Manage Mergers & Acquisitions A Guideline to Due Diligence · 2020. 3. 26. · Manage Mergers & Acquisitions – A Guideline to Due Diligence Objective This guideline outlines the

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Common

Guideline

NON - MAINTAINED IF PRINTED

BMS0864 Issue 2 Date of Issue: 04-07-2016

M G CMC / Manage Mergers & Acquisitions / 5

Author(s): Marco-andrea DA MOSTO

Approved by: Marco-andrea DA MOSTO Authorised by: Marco-andrea DA MOSTO

Manage Mergers & Acquisitions – A Guideline to Due Diligence

Objective

This guideline outlines the recommended Due Diligence process, its objectives and the suggested procedure for identifying risk when conducting Due Diligence on a potential acquisition target.

Scope / Users / Limits or bounds

MBDA UK, France, Italy, Germany, Spain & US.

Principles / Context / Comments / Recommendations

This Guideline should be read in conjunction with BMS0591 Manage Mergers & Acquisitions – Common Operating Process (CMC5).

Reference documents

None.

Terminology / Acronyms

See Appendix C.

Common MBDA terminology and acronyms are available in Lexis (MBDA Vocabulary reference tool) on the MBDA intranet.

Last change

Issue 2: To include the co-ordination and involvement of Business & Ethics Compliance in the Due Diligence activity.

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CONTENTS

1 INTRODUCTION ........................................................................................................................... 3

1.1 Definition – Due Diligence ....................................................................................................... 3 1.2 Guideline Aim .......................................................................................................................... 3

2 DUE DILIGENCE – THE PROCESS ............................................................................................ 4

2.1 Due Diligence Outline View ..................................................................................................... 4 2.2 Key Process Stages of Due Diligence .................................................................................... 5

3 PRE-DUE DILIGENCE ACTITIVITES ........................................................................................... 6

3.1 Developing a Set of Assumptions ........................................................................................... 6 3.2 Creating a List of Potential Synergies ..................................................................................... 6 3.3 Risk Management For Due Diligence ..................................................................................... 6

4 PLANNING DUE DILIGENCE ....................................................................................................... 7

4.1 Due Diligence Team & Advisors ............................................................................................. 7 4.2 Due Diligence Team Meeting .................................................................................................. 7 4.3 Due Diligence Records Management ..................................................................................... 7

5 CONDUCTING DUE DILIGENCE ................................................................................................. 8

5.1 Risk Identification .................................................................................................................... 8 5.2 Warranties & Indemnities ........................................................................................................ 9 5.3 Data Analysis .......................................................................................................................... 9

6 OUTPUT FROM DUE DILIGENCE ............................................................................................. 10

6.1 Due Diligence Report ............................................................................................................ 10 6.2 Due Diligence Report Content and Format ........................................................................... 10 6.3 Statement of Confidentiality .................................................................................................. 10 6.4 Report Distribution ................................................................................................................ 10 6.5 Reviewing the Results of the Due Diligence Process ........................................................... 11 6.6 Antitrust ................................................................................................................................. 11

7 DUE DILIGENCE ROLES & RESPONSIBILITIES...................................................................... 12

8 REFERENCES ............................................................................................................................ 14

APPENDIX A - RISK REGISTER TEMPLATE ...................................................................................... 15

APPENDIX B - RECOMMENDED DUE DILIGENCE CHECK LISTS ................................................... 16

APPENDIX C - GLOSSARY OF TERMS .............................................................................................. 59

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1 INTRODUCTION

1.1 Definition – Due Diligence

The process by which a purchaser of, or an investor in, a company / business investigates the records and business of a target company to support its value and discover whether there are hidden details or data omitted by the seller that may be considered un-favourable by the acquirer. Professional reports from accountants, lawyers, environmental/health and safety consultants and other specialists should be included. The due diligence process is covered by confidentiality undertakings.

Due Diligence assesses the deal from a commercial, technical, financial and legal point of view. It is concerned with understanding more about the target business, confirming that the buying company is acquiring what they believe they are buying, unearthing any risks in the deal, finding negotiating issues and helping to plan post-deal integration.

1.2 Guideline Aim

Due Diligence is only part of an acquisition process and represents Phase Two within the Mergers & Acquisitions Process detailed in Process Manage Mergers & Acquisitions CMC 5. Phase One being the identification of an acquisition target and making an approach, this can only be sensibly completed following a proper strategic review in which an acquisition has been identified as logical for the business and in-line with MBDA’s strategic growth contained within the MBDA ISBP (Integrated Strategic Business Plan). If an approach leads to agreement, the deal enters the second stage. The two parties sketch out broad terms of the deal and the buyer will complete Due Diligence. Successful Due Diligence leads to negotiation - Phase Three - and if all goes well, the deal completes – Phase Four - subject to any applicable regulatory / anti-trust clearances.

Due Diligence must provide Senior Management with confidence in the data and understanding of both real and potential advantages, disadvantages and risks associated, in order to take the decision to proceed to the next acquisition phase.

This guideline aims to outline the Due Diligence process, the Due Diligence objectives and the MBDA Process for identifying Risk when conducting Due Diligence.

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2 DUE DILIGENCE – THE PROCESS

2.1 Due Diligence Outline View

Due Diligence is not just concerned with reducing risk, but also with the effective management of the acquisition and utilisation the company’s resources and capabilities so that the goals of the acquisition can be realised.

In order to be useful in valuing, negotiating deals and effectively integrating and managing the acquired business, Due Diligence should cover the following aspects of the target company:-

Commercial (e.g. competitive position, customer relations, patents, project reviews)

Operational (e.g. production technology, processes and systems)

Financial & Tax (e.g. historical accounting information, potential tax liabilities)

Legal (e.g. contracts, product or environmental liabilities)

Human Resources (e.g. compensation, training, employee relations)

Organisational (e.g. structure, management style, power distribution)

Information Systems (e.g. performance, cost, complexity, compatibility)

For the majority of potential acquisitions that are addressing smaller companies or branches of existing businesses, it is sometimes recommended that a controlled Due Diligence is carried out on the following areas with a team approach managed through named MBDA Leads and Technical Experts:-

Business / Finance Plan in order to determine validity of Business Plan and to understand past performance and confirm future predictions.

Technical (including Engineering & Production) for the purpose of understanding Capabilities, Skills and Technologies. MBDA needs to know what is being purchased and to confirm that it is technically correct for MBDA.

Legal to enable understanding of Regulatory Issues, Licenses and IPR elements. Also, to determine agreements.

The objectives of Due Diligence are to;

Confirmation of fit with MBDA strategy and consistency with Business Boundaries

Discover and Evaluate Risks

o Mitigation or Warranty

o Deal Breaker

Determine Validity of Business Plan

o Historical Performance

o Effect of Free Cash Flows

o Timing of Events

Assessment of Potential Synergies / Integration Issues

o Mitigation of Risks

o Effect on potential Joint Value creation where applicable

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2.2 Key Process Stages of Due Diligence

Due Diligence can be seen as a staged process breaking down into four key areas:

Pre–Due Diligence Activities - Section 3

Develop a set of assumptions Prepare a rough evaluation for a non-binding Offer Identify potential risks Draw up a list of potential synergies

Planning Due Diligence - Section 4

Hold a full team briefing / meeting Check understanding of roles and responsibilities Distribute data-room rules Access to Management (e.g. no. of questions, time allowed) Timing and content of individual deliverables Access to sensitive information Security clearances for both internal and external participants

Conducting Due Diligence - Section 5

Team leader to be aware of individual’s activities Risks to be recorded on the Risk Register Update synergies Adhere to the agreed timetable

Output from Due Diligence - Section 6

Written reports from each participating function

- Concise Executive Summary Risk Register

- Risk Owner - Mitigation

Revised Business Plan Model and valuation Confirmation of synergies Input to Agreements Collective briefing Integration planning Recommendation to Senior Management and Shareholders

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3 PRE-DUE DILIGENCE ACTITIVITES

3.1 Developing a Set of Assumptions

The expected value of the target and key terms are normally determined prior to Due Diligence by the Mergers & Acquisitions Team and the Finance Executive for Mergers & Acquisitions; these are often defined in the form of a Term Sheet.

3.2 Creating a List of Potential Synergies

Lists of synergies are determined, identifying those which are industrially viable and compatible with the MBDA Organisation.

