Buying A Business - Due Diligence

[rookiebuyer]

Hi,

I’m new to the TV but not new to Thailand. I have lived here for close to 4 years and have been working in a company in Bangkok the whole time. I have been looking for some time to acquire an online business that I could manage on my spare time and make a few extra $. I have been offered a business that seems to fit my purpose and appears to be making decent money. I’m a total rookie (so please bare with me) when it comes to acquiring businesses so my question is how would you actually perform the due diligence?

The seller has given me all the details such as sales, costs, profit etc. However, how can I check to make sure these are 100% accurate? Does Sunbelt or similar business brokers offer a due diligence service?

The total investment would be around 1 million which is a fair amount of money but still something I wouldn’t mind risk.

Thanks for any help.

[service]

To have a completely procedure of due diligence, you need to have two difference teams. 1. Lawyer and 2. Auditor team. The reason is that auditor shall find out the fact regarding the accounting and confirmed with the lawyer that those transaction is legal or not. Also, the lawyer team can confirm to you the legalization on the documentation.

As professional, both teams will give you the confirmation of due diligence in writing. Sure, you can come back and sue them, if there is some wrong because of their reports.

Good luck.

[mijan24]

Try contacting Sunbelt Asia they are a TV sponsor and I am confident they will steer you in the right direction. ( I am not associated with Sunbelt in anyway but they always appear to be extremely helpful - which any good business should be).

Over to you

[thedude]

To have a completely procedure of due diligence, you need to have two difference teams. 1. Lawyer and 2. Auditor team. The reason is that auditor shall find out the fact regarding the accounting and confirmed with the lawyer that those transaction is legal or not. Also, the lawyer team can confirm to you the legalization on the documentation.

As professional, both teams will give you the confirmation of due diligence in writing. Sure, you can come back and sue them, if there is some wrong because of their reports.

Good luck.

unless the million that the OP was refering to is in pounds sterling and not baht, i'd say the d/d process you describe will in itself cost 1 million baht or thereabouts. for small biz deals, you have to do a lot of the legwork yourself. do commonsense things like check company bank accounts to which payments are made to ensure that biz volumes are in line with what's said, make sure no outstanding debts arising from existing or past contracts, any outstanding tax payments and liabilities. concentrate on the big items and then drill down to smaller stuff if timing and resources permit. finally, once you get an idea of fair valuation, you may want to get some indemnity built into the transaction, like a stand by letter of credit or some instrument you can call on to limit your capital exposure.

edit - oh and don't forget to talk to his business partners, suppliers, and customers to get some insight on how he's doin, this is very important.

Edited November 8, 2006 by thedude

[rookiebuyer]

Thanks guys for the input, much appreciated. I have set up a meeting with the seller for next week so I'm trying to get together as much questions/probing as I can manage.

The business is 1 million baht, wish I had a million pounds/dollars to splash around

[skippybangkok]

Financial DD could cost 200-300k for a small company, and since ur budget is 1000k, it would be impossible. add on legal DD and ur budget gone.

I am not a lawyer, but from what I understand there is a big risk of buy out the shares without proper due dilligence as you might take over the liabilities ( and I know of one case, a criminal suit ).

Speak to the lawyers, best bet i think would be to set up a new clean company, and transfer all the assets / staff. Maybe get a good accountant to help review statements.

[migrant]

As mentioned, follow the books, and records through.

Grab a sample of invoices, and bills, and follow them all the way to the bank statements.

Look at the bank statements and check books for unusual items.

Any vendor/customer agreements, get verification.

Drop into the business at various times to see volume of business versus what is claimed.

As the others mentioned, the process can go on, and on. I'm a CPA here in the states, and do this as part of my business. Some due diligence engagements run into big money, so keep an eye on your objective.

If questions, feel free to pm if you think I can help

[trident]

For low cost professional due diligence work, try Pi Consulting (085 7077 899).

Good luck

Hi,

I’m new to the TV but not new to Thailand. I have lived here for close to 4 years and have been working in a company in Bangkok the whole time. I have been looking for some time to acquire an online business that I could manage on my spare time and make a few extra $. I have been offered a business that seems to fit my purpose and appears to be making decent money. I’m a total rookie (so please bare with me) when it comes to acquiring businesses so my question is how would you actually perform the due diligence?

