By Marc Empey
Mergers and acquisitions transactions can be arduous and weighty matters for the buyer. In order to preserve your company, you must go through the process of due diligence. Read on to understand due diligence practices. Our Palm Springs mergers and acquisitions lawyers can guide you through the process easily.
Seller History and Financial State
First, you must understand the reasons a business is being sold. Why is it being sold? Is it to raise funds for other purposes or is it to simply offload the burden to someone else? Do you understand the seller well enough? There may be hidden issues beyond your initial assessment, like potential legal issues, or outright poor performance of the target company itself.
Additionally, be prepared to find out if the target company has had failed sales in the past—and if they do, investigate those prior efforts and the parties involved.
Lastly, make sure to go through their financial documents – be they monthly, quarterly, or annually. Try to get at least four to five years of data. See if their statements are audited, and also check for how long they’ve been audited, and be sure that the full details are being furnished—you want to be aware of both current and contingent liabilities.
Understanding the Market and Impact on Business Performance
Business performance includes aspects like competitor analysis and market review. Market review and competitor analysis will provide information on competitive niches and how those competitors will impact your future bottom line.
Be aware of the organization’s internal structure: Obtain a reporting relationship chart. This document provides details on employee relationships, allowing you to know the heads of each division of the business.
The buyer should be concerned with more than just profitability. Long-term planning is crucial to consistent success. As a buyer, one should be concerned with how the perception of the acquisition’s suitability is based. Is it based on unproven expectations and speculatory thoughts, or a historical relationship?
Are you acquiring for key personnel (acqui-hiring)? What is the likelihood of long-term retention if negotiations succeed? What aspects of the target will you be able to incorporate into your own business and other organizations—is it notable for having a certain employee culture? Does it have technological/intellectual rights—and are they taking steps to protect such technologies and rights? Is the managership able to implement its business model?
Be aware of the inner nature of the business down to its roots. Without having an accurate picture, one may grossly overvalue (or possibly undervalue) the target, and lose out on a valuable opportunity. These are just a few out of dozens of specific data points to consider, and even fewer overall ideas. For a better understanding, one must be sure they have the right staff and information on hand.
Consider hiring our Palm Springs mergers and acquisitions lawyers if you’re doing business in certain California districts. Contact us for a consultation.