3.3 Risk Management For Due Diligence

Due Diligence is an investigative and analytical process to identify, quantify and understand the advantages, disadvantages and risks associated with an acquisition decision.

The Due Diligence Risk Process carried out concludes with the agreement and inclusion of warranties and indemnities in the final Sale & Purchase Agreement.

Risks should be identified, when conducting Due Diligence, and recorded using the Risk Register Template in Appendix A of this process. The types of risks that may be considered during any acquisition are highlighted in the Risk Acquisition diagram below.

Product Portfolio

Maturity of Product Range Demand

Level & Quality of Competition Market Position

Operational Risks

Physical Risks Condition of Facilities Hazardous Processes

Incidence of Damage Events Environmental

Personnel Risks

Workforce Skills Adequacy Senior Management Issues

Recent Management Change History of Industrial Disputes Reliance on Key Personnel

Customer Risk

Dependency on Customers Customer (including dependency on

restricted components) / Market Volatility

Overseas representative’s relations Customer Attitude to MBDA

Export Licence Transfer

Acquisition

Supply Chain Risk

Dependence on Internal Suppliers Dependence on External Suppliers

Volatility of Supply Prices Dependence on our Competitors

Public Relations

Impact of Acquisition on MBDA and

its Customers National Political Issues

Consistency with highest international standards

Financial and Tax Risks

Currency Exposure Risk

Impact on Sales Projections Debt

Country Inflation Impact on Costs Tax Risk

Legal Risks

Products Liability Regulatory Approval

Compliance Management of Contracts,

Warranties, Liabilities & Control Intellectual Property

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4 PLANNING DUE DILIGENCE

The full comprehensive Due Diligence Checklist can be referred to in Appendix B of this Process and forms the core of this Guideline. In order to determine, prioritise and gather data, the Checklist is adaptable to all acquisition targets and should be tailored accordingly.

The output of this exercise forms a Due Diligence Plan and associated Data Room Checklist for the target acquisition.

4.1 Due Diligence Team & Advisors

The team to conduct Due Diligence will be appointed by the Head of Mergers & Acquisitions and will comprise of experts in their own field of knowledge as applicable to the acquisition (e.g. Programme, Operations, Technical, Sales and Business Development, Finance, Legal, Business Ethics, etc.…). The amount of time allocated to the completion of the Due Diligence Process shall be a consideration when identifying and allocating the necessary resources.

The Mergers & Acquisitions team may determine that the needs of Due Diligence are better served through contracting the Due Diligence process (or a section of) to external consultants, e.g. legal, financial, environmental health & safety, niche technology, etc.

4.2 Due Diligence Team Meeting

At this point, all advisers involved in the Due Diligence will be briefed, provided with details of the target acquisition including for example the Due Diligence Plan, Business Plan, Management Plan, potential risks, & Data Room Rules.

4.3 Due Diligence Records Management

Those performing the Due Diligence process shall request access to all documentation listed in the Due Diligence Data Room List. All Due Diligence documentation shall be complete and all related data shall be legible and may be in the form of hard copy, electronic or other media. Retention times and methods for disposal for any retained documentation (e.g.: shredding / secure deletion) should be established in the Data Room Rules. In the majority of cases documentation will not be removed from the Data Room. A set of Data Room Rules will be established, agreed with the target company and adhered to by all members of the Due Diligence Team.

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5 CONDUCTING DUE DILIGENCE

5.1 Risk Identification

Risk identification is one area that is recorded during the Due Diligence process. Appendix A: Risk Register Template can be used as an example for populating any risks outside of the Due Diligence Report. Risk is measured using the categories of Low, Medium and High, as briefly categorised below with an associated cost impact.

Low ~ Business level risk, no Indemnity or Warranty required.

Medium ~ Indemnity and/or Warranty potentially required.

High ~ Indemnity and/or Warranty required / mandatory.

The major components of the Risk Management Process are depicted below:

Step 1: Risk Identification

Step 2: Risk Assessment

Step 3: Risk Response Control

Known Risks

Risk

Assessment

Risk

Register

Analyse the target Company to identify sources of risk

Assess Risks in terms of:- Severity of impact / Cost Likelihood of occurring Controllability

Cost

Develop a strategy to reduce possible damage Develop contingency plans

New Risks

New Risks

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5.2 Warranties & Indemnities

When the Due Diligence result highlights potential risks, the acquirer should look for some form of risk insurance or purchase price reduction. A warranty is a contractual representation by the seller, which if untrue, entitles the purchaser to claim for damages. An indemnity is similar to a warranty but ensures that the seller will compensate the acquirer in the event of any loss under specified circumstances. Carefully drafted warranties and indemnities provide risk insurance and may raise the comfort level of the acquirer in proceeding with the deal.

5.3 Data Analysis

The Due Diligence Leads for each relevant area shall be responsible for analysing the data. The Business Ethics MBDA Directorate is responsible for the due diligence review concerning the directors, the shareholders and the business partners. Data analysis shall include:

a) classification of data,

b) validation of significant data / information,

c) interpretation of data.

The purpose of data analysis is to trace information to its source, verify its accuracy and interpret its meaning(s) such that senior management can base well-informed decisions.

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6 OUTPUT FROM DUE DILIGENCE

6.1 Due Diligence Report

The data shall be analysed and interpreted such that complete and factual information relevant to the objectives contained in the Due Diligence Plan can be presented in the form of a documented report. The results of the data analysis may be supplemented with professional opinions, recommendations and / or suggestions.

6.2 Due Diligence Report Content and Format

Each due diligence report shall include the following information, as a minimum:

a) The name of the individual(s) that commissioned the Due Diligence undertaking,

b) The names of the individual(s) and / or organisations that performed the Due Diligence,

c) A section describing the objectives and purpose for the Due Diligence activity,

d) The significant results from the Due Diligence process including costed risks identified,

e) Any deviations from, additions to, exclusions from the Due Diligence Plan,

f) Additional information, which may have become pertinent during the Due Diligence process,

g) Where appropriate, concerns, opinions, recommendations accompanied with the basis upon which concerns, opinions, recommendations were formulated,

h) Where concerns, opinions, recommendations have been raised, the Report shall include the identity of the specific individual(s) and / or organisation(s) raising the concerns, opinions, recommendations,

i) Concerns, opinions, recommendations and suggestions shall be clearly marked as such in the Report,

j) The Due Diligence Report shall be approved by the Head of Mergers & Acquisitions prior to issue.

6.3 Statement of Confidentiality

Each due diligence report shall be distributed with a statement of confidentiality that states, as a minimum:

“The information contained in this report is privileged and confidential. It is intended only for those listed as recipients. If you are not listed as a recipient, or a person responsible for the delivery of the report to the intended recipient you are hereby notified that any dissemination, distribution or copy of this report is strictly prohibited. If you have received this report in error, please notify the author immediately.”

The statement of confidentiality shall include a telephone number and e-mail address, as appropriate, to contact the sender.

6.4 Report Distribution

Each Due Diligence Report shall include the names of all recipients, unless there are valid reasons for not doing so. The report as standard will include the CEO, the Strategy Director, CFO, relevant Operational Directors and the M&A Team.

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6.5 Reviewing the Results of the Due Diligence Process

Senior Management (CEO, Strategy Director, CFO etc) shall review the results of the Due Diligence as identified in the ‘CMC5 Manage Mergers and Acquisitions Process.’

6.6 Antitrust

Antitrust is conducted post Due Diligence, however during the Due Diligence, information required to file with the appropriate Antitrust authorities maybe identified and compiled, as appropriate. This is often the European Commission and outside of Europe specific Government bodies.

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7 DUE DILIGENCE ROLES & RESPONSIBILITIES

M&A

The Process

Business Plan Review

Synergies

Transaction Structure

Risk Register

Communication

Oversee all other specialist areas as listed below and any other as deemed necessary

Finance

Financial / Business Plan review

Financial Synergies

Valuation

Financial Risks

Tax

Appointing Financial & Tax Advisors following consultation with M&A [“following consultation with M&A” added to ensure consistency with appointment of Legal Advisors, as below]

Legal

Purchase Agreements

Binding Contract

Regulatory Approval

Compliance, in close coordination with the Business Ethics MBDA Directorate

Licences

NDA

Exclusivity Agreement

Reps & Warranties

IPR

Appointing External Legal Advisors following consultation with M&A

Shareholder Agreement

Technical / Operations / Programme

Capabilities

Skills

Technologies

Appointing External Technology Advisors following consultation with M&A

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Technological Fit

Note: Senior Management shall identify and provide adequate resources for each Due Diligence undertaken.