The seller has given me all the details such as sales, costs, profit etc. However, how can I check to make sure these are 100% accurate? Does Sunbelt or similar business brokers offer a due diligence service?

The total investment would be around 1 million which is a fair amount of money but still something I wouldn’t mind risk.

Thanks for any help.

[lingyai]

Hi,

I’m new to the TV but not new to Thailand. I have lived here for close to 4 years and have been working in a company in Bangkok the whole time. I have been looking for some time to acquire an online business that I could manage on my spare time and make a few extra $. I have been offered a business that seems to fit my purpose and appears to be making decent money. I’m a total rookie (so please bare with me) when it comes to acquiring businesses so my question is how would you actually perform the due diligence?

The seller has given me all the details such as sales, costs, profit etc. However, how can I check to make sure these are 100% accurate? Does Sunbelt or similar business brokers offer a due diligence service?

The total investment would be around 1 million which is a fair amount of money but still something I wouldn’t mind risk.

Thanks for any help.

I would find business that are like the one you are thinking of buying. See how they are doing or if they are for sale. Since this is a web based business try to search and see if the business has good or bad feedback anywhere on the web.

If you are paying a million baht, how much does the business make now?

[Sunbelt Asia]

The seller has given me all the details such as sales, costs, profit etc. However, how can I check to make sure these are 100% accurate? Does Sunbelt or similar business brokers offer a due diligence service?

We have done due diligence for a good number of business transfers ( not on our own listings because of conflict of interest) and our charge is 5,000 Baht per million Baht of the acquisition price with the minimum fee being 15K plus 7% Vat. Add 10,000 Baht if you will be acquiring the shares and not just the assets.

Nobody can be sure 100% these figures are accurate. The Seller's accountant who knows the business and does the yearly P/L and audit, but at the end of the year will still put a disclaimer. Then chances are good every report from the buyers auditing team will do the same. I have seen reports from due diligence teams that cost over 800K on our seller's listings and still the disclaimer was in bold print. "Based on the information provided, this is the analysis..... We will not be held accountable"

If at all possible, you should buy the assets and put them into your own new Ltd. company. However, with web businesses, most banks will not allow newly form companies to have a low charge credit card service. You will have to look at the risk and reward. Looking at many factors...in this regards...

You should check out the limited company VERY CAREFULLY!!! This will include, at a bare minimum, obtaining certain documents from the Commercial Registration Department of the Ministry of Commerce which will show the financials and who is who in the limited company, what the company is able to do, what procedures will be required by the company's regulations, and whether or not the company is current and in compliance with the filings that must be made as required by Thai law.

Your advisor must look at the Memorandum of Association, Articles of Association (“By-laws"), Binding Signing Power, Balance Sheet, Shareholder list, Copy of all tax registration certificates, Copies of all share certificates of the Company, Share Certificate Book of the Company, Share Registrar Book of the Company.

Copies of the following, if any: all agreements for purchase and sale of shares, share option agreements, and pledges of shares.

Copies of all contracts, Copies of all Foreign Exchange "Tor Tor 3" done by the company.

Any company sponsored employee benefit plans.

Copies of all financial statements of the Company filed with Ministry of Commerce.

Copies of all tax receipts.

Copies of all tax reports of the Company

Copies of all title deeds (front and back) to land leased by the Company.

List of names and addresses of all suppliers, amount paid annually to each respective supplier.

List of credit customers of the Company with outstanding amount owed to the Company by each customer.

List of all governmental licenses and permits of the Company,

List of names of all service providers who have been employed by the company (legal consultants, insurance companies, accountants, health services, security services, and advertising agencies)

List of all banks and financial institutions in which the Company has an account.

Copies of all Powers of Attorney issued by the Company which are currently in effect.

List of all shares of stock owned by the Company, if any.

Any and all partnerships or joint ventures in which the Company is a partner.

Any and all business entities directly or indirectly controlled or managed by the Company.

Copies of all mortgages, pledges, claims, encumbrances, or charges to which any land or buildings owned or leased by the Company is subject.

