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Acquisition Procedures and Manual



When confronted with the challenge of managing various aspects of acquisition transactions, senior financial professionals ( Chief Financial Officer and Controller) require a broad range of referential and application resources. This post contents attempt to strike comprehensive step-by step guidance on practical application of acquisition process, principles and best practices, while also providing important referential tips and information. The comprehensive, step-by-step approach presented in this post that follow illustrates transaction flow and sequencing as well as the interrelationships among the various steps in the process in simple statement and instruction that leads to actions.

This “Acquisition Procedures and Manualassumes that the acquisition consideration, strategy, initiative and decision have been made. However, if you are looking for Merger and Acquisition in theoretical terms, you can read another post series of mine about: Managing Merger and Acquisition. It is split into some posts that you can follow through the related articles on the right sidebar. The entire process of acquisition process is made up of a number of discrete steps that grouped into seven major phases: (1) Completing Confidentiality Agreement, (2) Completing Letter of Intent, (3) Performing Due Diligence, (4) Adjusting Final Price, (5) Completing Purchase Transaction, (6) Consolidating Operations, (7) Conducting Post-acquisition Review. Each phase will be break into specific required actions.


Financial professionals play a critically important part in an acquisition activities. Often CFOs and Controllers, and their functional equivalents are logical executive who play a central role in the acquisition process, and invariably should be involved in the transaction from beginning to end.


It is worth mentioning here that fundamentally sound acquisition process typically draws on these skills and expertise of the financial executive:

  • The ability to apply rigorous financial analysis to ensure sound decision making
  • An understanding of the tax implications associated with the various forms a transaction may take
  • An understanding of the applicable regulatory requirements
  • The ability to model and/or critically evaluate business valuations
  • Familiarity with the various financing options available as well as the ability to take a leadership role in structuring a financing package, if necessary
  • Familiarity with the principles of acquisition accounting and their application
  • The ability to plan, coordinate, and execute an efficient and effective due diligence review


In addition to these financial and accounting capabilities, the Chief Financial Officer (CFO) and Controller involved in the acquisition process should also have strong leadership, organizational, and communication skills.


Completing Confidentiality Agreement

This procedure is used by the chief financial officer to complete the confidentiality letter that must be signed by both parties prior to taking additional steps to complete an acquisition.

Responsibilities: CFO (Chief Financial Officer)

The Procedures:

Step-1: Locate Boilerplate Letter Format

  • Call up the confidentiality letter format.
  • Print the letter.
  • Forward the letter to corporate counsel and schedule a meeting to go over special confidentiality issues related to the target company.

Step-2: Alter Letter to Match Current Situation

  • Alter the format of the confidentiality letter.
  • Have the altered letter reviewed by corporate counsel.
  • Reprint extra copies and send to president for signature.

Step-3: Have Letter Signed

  • Have president sign all copies of confidentiality letter.
  • Store one copy of letter in acquisitions file.
  • Forward all other copies to president of target company by traceable express delivery.

Step-4: File Letter
Upon receipt of signed copies from target company, store them in the acquisition file, replacing the earlier, unsigned, copy.

TIPS: Although the seller generally has disproportionate risk of disclosure, the acquirer also benefits from the execution of an Non Disclosure Agreement (NDA). An NDA also provides a psychological benefit to both parties because it enables them to have candid exchanges about sensitive issues.


Completing Letter of Intent

This procedure is used by the chief financial officer to ensure the completion of the letter of intent that is used to notify the management of a target company that the acquiring company is making a bid.

Responsibilities: CFO (Chief Financial Officer)

The Procedures:

Step-1: Locate Boilerplate Letter Format

  • Call up the letter of intent format.
  • Print the letter of intent.
  • Update the letter based on the preliminary purchase terms already discussed with the target company.
  • Forward the letter to corporate counsel and schedule a meeting to go over legal issues related to the letter of intent.

Step-2: Have Letter Signed

  • Schedule a meeting with the president to review the terms of the letter.
  • Obtain the signature of the president on two copies of the letter of intent.

Step-3: Issue and File Letter Copies

  • Put an unsigned copy of the letter of intent in the acquisitions file.
  • Send the other two (signed) copies to the president of the target company by traceable express mail.
  • Upon receipt of the signed copy from the target company, replace the unsigned copy in the acquisitions file with the signed copy.


TIPS: The form and content of a Letter Of Intent (LOI) can vary considerably from transaction to transaction. It is imperative that the attorneys involved in the transaction draft or review its content because, although most aspects of the LOI are nonbinding, some binding terms (such as confidentiality and non-poaching of employees) may be included and can have future ramifications.