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8 REFERENCES

1. BMS0591 Manage Mergers & Acquisitions – Common Operating Process (CMC5)

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APPENDIX A - RISK REGISTER TEMPLATE

Risk Ref Description of Risk Risk Category Mitigation Plan Risk Owner Date Due By

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APPENDIX B - RECOMMENDED DUE DILIGENCE CHECK LISTS

Due Diligence List - Accounting / Financial / Pensions

Topic Availability of

Information Received Comments

I. Overall Accounting/Financial Topics

Overall Financial Planning and Control

Procedure for budget preparation and long term financial planning

Review of reliability and accuracy of past forecasting

Review of the assumptions and bases used and assessment of their credibility

Consistency of forecasts with the business strategic planning

Adjustment of forecast to reflect suitable accounting policies

Management reporting of financial results, guidelines and timeliness of information flows

Procedures for monitoring actual performance against budgets and plans and responsibility for variances and revisions to forecasts

Treasury Organisation and Policies

Organisation of the treasury function

Treasury management function and procedures

Management of foreign exchange risks and policy on hedging transactions, translation differences and impact on costs, earnings and cash flow

Policy on hedging/fixing interest rates, use of futures markets and other derivatives and investment policy

Policy on insurance (see legal section)

Accounting Systems and Management Information

Organisation, number of staff of accounting function and task allocation

Plan of accounting records and manual of accounting instructions

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Topic Availability of Information

Received Comments

Type of management information, budgets, management accounts, etc., e.g. SAP, in use

Methods of project control and costing, including contract review procedure and planning tools used

Cost accounting systems and procedures in use, e.g. standard costing, direct costing, full costing

Method of build up and allocation of material, labour and overhead costing, principles of hourly rate calculations

Treatment and calculation of variances and integration in financial accounts

Procedures for reconciliation of management accounts with financial accounts

IT accounting equipment, hardware and software, used to operate and maintain accounting and other IT systems (e.g. payroll, business planning, etc.), including external computer bureaux

Computer contingency and business continuity planning

Accounting systems procedures and internal controls

Assessment of the adequacy and ability of the accounting systems to cope with future developments

Internal audit terms of reference, procedures, functions and structure, including level and experience of staff used

Internal audit reports

Confirmation, by reference or public record, that all requisite documents have been filed

Review of compliance with any legal requirements on maintenance of accounting records

Underlying Accounting Policies and Bases

Accounting policies manual and material changes (including discussion of key accounting policies, e.g. long term contracts, stock valuation, R&D, capitalised costs, grants and aid, foreign exchange)

Method of spreading profit on long term contracts, e.g. types and use of management reserves and provisions

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Received Comments

Compliance with accounting standards and the law and consistency of application/any divergence

Effects of expected changes in accounting standards or the law, if any, on reported profits or their trends

Differences (quantifying effect of restatement) between local “GAAP” and its application by the company and IAS, including their specific applications by the acquirer (e.g. long term contracts, stocks, etc.)

External Audits

Review of audit arrangements including requirements, areas subject to statutory audit

Auditors working papers

Auditor reports, opinions/management letters

Review of reconciliation of divisional accounts with group accounts

II. Summary Information

Audited financial statements (P&L, balance sheet and cash flow) with notes

Reconciliation of financial statements of the division to the audited financial statements of the group company, including details of adjustments

Management accounts with variances vs. budgets

Reconciliation of management to financial accounts

III. Programme and Contract analysis

Order book by order with sales and margin by order

Details of general standard terms and conditions

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Received Comments

Summary of all major contracts and future programmes with, as appropriate, customer name (direct and final customer, if applicable), contact type (fixed price, cost plus, etc.), contract description, industrial organisation and subcontractors, contractual launch, delivery date and milestones, expected delivery date, contract description, stage of development/technological maturity, key milestones and technical risks/challenges, estimate of additional costs for export in certain markets, e.g. Europe, risks and risk reduction action plan (see legal section)

For the above major contracts backlog, revenues and costs, costs and hours to complete, management reserves and releases, provisions, assumed price increases/change notes, stocks, work in progress, receivables and prepayments, advances to suppliers, guarantees/warranties and provisions, contractual claims and penalties and other items

Latest project reviews available for all major contracts/programmes

Copies of major contracts, unless subject to confidentiality/security restrictions

Information about all outstanding and committed tenders (see legal section)

Copies of major tenders, unless subject to confidentiality/security restrictions (see legal section)

Clients lost/much reduced business

IV. Profit and Loss

Sales

Analysis by product market, geographical location and major customers

Breakdown by currency

Commission deducted, special discounts

Inter-segment sales

Cost of sales

Analysis of material, labour and production overhead costs

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Received Comments

Breakdown by currency

Gross profit

Analysis by product/programme/contract, geographical location, division

Percentage margins on sales and explanation for variances in margins

Overheads

Analyses by main categories, i.e. product development, product support, sales & marketing and administrative (by expense type, internal, e.g. finance, IT, etc. and external, audit, insurance, consultancies, etc.), including analysis of fixed vs. variable

Personnel performance related pay

Allocation by product/programme/contract, geographical location, department, division, e.g. lines of business, engineering, manufacturing/operations, support, quality

Depreciation and amortisation

Bases, rates, treatment of grants, effects of any revaluations

Other income

Details of royalties, management and technical fees, service fees, rents

Interests and other costs of borrowing

Interest and other income from trade and other investments

Interest expenses, effects of exercise of any conversion rights, effect of interest management techniques

Taxation

Effective rate of tax and reconciliation to standard rate, reason for high low rates charge, analysis between current and deferred taxation, prior year items, impact of overseas taxation

Extraordinary and exceptional items

Details of past items, review of treatment, identification of material non-recurring items

Appropriations

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Received Comments

Dividends on all classes of capital, cover for dividends, any other appropriations during the period

Any restrictions on distributions

Inter company

Treatment of profits and charges

Management charges

Rental and other services costs

Related party transactions

Extent and effect on results of transactions with any business connected with shareholders or management

V. Cashflows

(no detailed topics as they are the same as in P&L and Capital Employees)

VI. Capital Employed

Tangible Assets

Copy of the fixed assets register, review of latest count details

Analysis of movements of capital expenditure, sales, depreciation, other items by main asset category, e.g. land, equipment, cars, etc., including any asset on finance leases

Finance leases and any sub leases

Basis adopted for depreciation/amortisation of each main category, any recent changes in the bases of rates used

Basis adopted for writing off capital costs

Comparison of net book values and tax written down values of assets eligible for capital allowances

Apparent state of maintenance

List of obsolete and underutilised assets and facilities

Insured values and terms of cover

Recent professional valuations, comparison of depreciated historical costs amounts and re-valued amounts

Capital commitments at the balance sheet date and details of any significant individual orders placed since

Treatment of grants

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Received Comments

Any contingent liabilities for repayment of grants on change in ownership of the business

Basis for capitalising own labour and materials

Capitalised computerised information systems

Treatment of purchased software and internally developed software

Any surplus assets

Intangible Assets

Analysis of movement additions, amortisation, impairment, other items by main asset category

Particulars of important brands, patents, trademarks, designs, secret processes and details of registration and life

Research and development costs capitalised and amortisation period

Basis adopted for writing off intangible assets

Details of goodwill, how acquired, whether arising on consolidation, cost, amount written off, impairment tests and impact, impairment reports

Stock and Work in Progress

Analysis of raw material by category and suppliers, including stock provisions

Analysis of stock provisions and related calculations by category and suppliers

Rate of turnover of stock categories

Basis for valuing stocks, including the allocation of overhead

Methods used in arriving at stock quantities

Stock quantities count procedures and reconciliation of physical to book

Methods adopted for providing for slow moving and obsolete stock, for stock provisions, lower of cost and market test

Analysis of work in progress and finished goods by product/major activity/programme/contract and unallocated

Hourly rates used for work in progress and finished goods valuation

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Received Comments

List of long lead stock orders and values in process of manufacture

Debtors

Approximate number of accounts, ABC analysis, details of any major balances

Analysis of debtors (accrued) by product/major activity/programme/contract

Analysis of debtors (invoiced) by product/major activity/programme/contract

Analysis between domestic and overseas debtors

Usual terms of credit given, details of discount policy, average debtor days

Credit control methods, credit insurance

Debt factoring arrangements, with recourse and without recourse

Aged analysis of debtors

Bad debt analysis including legal status, provisions and bad debt expenses

Debtors balance confirmation and “sales cut off analysis” on a sample basis

Analysis of advances to suppliers by product/major activity/programme/contract

Analysis of other main debtors and prepayments

Analysis of intercompany debtors

Creditors

Approximate number of trade accounts, ABC analysis and details of larger balances

Names of main creditors

Contractual and actual period of credit allowed/taken and discounts

Analysis of major creditors and accruals, including personnel costs (e.g. holidays, overtime, bonuses, social security liabilities, pensions, etc.)