A list of all claims, actions, suits, investigations, or other proceedings against the Company or against any property or assets of the Company, which are pending or threatened before any court, administrative or regulatory body, or other governmental agency.

A list of all businesses in which the Company is involved in.

The address of the premises where the corporate records of the Company are maintained.

A copy of the currently effective work rules of the Company.

A list of any sums due from the Company to any shareholder, director, or officer as and for wages, reimbursement of expenses, compensation for services rendered, pensions, severance pay, or employment benefits or remuneration of any nature whatsoever.

A list of any material financial interest in any competitor, supplier, or customer of the Company which any officer, director, shareholder, or member of the management of the Company has.

A list of all trademarks, service marks, copyrights owned or licenses to or by the Company; and copies of all contracts, agreements, licenses, and registrations relating to the foregoing.

A list of all patents owned by the Company and patent applications filed by the Company.

A list of all applications, if any, to governmental authorities for all licenses and other authorizations necessary to the conduct of the business now conducted by the Company.

A list of any applications submitted by the Company to any governmental authority including any such applications which were denied by the relevant governmental authority.

Copies of any share transfer instruments held by the Company or any of its directors which have been signed by the transferor or seller, but not the transferee or buyer.

A list of all offices and factories of the Company, including all branch offices and copies of any registrations of such branch offices with any Thai governmental authority or agency.

A list of all assets, properties, and liabilities of the Company.

Copies of all documents of title or evidence of the Company’s ownership in the above-mentioned assets and properties.

With respect to land possessed or occupied by the Company, or which the Company has a right to possess or occupy, but which is not subject to a title deed or lease, copies of the certificate of occupancy or other document evidencing the Company’s right to possess or occupy said land.

A copy of any agreements restricting or otherwise affecting transfer or other rights pertaining to the Company shares.

Copies of all pledges, hire-purchase contracts, conditional sales contracts, mortgages, assignments, and other security agreements that the Company has entered into with respect to assets it has purchased, owns, or possesses, and assets it has sold or otherwise disposed of.

A description of the Company’s bad debts and agreements that are expected to result in a loss.

If applicable, copies of all governmental and other consents required for the construction and erection of the Company’s factories.

Copies of all work permits of any aliens who are or were employed by the Company and/or worked for the Company.

Additional documents may be required, but this is a good start for a preliminary list of documents you’ll need from the Seller.

Finaly the purchase agreement must be done by a professional. Our fee is 19,500 Baht plus Vat.

www.sunbeltasiagroup.com

[webster13b]

Hi,

I’m new to the TV but not new to Thailand. I have lived here for close to 4 years and have been working in a company in Bangkok the whole time. I have been looking for some time to acquire an online business that I could manage on my spare time and make a few extra $. I have been offered a business that seems to fit my purpose and appears to be making decent money. I’m a total rookie (so please bare with me) when it comes to acquiring businesses so my question is how would you actually perform the due diligence?

The seller has given me all the details such as sales, costs, profit etc. However, how can I check to make sure these are 100% accurate? Does Sunbelt or similar business brokers offer a due diligence service?

The total investment would be around 1 million which is a fair amount of money but still something I wouldn’t mind risk.

Thanks for any help.

Proper due diligence requires money and time. You need to find a lawyer / auditors to help you with the process. Having a business here in Thailand is a bit risky if not done properly. 1M Baht is still a lot of money. But I suggest that you invest on due diligence for your investment. What they usually do in due diligence is 1) check the authenticity of the seller, whether if the seller is really the owner of the business being sold 2) ascertain any hindrances and/ or restrictions from you buying 3) Verify legal matters for you and ascertain if there would be any registrable encumbrances if ever you decide to purchase it, meaning they'll assess if you'll have any problems in the future if in case you decided to buy. 4)check if there is any fraud from the seller's side. Overall, they run a thorough check on the seller, and the property being sold then they'll give you a due diligence report. In turn, this report will tell you whether this business or property is worth buying and if it's hassle free. There are law firms that offers a fair price for due diligence. You can inquire at http://siam-legal.com for info on due diligence. They offer free consultation.