Due Diligence in M&A Transactions
Once an offer is accepted, the next step is for the buyer to conduct the in-depth due diligence of the target company. Buyers often hire outside accounting firms to help them analyze the target company’s financial statements and projections. Legal due diligence will typically involve attorneys to check under the hood and make sure all of the skeletons in the closet are discovered and addressed. What does the target company actually own and what are its debts and liabilities? Are the material contracts assignable? Are there any non-compliance and/or default? What are the key IP assets of the business and how have they been protected? Who is the target company suing and who is suing them? Who is threatening or could potentially sue them?
These are just few of the many key questions that must be answered to help the Buyer gain a full understanding of the target company. More importantly, the information gained during this phase of the transaction will provide the foundation of the integration plan, which is critical to the success of the transaction and realization of the acquisition goal.