Commitments with creditors

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Received Comments

Details of provisions included within creditors

Analysis of advances from customers by product/major activity/programme/contract

Identification of any off-balance sheet items

Analysis of intercompany creditors

Analysis of any deferred consideration of previous acquisitions

Dividends distribution

Cash at Bank and in Hand

Summary of main bank accounts

Details of set off arrangements

Details on any restrictions on withdrawals

Investments and Deposits

Particular of holdings and market values

Details, including surrender values, of insurance policies held

Details of income received

Terms of withdrawal or repayment

Dates of redemption of short term loans and rate of interest receivable

Intercompany investment accounts

Trade Investments

Date purchased, costs and particulars of holding, percentage of equity held (see legal section)

Income earned

Underlying assets and attributable profits obtained from the latest accounts

Present market values, recent directors’ valuation, future prospects

Type of business, names of directors and major shareholders if relevant

Nature of business relationship, details of any guarantees to or other arrangements with investors or related parties

Details of any restrictions on realisation of overseas interests and profits

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Received Comments

Financial Liabilities

Details of short and long term bank facilities (overdraft, term loans, multi-option, commercial paper, discounted bills, etc.), details of borrowing limits

Main terms and conditions including currency, maturity profile, facility renewal dates, borrowing covenants, details of security given (e.g. liens, mortgages, other charges)

Use of existing facilities, borrowings, etc.

Rates of interest charged on existing facilities, etc.

Analysis of lease, hire purchase, factoring or other similar agreements, balances, implicit interest

Debt securities, currencies, dates of repayments, interest rates, security, and details of any conversion option

Intercompany borrowings (see legal section)

Guarantees, indemnities and other forms of comfort received and given by the company to banks and others, other contingent liabilities, litigation pending (see legal section)

Foreign currency: details of the current positions, open and hedged, including items hedged and instruments used, including off balance sheet items

Details of derivative markets financial instruments used with positions on assets and borrowings, including off balance sheet items

Commitments under operating leases for computer equipment, plant & equipment, etc.

Description of export financing methods, lines outstanding and actual financings

Any public grant or subsidies of any kind received including level of utilisation, possible restrictions on usage and any actual or contingent repayment obligations including details on timing and interest, if any

Provision for Liabilities

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Received Comments

Analysis, movements and basis of provisions for long term contracts by type and contract including contractual claims and penalties

Analysis, movements and basis of provisions for future costs, e.g. warranties and guarantee costs, past experience of warranty and guarantee costs

Analysis of any provision established on acquisition of subsidiaries, extent of anticipated utilisation

Analysis, movements and basis of tax provisions, including deferred taxation, analysis of amounts provided and full potential liability

Analysis, movements and basis of unfunded pension commitments, including details of calculations

Analysis, movements and basis of other provisions, including personnel, environmental, tax, etc.

Share Capital and Reserves

Summary of current authorised and issued share capital (see legal section)

Rights of each class as to dividends, voters, liquidation and redemption

Arrears of preferred dividends

Share option schemes

Particulars of share premium account, capital, revaluation and other reserves

Details of analysis of shareholders

VII. Other Significant Matters

Contingent Liabilities

Unusual items in articles of associations including borrowing powers

Debenture trust deeds including any restriction imposed on assets disposals, borrowings and operations

Details of other borrowing limits and of any possible event of default

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Received Comments

Guarantees, performance bonds, letters of credit, discounted bills of exchange

Review contingencies for any off balance sheet or financial engineering schemes

Adequacy of insurance cover generally, including loss of profits and products liability, insured values and claims history

Extent of contingent consideration for previous acquisitions

Funding of Pensions and Other Post-Retirement Benefits

Pension or retirement schemes, including a copy of the trust deed and rules (including amendments), type of arrangement, e.g. funded or non funded, own scheme or part of a larger one, defined benefit or defined contribution, constitution, management, independence, members explanatory booklets, comparison of benefit’s with acquirer own scheme

List of members analysed between current and ex employees, transactions of the scheme, size of the fund and contributions, annual contributions, any pension contribution holiday, accounting and funding policies, actuarial method, annual pension cost in relation to the business

Powers of the employers, trustees and members that might affect the control of the scheme’s assets, future control of the benefits, future contributions and the ability to realise surpluses

Date of last evaluation by actuary and actuary valuation report, copies of any correspondence on latest actuarial position

Any likely commitment, current or future, to top up the company pension fund, discretionary practices and unfunded promises or unfunded past service, or changes in membership, benefits or asset values since the last valuation, changes in legislation affecting benefits or equality of treatment

Extent of investment by pension scheme in share or loans of the company or its subsidiaries, extent of transactions between the company and the pension scheme

Investment policy and financial performance

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Received Comments

Trustees, contributors, members, auditors and advisers to the scheme

Status of pension scheme accounts and the compliance with legislation, review of accounting practices, records, systems and internal controls

Transfer values

Any other schemes and other benefits for employees including actuarial valuations/life assurance/medical welfare

Other Matters

Material contract in the past two years other than in the normal course of business (see legal section)

Summary of transactions with directors, including disclosure and legality (see legal section)

Any related party transactions of disclosures

Any Investment Exchange or Regulatory Body requirements

Review of company statutory books and minutes of general meetings and directors meetings for any significant matter (see legal section)

Details of commitments of the company, contracted and authorised by the Board (see legal section)

Due Diligence List - Business Plan


Analysis done Comments

I. Overall Assumptions

Key structural/macroeconomic assumptions and bases, e.g. inflation, foreign exchange rate, remittances of funds, tax rates, etc.

Strategic plan

Order book and development of orders/contracts in the future

Expected future product/programmes by potential client/country with main contractual/financial assumptions (with probabilities)

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Significant business risks and opportunities, which might affect the forecast

Contingencies to be included in the projections

Sensitivity analysis on the key assumptions changes in selling prices, raw material prices, currency fluctuations

II. Profit and Loss

Order book, sales and revenue recognised by product/programme/contract from order book and expected future programmes

Costs from order book and expected future programmes and breakdown between material (e.g. components, subsystems), labour and production overhead by product/programme/contracts

Workload forecast per contract ( in the order book and for expected future contracts) in Engineering and in Production

Workload forecast for self funding activities

Other costs, i.e. product support, sales & marketing, administrative and cost allocation by major business line

Overload and under load skills in the workload forecast

List of key employees to achieve business deliveries

Group central services, e.g. rent, general services, treasury, etc. to be maintained/replaced and related cost

Depreciation and amortisation/impairment assumptions (related with capital expenditure and intangibles assumptions)

Reconciliation of cost allocation to MBDA format and resulting profit margins, e.g. gross profit, operating profit/EBIT, EBITDA, assessment

Identification of possible non-recurring material items affecting projected activity levels

Statutory and effective tax rate assumptions, including typical payment timing and assessment of possible tax loss carry forward

III. Cash Flow and Balance Sheet

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Working capital, i.e. stocks, work in progress, advances to suppliers, prepayments from customers, debtors, provisions, associated to order book and based on contractual and revenue recognition assumptions by product/programme/contracts

Working capital, i.e. stocks, work in progress, advances to suppliers, prepayments from customers, debtors, provisions associated to expected future programmes and based on standard programme/contractual (including management reserves) and revenue recognition assumptions by product/programme/contracts

Working capital for other company activities, e.g. engineering research, support, others

Other working capital items

Capital expenditure plan (e.g. list of equipment and cost of each one) by major area and consistence with projected activity levels

R&D expenditure projections

Intangibles assumptions and projections

Assumptions and projections of non programme related balance sheet provisions

Assumptions and projections of other balance sheet items, including foreign exchange and derivatives items

Projections of external financial flows, including equity and debt requirements and related interest and dividend payments

Assumption on non balance sheet item, e.g. existing banking facilities, performance guarantees, bonding facilities, etc.

