Lower-Middle-Market Manufacturing M&A Due Diligence Guide

A seller-focused guide to what buyers and acquisition lenders request, and why

Due diligence is the process by which a buyer, their financing sources, and their attorneys verify the story behind your financials, customers, operations, and risk profile. For quality buyers, the goal is not to overcomplicate the process – it is to remove uncertainty so they can close with confidence.

The M&A professional should have a well-organized data room to ensure requests are tracked, documented, and handled in a timely fashion. While the due diligence process can be stressful for the seller, it’s critical to a successful M&A transaction, and can protect valuation, reduce re-trades, and shorten timelines.

The list of due diligence questions outlined below are the basics and are required in lower-middle market transactions. Depending on the size of the deal, the buyer may pose many more questions to verify the quality of earnings and other issues that could impact the buyer post-closing. We publish this guide to help manufacturers prepare for the M&A process.

Practical note: Many sensitive items are typically shared only after an LOI is signed, under an NDA, and often in stages. There is typically a pre-LOI data room with basic information shared prior to an LOI, with the list below being required AFTER an LOI is executed by the parties. A strong M&A professional will protect the client through the process and release information at appropriate stages.

Financial

These materials support the earnings story, working capital dynamics, and any EBITDA adjustments. Buyers use them to validate the quality of earnings, and acquisition lenders use them to underwrite debt capacity and confirm the company can service loan payments under reasonable downside cases.

• Provide a schedule of all capital expenditures (last 3-5 years).
  • Why buyers ask: Confirms whether earnings have been supported by appropriate reinvestment and highlights upcoming replacement needs.
  • Why acquisition lenders ask: Used to underwrite free cash flow after maintenance capex and evaluate collateral condition.
• Provide the profit & Loss annual statement by month for the last 3 years in an Excel format.
  • Why buyers ask: Shows monthly trends, seasonality, margin stability, and any unusual fluctuations that can affect valuation. The Excel format also helps the buyer in calculating future projections.
  • Why acquisition lenders ask: Supports debt sizing based on run-rate EBITDA and stress-tests month-to-month variability.
• Provide balance Sheet annual statements by month for the last 3 years in an Excel format.
  • Why buyers ask: Validates working capital behavior, debt-like items, and balance sheet cleanliness.
  • Why acquisition lenders ask: Required to model liquidity, leverage, and working capital swings that impact debt service.
• Share the current aging A/R & A/P reports.
  • Why buyers ask: Tests receivable collectability, vendor payment behavior, and cash conversion cycle.
  • Why acquisition lenders ask: Helps confirm working capital assumptions and reduces risk of overstated cash flow.
• Provide a description of A/R Payment terms and discount policies.
  • Why buyers ask: Clarifies commercial terms, discount leakage, and cash collection discipline.
  • Why acquisition lenders ask: Used to model timing of cash receipts and working capital needs.
• Shareholder’s W2’s (last 3 years).
  • Why buyers ask: Supports normalization of owner compensation and verifies adjustments to EBITDA.
  • Why acquisition lenders ask: Lenders require documentation for add-backs that affect leverage and repayment ability.
• Share all credit agreements, loans, notes, indentures, guarantees, and other documents relating to long and short-term debt, other than trade accounts payable or receivable.
  • Why buyers ask: Identifies payoff amounts, liens, covenants, and change-of-control restrictions.
  • Why acquisition lenders ask: Needed to confirm lien releases and ensure seniority and security are properly established.
• Share all business plans or projections for future periods prepared and/or used by the Company during the past three years, if applicable.
  • Why buyers ask: Explains management’s view of growth drivers, capacity needs, and risks that may not be visible in historical results.
  • Why acquisition lenders ask: Used to evaluate forecast reasonableness, downside resilience, and debt capacity under base and stress cases.
• Provide a schedule of all customer Sales Credits issued (last 3 years).
  • Why buyers ask: Highlights quality concerns, pricing disputes, returns, concessions, and customer satisfaction trends.
  • Why acquisition lenders ask: Credits can signal margin leakage and future cash flow volatility, which lenders incorporate into underwriting.
• Provide monthly bank statements for the past 3 years and YTD.
  • Why buyers ask: Supports cash verification, reconciliation, and identification of unusual or non-recurring transactions.
  • Why acquisition lenders ask: Provides independent confirmation of cash flow and helps underwrite working capital and liquidity.
• Obtain a STATE Certificate of Good Standing.
  • Why buyers ask: Confirms the entity is legally active and authorized to do business.
  • Why acquisition lenders ask: A standard closing requirement for financing and lien perfection.
• Provide a schedule of all accrued but unpaid expenses (including payroll, rents, utilities, insurance, advertising, and other definable expense items). A list of all prepaid expenses. A list of all deferred revenue.
  • Why buyers ask: Identifies working-capital components and debt-like items that affect purchase price and true earnings.
  • Why acquisition lenders ask: Ensures liabilities and timing items are properly reflected in underwriting and closing adjustments.
• Provide federal Tax Returns for the last 3 fiscal years.
  • Why buyers ask: Cross-checks financial reporting and identifies potential tax positions or exposures.
  • Why acquisition lenders ask: Standard underwriting requirement to verify compliance and support cash flow analysis.
• Provide state tax returns for the last 3 fiscal years.
  • Why buyers ask: Cross-checks financial reporting and identifies potential tax positions or exposures.
  • Why acquisition lenders ask: Standard underwriting requirement to verify compliance and support cash flow analysis.
• Share detailed general ledger information for the two (2) most recent fiscal years and for the most recent interim period.
  • Why buyers ask: Enables quality-of-earnings work, supports add-backs, and surfaces one-time or non-operating items.
  • Why acquisition lenders ask: Underpins lender confidence in adjusted EBITDA and sustainable earnings.
• Provide description of any PPP loan outstanding to the Company under the terms of the CARES Act (please include a summary and status of your forgiveness plan, if any, and a copy of the loan application and loan documents), a schedule of any and all employer payroll taxes deferred pursuant to the terms of the CARES Act, and a schedule of any and all employee social security tax deferred.
  • Why buyers ask: Confirms any remaining obligations, timing items, or potential clawback exposure.
  • Why acquisition lenders ask: Debt-like and deferral items must be quantified to underwrite leverage and closing funds.
• Provide relevant support for any company proposed adjusted EBIDTA add-backs (last 3 years).
  • Why buyers ask: Buyers pay for proven earnings, so add-backs must be supported to be accepted in valuation.
  • Why acquisition lenders ask: Add-backs drive leverage, and lenders require documentation to include them in underwriting.