Performing Due Diligence

This procedure helps outline the general business fundamentals of a potential acquisition target. This procedure is used by the controller.

Responsibilities: Controller

The Procedures:

Step-1: Review Sales and Marketing

  • What is the current customer concentration?
  • What is the profitability by customer?
  • Does the typical customer purchase the complete product line?
  • What are sales by geographic region?
  • Which of the various lines have resulted in the greatest market penetration?
  • What is the seasonally of sales?
  • Has the target received any requests to expand its market geographically? Who has asked, and
  • what product lines were requested?
  • What is the organizational structure of the sales and marketing team?
  • What types of outside sales representative relationship(s) do they have?
  • What is the commission structure?
  • What was the unit sales volume by product for last year, and current projections for the upcoming year?
  • What types of agreements exist with customers in regard to price changes in response to changes in raw material prices?
  • What customer agreements “lock in” pricing for fixed time periods?
  • What is the return merchandise history for the last 18 months across all product lines?
  • Have there been any recent product recalls?

Step-2: Review the Competition

  • Who are the primary competitors?
  • What is their share of the market?
  • What information is available on competitors in regard to sales volume, distribution, and products?

Step-3: Review New Products

  • What new products are being developed? What is the time line for the introduction of these products?
  • What products have been introduced in the past year? What is their sales performance so far
  • What proportion of sales are from products that have been on the market for at least five years?

Step-4: Review Product Designs

  • Which organization has been responsible for product development? What are the skills and composition of the staff?
  • What kind of design software do they use?
  • Are there any existing patents for design or function on existing products? When are they due to expire?
  • Have existing design patents within the industry affected product options?

Step-5: Review Finance and Accounting

  • What transfer costs are used between subsidiaries?
  • Review the accounts receivable aging for old items and investigate.
  • Review the accounts payable aging and investigate old unpaid items.
  • Are operations matching budgeted performance levels?
  • What depreciation schedule do they use for major assets?
  • What leases are current?
  • How long does the facility lease run? Is there an option to renew it?
  • Obtain a copy of the building lease.
  • Obtain a copy of the asset list.
  • Obtain detailed financial statements for the last two years.
  • Obtain a list of all loans, as well as the detailed agreements for them.
  • Obtain a copy of the current business plan and financial projections.
  • Obtain the most current credit report.
  • What are the average payable days?
  • Obtain a listing of the inventory.
  • What proportion of the inventory has not been used recently?
  • Are there any clearly obsolete items?
  • What are the percentages of the cost of goods sold attributable to direct labor, materials, and overhead?
  • What costs comprise the overhead expense?
  • What costs go into the overhead allocation calculation?
  • Are expenses being sufficiently accrued for?
  • Are liabilities (such as pensions, taxes, warranties, insurance, litigation, and environmental remediation claims) under-funded?
  • Does the company’s bank want to continue funding any existing debt?

Step-6: Review Legal and Tax Issues

  • Are there any outstanding legal issues? Has there been a history of legal problems?
  • What type of corporation structure is involved (partnership, Sub S, or C)?
  • Are there any carryover tax credits?
  • Obtain a list of all stockholders, and their proportions of ownership.
  • Are there any potential environmental problems?
  • Has OSHA recently reviewed the facility? What was the result?
  • Is the facility unionized?

Step-7: Review Computer Systems Issues

  • What type of software is used for accounting and manufacturing activities?
  • Describe the network layout.
  • Does the company use electronic data interchange?
  • Obtain a list of all computers currently in use, including model numbers and age.

Step-8: Review General Management Issues

  • Obtain a copy of the current organization chart.
  • Obtain a listing of salaries and employment agreements for key employees.
  • Obtain a copy of the current benefit plan.

Step-9: Review Logistics Issues

  • What mode of transport do they use? Is there any in-house freight delivery service?
  • What shipping range do they believe is competitive for their products?
  • Are there any long-term supply contracts that the company is locked into that have unfavorable rates?

Step-10: Review Manufacturing Issues

  • What products are currently being produced?
  • What types of manufacturing automation are in use?
  • What percentage of machines are currently used?
  • What percentage of the facility square footage is currently used?
  • What brand and age of machines are being used? How soon before they need replacement?
  • Do they use machine monitoring systems? What kind are used?
  • Is there an active preventive maintenance system in place?


TIPS: At this phase of the process, the acquirer should also discuss other important aspects of the due diligence review with the principals of the target company. This would include the need for presentations by key members of the target company’s staff, the ability to interview managers and legal and accounting advisors, and the opportunity to tour the premises where business is conducted.