Seasonality of cash flows and identification of peak requirements

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Due Diligence - Tax


Received Comments

I. Tax

Copies of corporate tax computations / returns for each legal entity

Copies of VAT (or similar) returns for each legal entity and VAT registration documents

Copies of correspondence with the tax authorities relating to Corporate, VAT (or similar) and/or other (e.g. capital) taxes

Details of any assets where their cost for tax purposes is different from their historical cost

Details of any tax losses analysed by year and indicating year of expiry if appropriate

Description of the local rules relating to statute of limitations

Copies of any permissions, special tax agreements, rulings, tax clearance, etc. provided by the tax authorities (e.g. double tax relief) and of any current claims

Copies of correspondence with the tax authorities relating to payroll related Taxes (non-routine items)

Details of any tax avoidance scheme(s) (internal or external) that the Group has entered into for the benefit of the company including any related legal opinion(s)

Details of any tax planning actions either put in place

Copies and analysis of movements on all accounts relating to corporate, VAT (or similar) payroll related and other taxes within the last 3 years

Copies of relevant internal accounting policies applied e.g. deferred tax

Summary of tax provisions and explanation of material differences comparing the tax provisions booked to tax calculated at the local statutory rates within the last 5 years

Details of any penalties and / or interest paid relating to taxes of any type within the last 6 years

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Received Comments

Details of any investigations relating to taxes of any type within the last 3 years

Details of any tax clearances obtained and copies of any tax indemnities taken or given and rules or agreements obtained

Details of any arrears due to any government body and of any un-agreed assessments.

List all matters (including state, local, foreign, sales, use, personal

property, real property, franchise, capital stock, social security,

unemployment insurance and other) showing:

a) any questions in dispute with or investigated by any tax

authority or other fiscal authority

b) that all required payment have been made or accounted for c) that all required employee deductions and/or withholding taxes have been made d) that all required forms are in compliance with any applicable law

Details of any losses available to be carried forward and of stock relief, capital allowances, industrial building allowances claimed and any discrepancies between book values and acquisition cost, written down value of assets

Explanation of consequences of executed or planned revaluation of businesses

Indicate the tax year still open to audit.

Comments on adequacy of overall provision, estimated deficiency or surplus

Effect of any expected future legislation

Other tax issues, overseas subsidiaries, transfer pricing

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Due Diligence List - Legal

I. General corporate information II. Contracts and agreements III. Governmental regulations, filings and agreements IV. Real property and assets V. IPR VI. Insurance VII. Litigation VIII. Anti-corruption policies


Received Comments

I. General corporate information

Legal corporate name; address; copy of updated certificate from Companies’ register or Chamber of Commerce, copy of certificate of incorporation for all legal entities forming the Business including but not limited to shareholders; subsidiaries, divisions; group and associate, affiliates; dormant, joint venture, branches; plants, offices, factories, warehouses, affiliates, branches and any other business sites.

For each of them :

Address and description of operations/functions of each

Indication of authorized share capital, percentage and particulars of total issues capital held

Names and addresses of the directors, company secretaries, members of the management and supervisory board

List of officers authorised to act/sign on behalf of the company with copies of powers, delegation of powers and powers of attorney

By-laws/Memorandum and Articles of Association, and other shareholders/constitutional agreements and all amendments thereof

Official company books including Minutes of all Board of Directors, committee and shareholders meetings and details of the registered office

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Received Comments

Communications / Material information or documents furnished to shareholders and to directors during the last two years

Percentage of capital owned and percentage of control per entity

A family tree showing the relationship between entities mentioned hereabove and ownership chain to ultimate beneficial owners

Does any entity carry on business under any name other than its own corporate name

Details of the trade and business associations relating to the business

Details of any bonds or other securities issued

Details of any security interest, encumbrances or claims in respects of any security issued

Details of any right granted to any third party to acquire any shares or other securities in ant of the legal entities

Names and addresses of auditors and/or external accountants including principal contact

Compliance with international standards and regulation (e.g. OECD, child labour , etc.)

Description of any entity’s reputation including any scandals, investigations or allegations of corruption, bribery or other criminal conduct

Details of any political contributions or gifts to government officials made by any entity

Details of any other external due diligence processes undergone by any entity (for example TRACE)


Received Comments

II. Contracts and agreements Business Contracts and Agreements General standard terms and conditions and major customers and suppliers

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Received Comments

Copies of all contracts with, orders from and bid to Customers detailing : Customer name (Direct Customer and Final Customer Contract Type (Firm Fixed Price / Cost Plus, etc.), Contract Value, Contract Delivery Date, Expected Delivery Date, Contract Description, Launch Date as well as key technical milestones Status of pending bids and relevant documentation

Copies of all contracts with, orders to and bids from Suppliers detailing : Supplier Name (incl. subcontractors ) Contract Type (Firm Fixed Price / Cost Plus, etc.), Contract Value, Contract Delivery Date, Expected Delivery Date, Contract Description, Launch Date as well as key technical milestones

Guarantees related to major contracts.

Details of performance by key/significant customer and supplier:

On time delivery percentage

Quality ratings Date of last assessment

Customer complaints and penalties incurred in past years (including current year)

Defect levels

Quality corrective action programmes required in past years

Trading problems experienced in past years Agreements related to the manufacturing/engineering and production aspects of the business and indication of alternative sources of supply.

Details of penalty clause mechanism for cancelled orders Agreements or arrangements restricting the ability of the company, subsidiary or business to compete or carry on business

Other non-routine, non-arm's length or loss making contracts, including any that may be subject to registration or which may the Treaty of Rome or other antitrust regulation.

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Received Comments

Copies of agency, marketing, distribution and licensing arrangements and agreements

Copy of any other material, long-term, non-routine, non-arm's length or loss making contracts

Copies of any agreements restricting the ability of the entity to carry on business

Copies regarding current performance guaranties or other incentivized contracts

Copies of current or possible future obligations under previous acquisitions or disposals by the Business

Copies of contracts that could be affected by the transaction in particular, notice requirements, price revisions, pre-emption, change of control, termination and assignment rights

Copies of any other contracts with management, directors or affiliated companies or consultants

Copies of any contract relating to the acquisition or disposal of shares, businesses or assets in the past years, including details of any related warranties

Copies/details of any sale or purchase option, affecting any asset or shares Agreements that could be affected by the transaction in particular, notice requirements, price revisions, pre-emption, change of control, termination and assignment rights

List of existing warranties and guarantees Licensing or other agreements or arrangements with important data processing/ servicing/ computer systems with customers and suppliers to the company and subsidiaries

Financing contracts, loans, grants, particularly if subsidised by public authorities, and copies of laws or regulation related to such grants

Details of non-compliance with any of the agreements mentioned in this section

Acquisition, joint venture and other strategic agreements

Copies of any joint venture, consortium, partnership options, risk sharing and other similar agreements or arrangements (e.g. Heads of Agreements, letter of intent, memorandum of understanding)

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Received Comments

Copies of all agreements and other documents (including valuations, due diligence materials - past due diligence and Vendor due diligence reports) relating to any material acquisition, merger, consolidation, divestiture or disposition involving the company or any subsidiary or currently proposed for the future.

A list of divested operations over the last years describing what liabilities the company or any of subsidiaries has retained and what liabilities were sold.

Joint venture and partnership agreements to which the company or any subsidiary is a party, and any agreements relating to any consortium in which the company or any subsidiary is a party or to which any product of the company or any subsidiary is subject.

Agreements relating to the purchase or sale by the company or any subsidiary of securities.

Details of current or possible future obligations under previous acquisitions or disposals by the company

With respect to acquisition, joint venture and other strategic agreements referred to in this Section, a schedule of clauses that could be affected by a change in control.


Description of any other issue relating to contracts and bids that may damage the reputation of the Company or its shareholders if the relationship with the Company was made public

Details the entity’s reputation for respecting the interests of minority shareholders / JV partners

Intra-group transactions

Copies of all documents, agreements, contracts or arrangements relating to any material transaction (including service agreements) between any of the entities of the Group and between any entity of the Group and any director, officer or direct or indirect owner of the company's securities (including contracts or agreements pertaining to any receivables or payables).

Schedule listing of all inter-company balances, both debit and credit. Classify between trading, management charges, rent, interest and so on and financing

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Received Comments

Copy of transfer pricing policy.