Sales & Marketing

Revenue is only valuable if it is durable and transferable. Buyers use these items to evaluate concentration risk, pricing power, backlog quality, and the extent to which sales are dependent on an owner or a small number of relationships. Lenders focus on stability and predictability because repayment comes from future cash flow.

• Provide a schedule of sales by customer (last 3 years).
  • Why buyers ask: Measures customer concentration, retention risk, and whether revenue depends on a few relationships.
  • Why acquisition lenders ask: High concentration can reduce lendable leverage and increases underwriting conservatism.
• Provide a schedule of sales by product type for each (last 3 years).
  • Why buyers ask: Explains mix, margin profile, and exposure to end-market cycles or commoditized products.
  • Why acquisition lenders ask: Product mix stability supports predictable cash flow for repayment.
• Provide a copy of current sales and marketing materials/brochures.
  • Why buyers ask: Helps confirm positioning, target markets, and whether demand is supported by a repeatable go-to-market approach.
  • Why acquisition lenders ask: Supports confidence that revenue is sustainable and not solely dependent on a single individual or relationship.
• Provide a description of the marketing methods used by the Business.
  • Why buyers ask: Shows where leads originate and whether the pipeline is diversified beyond referrals and owner-driven selling.
  • Why acquisition lenders ask: Predictable lead generation reduces revenue volatility, which improves lender comfort.
• Provide a description of the typical sales process from order to delivery and installation.
  • Why buyers ask: Clarifies cycle time, acceptance terms, change-order risk, and operational handoffs that can affect margins and customer satisfaction.
  • Why acquisition lenders ask: Long or complex cycles can increase working capital needs; lenders use this to model cash timing and risk.
• Share any sales agreements with distributors or resellers.
  • Why buyers ask: Evaluates channel dependence, exclusivity, pricing control, and change-of-control/termination rights.
  • Why acquisition lenders ask: Channel agreements can materially affect stability; lenders underwrite to the durability of these arrangements.
• Provide customer contracts.
  • Why buyers ask: Measures customer concentration, retention risk, and whether revenue depends on a few relationships.
  • Why acquisition lenders ask: High concentration can reduce lendable leverage and increases underwriting conservatism.
• Provide open PO’s and current back-log.
  • Why buyers ask: Helps assess revenue durability, pricing discipline, and transferability after closing.
  • Why acquisition lenders ask: Supports underwriting confidence that future cash flow will be stable enough to service debt.
• Provide samples of forms or purchase orders and invoices.
  • Why buyers ask: Supports understanding of your systems and processes
  • Why acquisition lenders ask: Supports underwriting confidence that formal systems are in place for documenting purchase orders and billing.

