Silicon Valley Business Law Firm Answers: What is Due Diligence?
It is incredible how much information we can now find out about everyday products before we purchase them. We can read other purchaser’s reviews, make side-by-side comparisons, and comparison shop on hundreds of websites. In essence, when we do that sort of in-depth research about a product, we are engaged in the due diligence process. In the world of corporate mergers and acquisitions, due diligence means a complete review of all financial, legal, and personnel aspects of a business by the purchasing company. Unfortunately, there is no easy web platform for performing due diligence, and it often in a target company’s financial interests to be as opaque as possible. As a result, when a purchasing company seeks to buy a target company, it needs to hire an experienced firm to engage in the due diligence process, which is obviously much more complicated than the process of buying a new pair of shoes or a wok. SAC Attorneys LLP has a team ready to take on the due diligence challenge and to provide your business with insights into your target acquisition. The following blog post offers an overview of just a few of the many considerations SAC makes in our thorough due diligence review.
The attorneys at SAC Attorneys LLP are positioned to provide you with the due diligence help your business needs—call us for your free consultation today at (408) 436-0789.What Goes Into due Diligence and Why is it Important?
Due diligence is a complete, thorough review of all of a target company’s financial, legal, and personnel aspects. It is essential to understanding the appropriate price to pay for a company and failing to engage in sufficient due diligence is often the basis of a shareholder lawsuit if previously unknown liabilities are discovered post-purchase. As a result, hiring a firm to undertake the due diligence process carefully is vital to securing a target at the right price and avoiding legal complications post-purchase. Another essential aspect of due diligence is a review of confidential information and trade secrets. This sort of analysis will require carefully crafted non-disclosure agreements to prevent the parties from using reviewed information for their own financial gain if the acquisition does not go forward. You will want trusted legal counsel to review and draft all non-disclosure agreements to ensure that they are sufficiently comprehensive without unduly tying your hands.What are Typical Aspects of a Due Diligence Review?
Below is a non-exclusive laundry list of traditional due diligence topics. Again, it is not a comprehensive list but provides both a look at the vast number of review areas as well as an argument as to why most businesses cannot afford to attempt to perform due diligence on their own.
- Interviews with all principals, including reviews of their contracts;
- Accounting review of the last five years’ financial statements;
- Complete analysis of corporate structure;
- Interviews with all key personnel;
- Review of all accounts receivable and current customers;
- Review of all accounts payable and vendor contracts;
- Review of all third-party contracts;
- Review of all patents owned and licensed intellectual property;
- Review of all board and corporate meeting minutes;
- Accounting of all corporate assets, including proof of ownership;
- Legal analysis of all pending, filed, and anticipated litigation, including attorneys’ opinion letters;
- Real estate review, including all environmental statements and disclosures;
- Review of all employment records, including discrimination claims
- Assessment of industry labor conditions, labor supply, unionization activities, and pending unfair labor practice claims;
- A full analysis of the market, including market competitors and sales trends;
- Review of pension and other retirement plan contributions.
Again, this is just a sample of the due diligence process, and we encourage you to contact experienced mergers and acquisitions counsel to understand what the due diligence process would look like for your company.Attain the Mergers and Acquisitions Counsel You Need Today
If you are like most of our firm’s business leader clients, you are too busy trying to peer out over the horizon to engage in the minutiae of due diligence. But as we have explained above, not only is a rigorous due diligence process required to get the best price for a target company acquisition, it is also necessary to prevent post-purchase negligence claims. Let the team of talented counsel at SAC take care of your due diligence concerns.
If you are managing a business, don’t create extra headaches, attain expert legal advice. For a free initial consultation, contact SAC Attorneys LLP today at (408) 436-0789. Based in San Jose, California, our firm is prepared to represent clients in Mountain View, Los Gatos, Cupertino, Fremont, Palo Alto, Santa Clara County, Silicon Valley, and around the world.