Management assessment of practice.

Any intra-group transactions not on an arm’s length basis

Details of services provided by group and shareholders With respect to agreements referred to in this Section, a schedule of clauses that could be affected by a change in control



Received Comments

III. Governmental regulations, filings and agreements

Copies of any licences, consents, permission or authorisation or approval required by any governmental or any other regulatory body to engage in international activities

Any indication that any licence, consent, permission or authorisation or approval is likely to be amended, varied or revoked

Description of any arrangements within group and between shareholders (pre-emption rights etc.)

All documents relating to the group’s policy regarding export laws compliance (e.g. defence - or aerospace-related) including but not limited to compliance reports and manuals and other internal documents relating to compliance with governmental permits, licences and other governmental authorisations referred to above.

Compliance with exports laws as described above

Details of any past, pending or threatened investigation by any governmental or other regulatory body

Any reports of the Board of Directors or correspondence of any regulatory or administrative agency to the Group, to the company, agents, venture partners, or distributors with respect to, and details of any non-compliance by the Group, the company, agents, venture partners or distributors with respect to, any acts regulating international trade.

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Received Comments

Correspondence with governmental agencies and authorities concerning alleged or actual violations of the terms or conditions of any permits, licences or other governmental authorisations referred to above

Except as otherwise described above, all material government or government

agency agreements, other than ordinary course contracts, of the company and

any subsidiary.

A schedule of all applications, permits, concessions, licenses and other matters referred to in this section which could be affected by a change of control

A Description of any actual or potential political, governmental, military, security or procurement agency connections or affiliations of either entity or any member of Company’s corporate group


Received Comments

IV. Real property and assets

Schedule of all real property owned, leased, or used by the company or any subsidiary

Deeds or other evidences of title for each parcel or real property owned by the Group for the benefit of the company or any subsidiary

All significant leases or rental agreements relating to real property and all leases or rental agreements relating to significant amounts of personal property and all other agreements pertaining to the use of land or buildings or such personal property to which the group, company or any subsidiary is a party

A schedule of and all significant instruments relating to the grant or creation of a security interest or other lien, encumbrance, restriction, easement, option or other agreement affecting significant real property owned, leased or used by the group, company or any subsidiary

Schedule of leases and instalment or other purchase agreements covering significant equipment or other personal property

Surveys, appraisals, audits, valuations or similar reports, if any, of the property interests of the company or any subsidiary

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Received Comments

All significant leases and rental agreements not included in the paragraphs above, including sub-leases and concession agreements (if any), consents, estoppels letters and all amendments in respect of real or personal property owned or leased by the company or any subsidiary, together with copies thereof

Provide details of any condemnation, or expropriation proceeding commenced or threatened in writing against the company or any subsidiary

Location of all offices/operations of the company

All purchase contracts, deeds, bills of sale, construction contracts and related documents concerning real properties of the company or any of its subsidiaries

All operating permits (elevator, fire, health departments, building department, etc.) and compliance certificates or other evidence of compliance with applicable laws on fire escapes, electricity and other safety matters for each real property of the company or any of its subsidiaries, along with evidence that such property is served by the required utilities

A schedule for projected capital improvements, if any

Any correspondence with, reports of or to, and filing with any government agency, municipality or other third party affecting the ownership, condition, management, maintenance, use, operation and/or development of any material real property of the Group for the benefit of the company

All contracts, licenses and other significant agreement with any governmental agency affecting the acquisition, ownership, condition, management, maintenance, use, operation and/or development of any material real property of the Group for the benefit of the company

Any condition existing or threatened that might materially adversely affect any facilities, assets or prospects pertaining to the real estate portfolio of the Group

With respect to real property and assets referred to in this Section, a schedule of clauses that could be affected by a change in control


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Received Comments

V. IPR

Details (including related fees) / copies of any intellectual property rights in the form of patents, trademarks, designs, copyrights, trade secrets or other know-how owned, domain names or unregistered IPR granted or applied for. In the case of patents, trademarks, designs indicate countries where each patent is so registered and, for applications outstanding an estimate of likely date of grant

List of patents which will remain in the company

List of patents which is used by the company from other companies (including other Group companies)

List of other IP’s which are used in the business products (example: Software Operating systems IP, Interface IP’s such as 1553B…)

Details of inventors / authors

For all intellectual property rights owned, held or used by the Group for the benefit of the company including patents, patent applications, trademarks, trademark applications, trade names, service names, copyrights :

Licence agreements, marketing or distribution agreements, and agreements with directors, officers or other employees relating to intellectual property owned, held or used by the Group for the benefit of the company. Indicate in each case the type of right, significant geographical coverage and the date of expiration of rights.

Copies of the forms of agreements with employees covering the

development of intellectual property, (including confidentiality and

assignment of invention agreements) together with a list of the

employees covered thereby.

Any other agreements dealing with intellectual property rights, including licensing agreements, IPR sharing agreements

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Received Comments

Details of any licences held by the Group for the benefit of the company for

the use of technology, know-how or other intellectual property owned by a

third party, the expiry date for the licence and any payments made in respect

of the licence

Any indication that any licence, consent, permission or approval is likely to be

amended, varied or revoked

Filings, registrations and applications for registration with respect to the

intellectual property rights referred to above in any jurisdiction

Describe all material proprietary intellectual property rights owned, held or used by the company with respect to which the company has not filed a patent, trademark or copyright application

Details of any software (including source codes) which has been developed by the company. Confirmation that the copyright in respect of any such software has been adequately protected

Confirmation specifically that the company is not using software in which

copyright subsists (and in which it does not own the copyright) otherwise than

in accordance with a valid licence authorising such use by the company

Documents or instruments creating a security interest or other lien in any

intellectual property owned, held or used by the company

Correspondence with counsel or with any relevant regulatory agency with respect to intellectual property rights owned, held or used by the Group and the company, including with respect to actual or contemplated patent applications, validity or non-infringement opinions and patent searches performed for or on behalf of the Group and the company or company alone

Describe all current or threatened disputes, adverse claims and opposition procedures concerning the use of intellectual property rights owned, held or used by the Group and the company or company alone

Describe all unauthorised uses or alleged unauthorised uses of intellectual property rights owned, held or used in the conduct of business which has or has not yet come to the attention of that third party (including internal memoranda, reports and correspondence)

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Received Comments

Details of any infringements (actual or alleged) of intellectual property rights by third parties

With respect with all property rights referred to in this Section, a schedule of clauses that could be affected by a change in control


Received Comments

VI. Insurance

Copies of all insurance policies and binders taken out by, or for the benefit of, the company including but not limited to fire, liability, errors & omissions and property damage, business interruption, transportation of goods, general liabilities, product liability, environmental liability and employers liability, employment practices liability, workers' compensation, director and officer indemnification, export credit and political risk, Due Diligence Dispatch, business interruption etc. (see accounting - Treasury Organisation and Policies)

For the insurance policies and binders above, details : on amount and period of coverage, risk covered, annual premiums

paid, deductible, names and, addresses of insurance companies, policy numbers and, expiry dates and what consents, if any, are necessary on a change of control or what

notice is necessary for termination Please advise if premiums include/exclude local tax and broker commission

Details (including the date of the claim, the nature of the claim and the amount of the claim under any of the Group's or company insurance policies) of outstanding insurance claims or disputes and anticipated claims

Details of any insurance policies denied, revoked or materially altered

Schedule of claims and potential claims for the current year and the previous years (whether successful or unsuccessful)

Copies of the insurable risk surveys relating and the status of any recommendations made.

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Received Comments

Provide an history by line of insurance indicating paid claims estimates and reserves With regard to the above, provide historical self-insured retentions or deductibles.

Provide a schedule of all bid and performance bonds issued on behalf of the company or any subsidiary, showing the amount, the beneficiary and the expiry date. Provide a copy of any agreement with the insurer providing such bonds.

Provide details of any Group captive insurance company existing now or in the past.

Provide a schedule of all owned and leased locations insured, broken down by value of building, stock, machinery and equipment and improvements and betterments.

Provide a brief description of the construction and protection at all locations

Provide copies of all active agreements between members of the Group and insurance carriers for the benefit of the company.

Provide copies of any loss projections done by any member of the Company, its agent or its carrier.

Provide copies of any loss control or engineering agreements pertaining to occupational disease.