Employee Information

Operational continuity in manufacturing depends on people and process. Buyers evaluate management depth, key-person risk, labor cost structure, and compliance. Acquisition lenders care because turnover, wage pressure, or HR liabilities can directly reduce cash flow available for repayment.

• Provide an employee census.
  • Why buyers ask: Shows workforce composition, tenure, pay structure, and key-person dependency.
  • Why acquisition lenders ask: Labor stability supports consistent operations and therefore repayment.
• Share all employee handbooks and policies.
  • Why buyers ask: Identifies HR compliance and whether policies are consistently applied, reducing post-close risk.
  • Why acquisition lenders ask: Compliance gaps can create liabilities that impair cash flow and increase lender risk.
• Share all employee introductory and orientation materials.
  • Why buyers ask: Demonstrates how quickly new hires can be trained to quality and safety standards.
  • Why acquisition lenders ask: Repeatable onboarding reduces disruption risk and supports stable production.
• Share any bonus plans, incentives, fringe benefits, and/or commission plans.
  • Why buyers ask: Quantifies variable compensation obligations and supports normalization of earnings.
  • Why acquisition lenders ask: Ongoing incentive costs must be reflected in cash flow underwriting.
• Share all employee contracts.
  • Why buyers ask: Helps assess management depth, workforce stability, and ongoing labor costs.
  • Why acquisition lenders ask: Labor risks can reduce predictability of cash flow used for repayment.
• Share all consulting agreements.
  • Why buyers ask: Identifies reliance on outside or former personnel for tribal knowledge or key functions.
  • Why acquisition lenders ask: Recurring consulting spend affects EBITDA and continuity risk, influencing underwriting.
• Provide an explanation of the employee review process, salary and pay.
  • Why buyers ask: Helps assess management depth, workforce stability, and ongoing labor costs.
  • Why acquisition lenders ask: Labor risks can reduce predictability of cash flow used for repayment.
• Provide employee register from payroll company YTD (this can be provided later in due diligence – the buyer will need this information to set up their own payroll under their Fed. ID number if the transaction is an asset sale).
  • Why buyers ask: Helps assess management depth, workforce stability, and ongoing labor costs. Also needed so the buyer can set-up their own payroll post-closing
  • Why acquisition lenders ask: Labor risks can reduce predictability of cash flow used for repayment.
• Provide a schedule of all current material transactions (including loans/advances) or arrangements involving the Company and any employee, officer, director, or shareholder of the Company.
  • Why buyers ask: Helps assess management depth, workforce stability, and ongoing labor costs.
  • Why acquisition lenders ask: Labor risks can reduce predictability of cash flow used for repayment.
• Provide individual offer letters for key personnel if applicable.
  • Why buyers ask: Surfaces change-of-control terms, severance triggers, and retention-critical obligations.
  • Why acquisition lenders ask: Contractual payouts can be debt-like and are underwritten as part of closing requirements.
• Provide standard or template background verification forms.
  • Why buyers ask: Shows hiring controls for safety-sensitive roles and the strength of the safety culture.
  • Why acquisition lenders ask: Reduced incident risk supports stable insurance costs and uninterrupted operations.
• Provide an overview of employee recruiting and onboarding practices, including drug testing and background checks.
  • Why buyers ask: Demonstrates how quickly new hires can be trained to quality and safety standards.
  • Why acquisition lenders ask: Repeatable onboarding reduces disruption risk and supports stable production.
• Provide employee turnover over the last three (3) years.
  • Why buyers ask: High turnover can signal wage pressure, cultural issues, or management gaps.
  • Why acquisition lenders ask: Turnover risk can lead lenders to underwrite more conservatively due to disruption risk.