Adjusting Final Price

This procedure is used by the chief financial officer as a set of guidelines that covers the maximum price to which the company will adjust its bid based on due diligence findings.

Responsibilities: CFO (Chief Financial Officer)

The Procedures:

Step-1: Review Policy for Maximum Price Guidelines

  • Summarize the controller’s due diligence report and note all areas in which purchase price adjustments are necessary, based on variances from the original information on which the original letter of intent was based.
  • Refer to the company policy on maximum pricing guidelines, in case any pricing requires upward adjustment.
  • Document all downward pricing adjustments, along with exact calculations, and store this information in the acquisitions file.

Step-2: Calculate Final Price Based on Due Diligence Results

  • Summarize all pricing adjustments in a standard report format.
  • Schedule a meeting with the president to review all pricing adjustments and the final price.
  • Obtain the president’s approval of the final pricing offer.

Step-3: Communicate Price to Target Company

  • Create a cover letter to the president of the target company, explaining all pricing adjustments.
  • Include the pricing adjustment summary sheet. Include an offer termination date in the cover letter.
  • Copy the packet and store it in the acquisitions file.
  • Send the packet to the target company by traceable express mail.


Completing Purchase Transaction

This procedure is used by the chief financial officer to ensure that all legal and financial documentation has been completed for an acquisition.

Responsibilities: CFO (Chief Financial Officer)

The Procedures:

Step-1: Review Checklist of All Purchase Documentation

Access the standard checklist of purchase documentation.

Step-2: Verify That All Checklist Items Have Been Completed

  • Ensure that the environmental testing report has been completed and reviewed for problems.
  • Verify that there are no legal attachments to any target company assets.
  • Ensure that all property taxes have been paid by the target company or put in escrow through the date of the acquisition.
  • Verify that bridge loans for the acquisition have been approved by lenders.
  • Ensure that the auditors have completed their investigative audit of the target company.
  • Verify that the appraised value of all assets matches the summary total against which the original price was based.

Step-3: Follow Up on Missing Checklist Items

  • Draft a list of all checklist issues that have not yet been completed.
  • Assign responsibility for all tasks, and schedule due dates.
  • Follow up to ensure that all checklist items are complete.

Step-4: Complete Purchase Transaction

  • Prepare all purchase documentation and submit it to all parties for review.
  • Incorporate any final changes into the documentation.
  • Schedule a meeting with representatives from the target company, as well as all legal advisors, to sign the purchase documentation.


Consolidating Operations

This procedure is used by the chief financial officer to ensure that the proper steps are followed in consolidating the operations of an acquired entity into those of the company.

Responsibilities: CFO (Chief Financial Officer)

The Procedures:

Step-1: Assign Consolidation Project Team

  • Determine the available staff and management group available for assignment to the consolidation project team.
  • Select the team from this group, based on past experience and management skill.
  • Meet with the team leader to determine the dates and locations for the consolidation project.

Step-2: Setup Consolidation Guidelines and Deadlines

  • Review the team leader’s recommendations for deadlines and revise as necessary.
  • Review with the team leader the standard set of consolidation activities and revise it as necessary, depending on the conditions at the target company.
  • Create a list of milestone dates and meetings to review progress.
  • Meet with the entire consolidation team to review the project plans.

Step-3: Conduct Milestone Progress Reviews

  • Meet with the consolidation team on the previously specified dates to review progress.
  • Address the need for changes in the composition of the team to ensure that due dates are met, or else modify the due dates.
  • Issue a written communication to the team leader regarding expectations for the next milestone meeting.


Conducting Post-acquisition Review

This procedure is used by the chief financial officer to ensure that solutions are found to any problems encountered during the acquisition process.

Responsibilities: CFO (Chief Financial Officer)

The Procedures:

Step-1: Conduct Post-acquisition Review

  • Schedule a review meeting with members of the consolidation team.
  • Issue an agenda of discussion items in advance of the meeting.
  • Review all issues that arose during the latest consolidation that related to increased costs or delayed deadlines, as well as new initiatives for correcting both problems, plus concerns raised by team members.

Step-2: Assign Responsibilities for Resulting Projects

  • Specify who is responsible for projects that will improve the consolidation process the next time.
  • Set up deadlines and precisely define expectations.
  • Agree to the date and subject matter for a follow-up meeting regarding these issues.


TIPS: Chronologically, the post-acquisition integration process starts after the transaction has been finalized. However, if it is seen as a discrete activity beginning immediately after the close, it is extremely unlikely that it will be executed efficiently and effectively, and it is virtually guaranteed not to meet the operational objectives expected as well as the financial assumptions embedded in the valuation model used to gain approval for the transaction.

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