Received Comments

VII. Litigation

Copies of correspondence with customers, suppliers, sub-contractors, employees or neighbours relating to complaints or disputes

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Received Comments

List and description of all material litigation and material pending or threatened litigation or arbitration or investigation or administrative proceedings or governmental investigations or inquiries (including those related to taxes and currency reporting requirements and employee benefits), likely to affect the conduct of business or in any event including but not limited to material industrial litigation and/or claims made by any director or employee or ex-director or ex-employee, consultant or ex-consultant. In each case the following should be included: a) the parties and forum b) brief details of the matters at issue c) an estimate of the liability which the company might incur if an unfavourable decision is made

Any known circumstances which might give rise to any proceedings of the kind mentioned above

Details of any breach or default under the terms of any material agreement or licence

Details of any alleged violation of any law, regulation, permit, consent, licence, authorisation which has led or might lead to an unfavourable judgement or ruling materially affecting the business, including anti-trust regulations

Threatened / actual claims of unfair labour practices or petitions filed with the relevant authorities with respect to the plants

Details of any allegations made against the company by any public authority for material non-compliance with any statutory obligations or threat of revocation or withdrawal of any permit, consent, licence or authorisation relevant to the business of the company

Details of any past, pending or threatened investigation or enforcement proceedings by any governmental or other regulatory body including without limitation competition authorities

Details of any circumstances which have given rise, or could give rise, to any

material claim under any environmental or health and safety laws

Details of material claims that may determine litigation and or arbitration

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Received Comments

List of any financial aid, subsidies or other contribution granted to the

business or its controlling company by the state or any other national public

entity in the past years, as well as any information relating to potential state

aid investigation

A summary of all significant consent decrees, judgements, other decrees or

orders, settlement agreements or other agreements to which the company or

any subsidiary is a party or is bound, requiring or prohibiting any future

activities

Notices, letters, etc. alleging violations of or requesting compliance with laws,

regulations, etc., or requests for information with respect to health or safety

laws, employment laws, antitrust laws or other government laws or regulations

to which the company or any subsidiary is subject that have been delivered to

the company or any subsidiary

Correspondence with counsel to the company or any subsidiary as to current

or threatened material litigation matters, including opinions of counsel

A description of any litigation or criminal prosecution involving the company

that may affect its reputation regardless of the ultimate outcome

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Received Comments

VIII Anti-corruption policies

Request and review anti-corruption policies of the target group. When were the policies implemented and how often are they reviewed?

Obtain copies of all anti-corruption training programmes. How and when is training conducted and to whom is it given? What tailored/further training is given to higher risk groups?

How are the target group's anti-corruption policies monitored/compliance checked? Who is responsible for compliance/corruption risk issues and what percentage of their role is focused in this area?

How far is senior management involved in enforcing the anti-corruption policies?

Does the target group have in place an internal reporting mechanism for employees to report potentially corrupt practices? If yes, obtain details of any reports made and any investigation/disciplinary action taken as a result.

How are anti-corruption policies communicated throughout the target group and what training has been given to its employees, officers and agents on anti-corruption?

Are there any policies in place in relation to gifts, hospitality and promotional expenditure and is the giving and receiving of gifts and hospitality properly documented?

If the business of the target company and/or any of its subsidiaries is conducted through agents, intermediaries, consultants or other third parties or joint venture parties, how are the agents, intermediaries, consultants or other third parties appointed? What procedures do the target company and its subsidiaries have in place to monitor the agents, intermediaries, consultants and other third parties through which they conduct their business? Obtain details of any such contract with agents, intermediaries, consultants and other third parties through which they conduct their business.

Obtain details of any contact with foreign public officials.

Obtain details of any contract, agreement or other arrangement with a public sector organisation.

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Received Comments

Has the target company or any of its subsidiaries, employees, agents or other persons who perform or have performed services for or on behalf of the target or any of its subsidiaries been investigated by any law enforcement agency or customer in relation to corrupt practices?

Has the target company or any of its subsidiaries, employees, agents or other persons who perform or have performed services for or on behalf of the target or any of its subsidiaries been prosecuted or convicted in any jurisdiction for corruption?

Has the target company or any of its subsidiaries ever been debarred from bidding for public contracts?

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Due Diligence Lists - Commercial/Purchasing/Production/R&D/IT


Received Comments

Sales & Marketing

Description of overall sales, distribution and marketing system and structure as well as commercial policy and its organisation

Sales and marketing employees and related personnel expenses

Key salesmen, track record and bonus schemes

Agents policy, agreements and commercial terms

Estimate of market size for products and services and key threats and opportunities

Current customers and sales analysis by product and customer

Market share by major product line and key strengths and weaknesses

Product performances as stated in technical specifications (for comparison also those in marketing presentations)

Firing trials official results for all major products

Details of performance by key/significant customer: on time delivery percentage, quality ratings, date of last assessment, customer complaints and penalties incurred, defect levels, quality corrective action programmes required

Methodology to build an offer including basis for making the bid/no bid decision

Price building from material and labour data for each major product

Price variation depending upon quantities for each major product

Historical track record of customer gains and losses including bids for new work, recurring work and details of work lost

Marketing plan and approach

Products and potential customers by product, including prospects, with associated competitive advantage/probability of success

Description of major development programmes

Selected marketing material

Advertising/promotion expenses

Rules/procedures for non-competitive contracts

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Received Comments

Information on the export regulation: existing rules, restricted areas, excluded countries

Purchasing

Total purchasing value and by major subsystem

List of suppliers and ABC suppliers’ analysis

Breakdown of supply volume by major programme and major subsystem for each major programme

Suppliers’ terms, e.g. payment conditions

Long term supply contracts

Description of agreements with purchasing groups and of special conditions for intercompany purchasing

Details of performance by key/significant supplier: on time delivery percentage, quality ratings, date of last assessment, customer complaints and penalties incurred, defect levels, quality corrective action programmes required

List of procured items which are submitted to export licence ( ITAR as example)

Production

Manufacturing

Description of the manufacturing/methods and engineering processes and techniques and the relative position of the business in relation to the ‘leading edge’ in the industry in which it operates

Production planning and control flowchart

Transfer prices

List of major services and studies contracted outside

List of development and production tools and processes, major laboratories, machinery and production equipments with associated procurement cost and maintenance cost, technology, capacity, cost, age, accumulated depreciation, depreciation rates

Summary of recent production problems

Details on quality issues with respect to quality procedures and quality manual, list of approvals and certificates and overview of quality management concept, strategy and process

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Received Comments

Copies of all current certifications (e.g. AS9100, ISO 9000:2000, ISO 14001 or equivalents)

Capacity utilisation and constraints on production capacity

Capex requirements and related time horizon

Cost of production with associated quantities for each major product, including the cost of procured parts, the internal cost, depreciation and the cost of production support

Historical learning curve data and performance

Product support volumes and organisation

Distribution network organisation

Cost of warranties

Workload analysis by product/programme/technology including under/over capacity

Copies of the company’s Major Incident Management Plan and Business Continuity Plan

Production facilities

Description of the plants and facilities

Ownership of each facility

Note on any property used/planning restrictions

Significant building maintenance/repairs agreement

Safety and emergency procedures

Copy of sites/buildings layouts

Engineering and R&D

Organisation of engineering/R&D team and details of personnel employed in the R&D department

Details of facilities and laboratories used in the engineering/R &D department

Engineering programme methodology, programme management and control (e.g. programme initiation, approval, budgeting, monitoring performance measurement), communication methods and capabilities in these areas

Design practices, drafting tools, systems and organisation

Quality standards, procedures and testing

Engineering quality registration status and engineering audit results

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Details of current and historical level of R&D, i.e. self funded, government and external R&D

Main R&D areas at system and subsystem level, capabilities, experience levels, skills rating

Description of major programmes which have been completed, which are currently in process and are proposed for the future and technical issues involving new products

List of critical technologies for each product with associated critical partnership companies, if any

Major technical challenges and resources, training other help that might needed to resolve them

Rapid prototyping experience and capability, also through past case studies

List of applied research topics for current year and planned with expected budget (self funding and additional external funding )

Relationship with major customers and suppliers in the engineering area

Sourcing of next generation of products

IT

Major IT systems employed and planned upgrades (hardware and software)

Software/hardware supply-service-support arrangements or agreements (see legal section)

Details of IT functions, nature, breakdown, cost

IT strategy and budgets

Business recovery plan

Systems shared with the group

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Due Diligence List – Environmental and Health & Safety