Insurance

Insurance and benefits reveal the company’s risk profile and recurring cost base. Buyers look for adequate coverage against adverse trends (claims), and lenders typically require coverage to protect collateral and reduce catastrophic risk.

• Share all insurance policies covering the Company currently in effect or which were in effect at any time during the last three years, including Corporate/General liability, Product liability, D&O, E&O, Property and Casualty, EPLI, and Worker’s comp.
  • Why buyers ask: Confirms coverage adequacy, exclusions, and alignment with operations and products.
  • Why acquisition lenders ask: Adequate insurance is a condition of financing and mitigates catastrophic loss risk.
• Share all life, health, and disability insurance plans; and, where applicable, a summary of annualized cost to the Company of any insurance provided to retired or former employees.
  • Why buyers ask: Establishes the company’s risk profile and the true ongoing cost of coverage.
  • Why acquisition lenders ask: Insurance and benefit costs directly impact cash flow available for repayment.
• Provide other insurance policies (I.E. flood, hurricane, tornado, etc.).
  • Why buyers ask: Confirms coverage adequacy, exclusions, and alignment with operations and products.
  • Why acquisition lenders ask: Adequate insurance is a condition of financing and mitigates catastrophic loss risk.
• Provide claims experience in the last 3 years of current policies.
  • Why buyers ask: Reveals recurring incidents, quality issues, and safety performance that may drive costs.
  • Why acquisition lenders ask: Claims trends can increase premiums and reduce free cash flow for debt service.
• Provide a schedule of all Retirement Benefits and copies of any related plans.
  • Why buyers ask: Identifies plan type, compliance, and any liabilities or transition requirements.
  • Why acquisition lenders ask: Retirement obligations can be material and must be quantified in underwriting.

Real Estate

Whether the company owns or leases its facilities, site stability is mission-critical in manufacturing. Buyers review occupancy terms, permits, and environmental risk to ensure operations can continue without interruption. Lenders focus on legal operability, title/lease assignability, and environmental exposure.

• Provide a schedule of Real Estate owned or leased by the Company, including a general description of such property and a copy of each deed or lease.
  • Why buyers ask: Confirms occupancy stability, options, assignability, and constraints on operations or expansion.
  • Why acquisition lenders ask: Location stability and lien/title clarity are required for lender comfort and closing.
• Provide a list or copies of all licenses, permits, consents, approvals, authorizations, registrations, and filings from, with, or to any federal, state, or local governmental authority relating to the Company or the use of the Real Estate. Please indicate which of those items expire, require a new application, consent, or notification upon a change in control.
  • Why buyers ask: Confirms occupancy stability, options, assignability, and constraints on operations or expansion.
  • Why acquisition lenders ask: Location stability and lien/title clarity are required for lender comfort and closing.
• Provide a copy of all Real Estate tax bills for the prior three years.
  • Why buyers ask: Validates occupancy costs and potential reassessment risk.
  • Why acquisition lenders ask: Recurring taxes affect cash flow underwriting and lender ratios.
• Provide a copy of any Real Estate appraisals.
  • Why buyers ask: Helps confirm site continuity and property-related risks that could disrupt operations.
  • Why acquisition lenders ask: Property risks can affect collateral value and, therefore, financing terms.
• Provide any above-ground & underground storage tanks, the size of each, content & age.
  • Why buyers ask: Tanks can create environmental exposure; details help assess compliance and remediation risk.
  • Why acquisition lenders ask: Environmental exposure can restrict financing and may require special diligence/escrows.
• Share Certificates of Occupancy.
  • Why buyers ask: Helps confirm site continuity and property-related risks that could disrupt operations.
  • Why acquisition lenders ask: Property risks can affect collateral value and, therefore, financing terms.
• Share all records regarding compliance history with environmental permits, including air, water, underground storage, waste, and sewer permits under federal, state, and local rules and regulations.
  • Why buyers ask: Ensures the business can legally operate post-close and identifies non-transferable permits.
  • Why acquisition lenders ask: Legal operability is a financing prerequisite; lenders often require evidence of compliance.
• Provide title Commitment – Owner’s.
  • Why buyers ask: Confirms a clean title and identifies easements, liens, or restrictions.
  • Why acquisition lenders ask: Required to ensure lender security and avoid title defects at closing.

