Tips for Due Diligence Success as a Novice
The most important aspect of mergers and acquisitions (M&A) is the performance of due diligence activities. Those who are beginners in the area of M&A will quickly know the importance of why due diligence occur before the purchase of a business is finalized. The due diligence investigation is an audit of a potential investment that includes a review of financial records and asset ownership. Specifically speaking, due diligence refers to the research conducted before entering into an agreement with the other party. For example, investors will conduct due diligence activities before buying stock in a company or before buying a business in its entirety. The checking of financial records is one aspect of due diligence activities. The investigator will also review administrative, asset and employee-related records.
Document and records review encompasses the bulk of what the due diligence investigator will review. These documents will serve as the evidence of the health of the company or product. Documents that are often the focus of the due diligence investigation are court filings, executive or management level emails, formation documents, any patents, existing and past contracts, governance documents and other proprietary information. The key here is to ensure that the other side is not withholding documents that may be informative to the purchase decision. Another factor that is worth noting is the value of time when engaging in document checking. A hastily performed check may miss a complaint that will be filed against the company next week. Further, it is as important to learn the company’s record and document keeping systems as it is important to conduct a thorough vetting of them.
The risk analysis portion of due diligence occurs when all documents are secured and reviewed. A thorough review will arise some details that are worth analyzing for the purposes of determining whether the transaction is worthwhile for the investigating entity. Some risk is inevitable in any business transaction. However, the question here to determine first, whether the risk outweighs the positive return and secondly, if there are any unforeseen risks that may arise thus turning the transaction into something less valuable. A skilled risk analyst and an attorney can sift out the variables to help arrive at this decision.
Individuals new to due diligence investigation can operate under a false pretense that the investigation is a one-time process that ends once the transaction is final. This is not the case. Further, operating under that mindset can be detrimental for the purposes of a business. Alternatively, the monitoring of documents, records, and plans should continue along with a continual assessing of the risks. The reason for post-monitoring can be twofold: (1) to confirm that the decision made to purchase the asset was a good one, or (2) to discover any risks or bad facts that may lead to the possible voiding of the transaction.
Fort Lauderdale Business Law Attorney
Brendan A. Sweeney Law is a knowledgeable Fort Lauderdale business lawyer with years of experience advising and representing professionals in the business field by assisting with mergers and acquisitions. Sweeney Law is here to guide you with skill and determination. Contact us now for a consultation.