include minimum notice requirements of 60 days prior to wide scale terminations.
• The possibility of environmental liability under CERCLA or related environmental regulations.
• Unresolved existing or potential litigation — these cases should be reviewed carefully by counsel.
• A seller’s attempt to “dress-up” the financial statements prior to sale, often in an attempt to hide inventory problems, research and development expenditures, excessive overhead and administrative costs, uncollected or uncollectible accounts receivable, unnecessary or inappropriate personal expenses, unrecorded liabilities, tax contingencies, etc.
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