Equipment, Assets, Inventory

Tangible assets, equipment condition, and inventory practices drive capacity and cash conversion in manufacturing. Buyers verify what is included and whether future capex will be required. Lenders look at collateral, fixed obligations (leases), and how inventory affects working capital and liquidity.

• Provide a schedule of all fixtures, furniture, equipment, computer hardware, printers, laptops, etc., including serial number, model number, and value.
  • Why buyers ask: Impacts working capital targets and purchase price mechanics; validates valuation method.
  • Why acquisition lenders ask: Inventory value and turns affect liquidity and the cash conversion cycle in underwriting.
• Share manufacturing equipment leases.
  • Why buyers ask: Impacts working capital targets and purchase price mechanics; validates valuation method.
  • Why acquisition lenders ask: Inventory value and turns affect liquidity and the cash conversion cycle in underwriting.
• Share office equipment leases.
  • Why buyers ask: Impacts working capital targets and purchase price mechanics; validates valuation method.
  • Why acquisition lenders ask: Inventory value and turns affect liquidity and the cash conversion cycle in underwriting.
• Provide a schedule of all vehicles owned by the Company and copy of titles or loan.
  • Why buyers ask: Impacts working capital targets and purchase price mechanics; validates valuation method.
  • Why acquisition lenders ask: Inventory value and turns affect liquidity and the cash conversion cycle in underwriting.
• Provide details of planned capital expenditures over the next twelve months.
  • Why buyers ask: Impacts working capital targets and purchase price mechanics; validates valuation method.
  • Why acquisition lenders ask: Inventory value and turns affect liquidity and the cash conversion cycle in underwriting.
• Provide a complete inventory with value at cost.
  • Why buyers ask: Impacts working capital targets and purchase price mechanics; validates valuation method.
  • Why acquisition lenders ask: Inventory value and turns affect liquidity and the cash conversion cycle in underwriting.

IT & Operations

Systems and controls determine whether the business can transition smoothly after closing. Buyers want to understand ERP/accounting tools, cyber resilience, and ownership of digital and IP assets. Lenders view operational resiliency as a direct contributor to stable cash flow.