Received Comments

Details of processes which are environmentally sensitive, maps of the site and location of sensitive points for emissions, water discharge, storage of chemical and dangerous substances; storage of waste

Information about material permits, licences, consents, approvals, authorisations, certificates, applications, registrations and declarations required to be issued to or made in respect of the operations in any jurisdiction in connection with its business ("permits"), including, but not limited to, those relating to real property, environmental and health and safety matters and employees

Copies of reports, assessments and surveys (including any asbestos survey) relating to compliance with occupational, health and safety standards, any material environmental liability or health and safety audits carried out (whether voluntarily or as required by law)

Details of any known or suspected environmental problems, including soil, subsoil and underground or surface water contamination, e.g. alleged exposure of individual or property, including any existing or threatened litigation relating to breach of environmental regulations and details of any known circumstances which could give rise to such problems, including copies of all notices/prohibitions and other communications from any regulatory agency or neighbours and environmental audit surveys

Details on any notices or investigations of non-compliance by any public authorities

Details of any requirements concerning the establishment of a protective zone, local protection and development of landscape and re-cultivation policies

Details of hazardous substances on site including precise location and method of storage (over ground and under ground) and any discharge / leaks; details on REACH compliance

Air emissions: authorisations, monitoring devices, plan for reduction, analysis certificates; site maps with air emission points

Water withdrawals and discharges: authorisation to withdraw, notice for wells, water treatment, if applicable, authorisation to discharge, consent for

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discharge of dangerous and heated substances, annual filings, analysis certificates

Waste: authorisation for temporary stocking of toxic and noxious waste; authorisation for the disposal of special, toxic and noxious waste; copy of the authorisation by the sub-contractors for the shipping, stocking and disposing of the waste on behalf of the company; registries of loading and unloading of special, toxic and noxious waste as well as exhausted oil; annual report on the production and disposal of waste; annual report on secondary raw materials; notice on stocking and/or treatment of secondary raw materials, procedure for management and disposal

Noise: report and plan for the reduction of noise

Underground and aboveground storage tanks: authorisation for the stocking of dangerous substances (volatile, toxic, and explosive substances), location, volume, report of periodical checks and tests

Dangerous plants (classified institutions): details of notifications made and authorisations named under relevant registration, reports

Past, present and potential litigation

Details of any environmental issues which have led or may lead to any costs or liabilities for the company and details of any modifications or replacements required to comply with environmental regulation

Fire prevention: certificate by the Fire Brigade, provisional certificate, organisation of fire prevention, training provided

Electrical plant: control and testing certificates

Policy of prevention of accidents and work safety: organisation of service; report on risk evaluation in relation to health and safety of workers and third parties and plan for the implementation of safety measures; programme for the information, training and consultation of the workers and their representatives; appointment of plant physician and list of periodical medical exams of the workers; regulatory action or investigation or notices

Report on lead and report on asbestos per site, including plan for asbestos removal, if applicable , periodical monitoring reports

Details of any environmental / accident insurance / employers liability insurance

Emergency plan: plan for Emergency Management related to environmental

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incidents or accidents, also for natural reasons (i.e. earthquake, flooding, storms)

Management Systems: details of any existing Environmental Management System and/or Health & Safety Management System or related third party verification and certification.

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Due Diligence List - Human Resources


Received Comments

Organisation

Organisational structures: general, top management and business/functional units charts, broad description of the activities

Procedures for the main company processes

Responsibilities and powers of attorney

Description of main managing bodies, content and frequency of meetings

Personnel

Summary of age profile both overall and by employee group

Details of all staff including date of birth, age, job title, department/unit, location, contractual category, date of commencement of employment, length of service, salary, benefits, notice period

Employee turnover by category, age, length of service/experience level, department/unit

Reasons for turnover by category, age, length of service/experience level, department/unit

Historical redundancies by department/unit/skills area

Significant vacancies by position, skills area, department/unit

Plans to fill the vacancies and incentives for hiring

Profile of each director and senior manager: previous experience before joining the business, qualifications and degrees, duties, age, years of service and date of appointment to board, if applicable, current remuneration, service agreements, pension agreements, other benefits, e.g. use of company car, share options/incentive arrangements, directorships of companies that carry on business of any kind with the target or its subsidiaries, details of any restrictive covenants, confidentiality provisions

Working hours

Number of yearly workable hours for each employee category

Statutory paid holidays, including state/religious holidays

Special leaves, including sick-leave, maternity leave, unpaid leave

Overtime hours

Unproductive hours (e.g. absenteeism, illness, strikes)

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Work-place accidents

Remuneration and benefits

Method used for the determination of compensation and number of monthly payments, including automatic salary adjustments, if any

Remuneration range and average for main job positions

Salary data for employee groups

Marketplace pay data for like skills/employee groups

Details of social security contribution by category of employee

Overtime remuneration

Details of incentive or profit sharing arrangements, e.g. stock bonus plans, variable pay, etc.

Total and average yearly company labour cost and remuneration by contractual category, including breakdown between standard compensation, overtime, bonuses, social security contributions, etc.

Details of any recent salary awards or increases including details of the last years salary policy, frequency of reviews/awards, any current negotiations relating to anticipated awards or interests and next anticipated review date

Employee benefit plans offered to the various categories of employees: cars, insurance (e.g. accident, health and life), any loans to employees, pension, deferred compensation, severance plans, specific redundancy arrangements

Details of any sickness/disability schemes

Travel and expense reimbursement policy

Early retirement schemes concerning employees and management

Employment contracts

National Collective Bargaining Agreements, local collective bargaining agreements and company agreements which are applicable to executives and salaried and hourly employees and any agreements with union

Sample and standard forms of employment contracts and job levels for hourly and salaried employees

Employment contracts of any director or officer of any group company and of any employee earning in excess of €100,000

Compliance with laws on compulsory hiring of employees, e.g. disabled employees, if any

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Details of consultancy agreements

Copies of personnel policies, company regulations and disciplinary actions

Safety policies

Privacy preservation policies

Policy for preservation of military secrets

Labour-industrial relations

Copy of any union agreements and list of staff in each trade union

Description of current and historic labour relations (strike record), with indication of days lost through industrial action

Details of all works councils and all works agreement (e.g. applicable collective labour agreements), rights and competencies of trade union/works council

Details of employee representatives, who they are and who they represent, terms of office, etc.

Details of recent or planned redundancies, and of procedures to be implemented, including communication plan to employees and special arrangements applying thereto and other remedies provided by law for redundancies

Redundancy payments by category

Application of special policies

Listing of any legal actions being taken against the company by existing or former employees

Professional growth

Recruiting system

Areas of difficulty in recruiting and finding the right skills

Plans for introduction into the company

Evaluation system and career plans

Employee training, including type and content, duration, frequency for each employee category

State support for training

Expenses for training and personnel development measures

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APPENDIX C - GLOSSARY OF TERMS

Acquisition The act of one company taking over controlling interest in another company.

Antitrust Antitrust legislation is designed to break up existing monopolies and the formation of new monopolies to increase competition and social welfare.

Data Room The room assigned for the storage of all documentation during the Due Diligence Process.

Due Diligence An investigative process of collecting and analysing appropriate relevant data before reaching a decision with a goal of understanding the advantages, disadvantages and risks associated with the decision.

Due Diligence Checklist The list of potential documentation / information that could be requested when conducting Due Diligence, as outlined in Appendix B.

Due Diligence Plan The Plan which highlights the list of documents and or information required in order to conduct Due Diligence, associated objectives, timescales are also included as appropriate.

Due Diligence Report The Due Diligence Report shall consist of analysed data and interpreted such that complete and factual information relevant to the objectives contained in the due diligence plan can be presented in the form of a documented report.

Indemnity An indemnity is similar to a warranty but ensures that the seller will compensate the acquirer in the event of any loss under specified circumstances.

IPR Intellectual Property Rights - a group of rights e.g. patents, registered designs, copyright, trademarks.

Merger Acquisition of one firm by another so that only one unit remains.

Mitigation Mitigation action taken to limit the adverse impact of a risk.

Non-Binding Offer An offer from there is no binding commitment and from which any party may walk away

Patent An exclusive right conferred on one who invents or discovers a process, machine etc to make, use or sell.

Risk The past, present and future exposure of the business.

Warranty A warranty is a contractual representation by the seller, which if untrue, entitles the purchaser to claim for damages.