• Provide a schedule listing and briefly describing all software owned by, licensed by, or used by the Company in the conduct of its business including name and version of – design and quoting software, accounting software, payroll, ERP, and other.
  • Why buyers ask: Ensures system continuity, license transferability, and operational scalability.
  • Why acquisition lenders ask: System disruption risk can impair operations and cash flow used for repayment.
• Provide a description of the Company’s backup protocol.
  • Why buyers ask: Evaluates resilience against ransomware and data loss.
  • Why acquisition lenders ask: Operational resiliency reduces catastrophic interruption risk in underwriting.
• List of all social media handles owned or used by the Company.
  • Why buyers ask: Ensures brand assets and customer-facing channels transfer cleanly after closing.
  • Why acquisition lenders ask: Lower priority for lenders, but supports continuity and revenue stability.
• List of all domain names owned or used by the Company, along with the owner, registrar, registration date, and expiration date with respect to each.
  • Why buyers ask: Protects digital assets used for email, quoting, customer communication, and brand presence.
  • Why acquisition lenders ask: Continuity of communications and systems supports stable collections and operations.
• Provide a schedule listing and briefly describing all patents, patent applications, trade secrets, trademarks, service marks, trade names, logos, brands, licenses, copyrights, and other similar proprietary rights issued to, licensed by, owned by, or used by the Company or any of the employees, consultants or affiliates of the Company in the business of the Company and any registrations and/or applications for any of the foregoing, in the United States or any foreign jurisdiction and all licenses, leases, and transfers of patents, trademarks, tradenames, copyrights, and other proprietary rights to which one or more of the Company is a party (whether granting the right or receiving it).
  • Why buyers ask: Confirms the company owns (or has rights to) what it sells and markets, and identifies licensing constraints.
  • Why acquisition lenders ask: IP disputes can materially impair revenue, increasing lender risk.

Service Providers

Critical vendors like utilities, waste management, telecom, and other service providers can disrupt operations if they are not transferred cleanly. Buyers want continuity and cost clarity; lenders want to avoid service interruptions that could impair repayment.

• Provide a complete list of all service providers (this includes phone, electric, oil/gas, garbage removal, etc.).
  • Why buyers ask: Ensures continuity of essential services and prevents post-close interruptions.
  • Why acquisition lenders ask: Stable service arrangements reduce operational disruption risk for lenders.
• Share any service provider contracts.
  • Why buyers ask: Identifies pricing terms, auto-renewals, and change-of-control/termination provisions.
  • Why acquisition lenders ask: Service costs and continuity affect operating stability and cash flow underwriting.
• Provide a schedule of all independent professionals who have worked with the company within the past five years. (Accountants, lawyers, consultants, etc).
  • Why buyers ask: Ensures continuity of essential services and prevents post-close interruptions.
  • Why acquisition lenders ask: Stable service arrangements reduce operational disruption risk for lenders.

Vendors

Supply chain reliability and input cost stability are core manufacturing risks. Buyers examine vendor concentration and subcontractor reliance, and lenders consider whether a single disruption could materially reduce cash flow.

• List of approved vendors for all materials and any contracts with vendors.
  • Why buyers ask: Evaluates supply chain concentration, lead times, pricing leverage, and sole-source exposure.
  • Why acquisition lenders ask: Supply disruption risk can reduce lender confidence and tighten underwriting.
• Provide a subcontractor list and any contracts or agreements.
  • Why buyers ask: Confirms supply chain resilience and the stability of key input costs.
  • Why acquisition lenders ask: Vendor concentration can drive operational disruption and cash flow volatility.
• Provide spending by vendor for the last 2 years.
  • Why buyers ask: Evaluates supply chain concentration, lead times, pricing leverage, and sole-source exposure.
  • Why acquisition lenders ask: Supply disruption risk can reduce lender confidence and tighten underwriting.

General Corporate Materials

These documents prove who owns the company, who has the authority to sell it, and what restrictions or related-party arrangements exist. Buyers want to avoid post-close disputes, and lenders require clean legal authority to fund and perfect liens.

• Share the Company’s Articles of Incorporation and all amendments thereto, Operating Agreements, Corporate Bylaws, Meeting Minutes, Board Resolutions, and Stock certificates.
  • Why buyers ask: Confirms authority to sell and reduces risk of ownership or governance disputes.
  • Why acquisition lenders ask: Required for lender diligence to ensure enforceable loan and security documents.
• Share all contracts relating to securities of the Company, including, without limitation, shareholders’ agreements and voting trusts/agreements.
  • Why buyers ask: Identifies consent requirements, restrictions, and rights that could block or delay a transaction.
  • Why acquisition lenders ask: Financing cannot close if ownership restrictions prevent completion of the deal.
• Provide a schedule of all domestic and foreign jurisdictions in which the Company is qualified to transact business and all jurisdictions in which the Company actually conducts business, leases property, or retains employees or consultants.
  • Why buyers ask: Defines what entities and assets are included and clarifies legal authority and obligations.
  • Why acquisition lenders ask: Needed to perfect liens and confirm enforceability of financing documents.
• Provide s-Corp Election (Form S-2553) if applicable.
  • Why buyers ask: Confirms tax status and deal-structuring implications.
  • Why acquisition lenders ask: Tax status affects cash flow and is incorporated into lender underwriting.
• Provide legal entity structure (including all subs, if any).
  • Why buyers ask: Defines what entities and assets are included, and clarifies legal authority and obligations.
  • Why acquisition lenders ask: Needed to perfect liens and confirm enforceability of financing documents.
• Provide management, services or support agreements relating to the Company, or any power of attorney with respect to any material assets or aspects of the Company.
  • Why buyers ask: Defines what entities and assets are included and clarifies legal authority and obligations.
  • Why acquisition lenders ask: Needed to perfect liens and confirm enforceability of financing documents.
• Provide contracts or understandings between the Company and any Related Person regarding the sharing of assets, liabilities, services, employee benefits, insurance, data processing, third-party consulting, professional services, or intellectual property.
  • Why buyers ask: Highlights non-arm’s-length arrangements and costs that must be normalized post-close.
  • Why acquisition lenders ask: Lenders require a clear view of sustainable cash flow without hidden dependencies.
• Provide contracts or understandings between Related Persons and third parties who supply inventory or services through Related Persons to the company.
  • Why buyers ask: Highlights non-arm’s-length arrangements and costs that must be normalized post-close.
  • Why acquisition lenders ask: Lenders require a clear view of sustainable cash flow without hidden dependencies.

Other Agreements

This category captures commitments that do not fit elsewhere but could affect value, transferability, or post-close operations. Both buyers and lenders want to avoid hidden obligations.

• Provide any other agreements that obligate the company in any way that have not been provided in other sections.
  • Why buyers ask: Captures commitments not otherwise disclosed that could affect value, operations, or transferability.
  • Why acquisition lenders ask: Undisclosed obligations can impair cash flow and create default risk for lenders.

Compliance With Laws

Regulatory compliance matters in manufacturing because violations can lead to shutdowns, fines, or customer loss. Buyers assess risk and remediation; lenders may require proof of compliance before funding.

• Share all citations and notices received from, all reports to, and correspondence by and with federal, state, and local government agencies, including OSHA, EPA, FMCSA, DOT, Department of Labor, NLRB, Internal Revenue Service, state licensing boards, etc.
  • Why buyers ask: Identifies regulatory exposure, compliance culture, and risks that could disrupt operations or trigger fines.
  • Why acquisition lenders ask: Material compliance risks can restrict financing or require reserves and special conditions.
• Provide a description of any pending investigations and governmental proceedings.
  • Why buyers ask: Identifies regulatory exposure, compliance culture, and risks that could disrupt operations or trigger fines.
  • Why acquisition lenders ask: Material compliance risks can restrict financing or require reserves and special conditions.

Litigation

Pending or threatened disputes can change deal structure, indemnities, escrows, and timing. Buyers and lenders need a complete view of exposure to avoid surprises after signing.

• Provide a schedule of all litigation, administrative proceedings, governmental investigations, or inquiries, pending or threatened, affecting the Real Estate, the Company, or any of their respective owners, shareholders, employees, officers, or directors, or any of their respective assets, and information relating thereto sufficient to determine the substance thereof.
  • Why buyers ask: Clarifies current and threatened disputes that may require indemnities, escrows, or price adjustments.
  • Why acquisition lenders ask: Material litigation can block financing or require holdbacks to protect lender repayment.

Environmental

Environmental diligence is a gating item for many acquisition lenders. Buyers need to understand liabilities tied to processes, waste streams, and historical site use. Lenders often require third-party environmental reviews when risks are present.

• Share all environmental audits or environmental-related reports performed at each of the Company’s facilities by the Company, its consultants, or a third party concerning the conditions, process safety, or compliance of the facility.
  • Why buyers ask: Validates environmental risk profile and identifies potential liabilities tied to sites and processes.
  • Why acquisition lenders ask: Environmental exposure can be a gating item for acquisition lenders.
• Provide a description of all remedial action work plans and schedules generated in the last three fiscal years, in progress, or ongoing.
  • Why buyers ask: Quantifies ongoing or future cleanup obligations and cost timelines.
  • Why acquisition lenders ask: Remediation costs reduce free cash flow and can require escrows or special financing conditions.
• Provide descriptions of waste removal methods and a list of all hazardous waste, solid waste, used oil, and solvent disposal/recycling contracts.
  • Why buyers ask: Assesses handling and storage practices that could create liabilities and operational interruptions.
  • Why acquisition lenders ask: Hazardous exposure can increase lender risk and may require third-party reviews.
• Provide description of all litigation involving environmental matters issued by federal, state, or local agencies and private parties.
  • Why buyers ask: Validates environmental risk profile and identifies potential liabilities tied to sites and processes.
  • Why acquisition lenders ask: Environmental exposure can be a gating item for acquisition lenders.
• Share all notices from and responses to federal, state, or local environmental regulatory agencies regarding Notices of Violation, CERCLA notice letters and requests for information, Resources Conservation and Recovery Act (“RCRA”) requests for information, citations, administrative orders, and administrative complaints.
  • Why buyers ask: Surfaces compliance history and any enforcement actions that may create contingent liabilities.
  • Why acquisition lenders ask: Enforcement actions can prevent financing or require reserves and strict covenants.
• Share all federal, state, and local environmental regulatory agency inspection reports, whether generated internally or externally, since 1995.
  • Why buyers ask: Validates environmental risk profile and identifies potential liabilities tied to sites and processes.
  • Why acquisition lenders ask: Environmental exposure can be a gating item for acquisition lenders.
• Share all licenses, permits, and related instruments or approvals necessary for the operation of the Company, including all current permits, licenses, authorizations, approvals, or registrations under the Clean Air Act, Clean Water Act, RCRA, Toxic Substances Control Act, and similar federal, state, and local laws and regulations.
  • Why buyers ask: Ensures environmental authorizations are in place and identifies non-transferable permits or violations.
  • Why acquisition lenders ask: Environmental compliance is heavily scrutinized by lenders and can affect deal structure.
• Share documents relating to compliance with public health and safety, and employee health and safety laws and regulations.
  • Why buyers ask: Validates environmental risk profile and identifies potential liabilities tied to sites and processes.
  • Why acquisition lenders ask: Environmental exposure can be a gating item for acquisition lenders.
• Provide a description of any and all hazardous materials stored, used, or generated on the leased or owned real property (including for vehicle maintenance).
  • Why buyers ask: Assesses handling and storage practices that could create liabilities and operational interruptions.
  • Why acquisition lenders ask: Hazardous exposure can increase lender risk and may require third-party reviews.

Quality

Quality systems are often a core value driver in “no-fail” manufacturing. Buyers review certifications, audits, and corrective actions to assess risk of customer loss and warranty/chargeback exposure. Lenders care because quality issues can quickly impair cash flow.

• Share any Quality Certifications such as ISO, AS9100, NADCAP.
  • Why buyers ask: Confirms process discipline and market access (often required for aerospace, medical, defense, etc.).
  • Why acquisition lenders ask: Quality systems reduce performance risk, supporting stable cash flow and repayment.
• Provide reports from any ISO audits over the last 2 years.
  • Why buyers ask: Shows audit outcomes, findings, and management’s ability to close gaps and maintain certifications.
  • Why acquisition lenders ask: Strong audit performance reduces customer loss risk and supports lender underwriting.
• Share Corrective Action Requests received over the last 2 years from your customers, along with your responses.
  • Why buyers ask: Reveals defect trends, responsiveness, and customer satisfaction risk.
  • Why acquisition lenders ask: Recurring quality issues can drive chargebacks and lost customers, impacting cash flow.

Not all items on this list will apply to every manufacturing business. However, if you can’t answer most of these questions, you’re not prepared for the M&A process.