Top Due Diligence Topics for Businesses Looking to Acquire a Target Company
One of the most time-consuming and vital parts of any merger and acquisition is due diligence, the formal process of analyzing a company’s assets and liabilities to decide whether a purchase makes sense for the buyer and at what price. This is particularly true in the acquisition of a private target company that has not been subjected to the scrutiny of the market. For the purchasing company, there is no wisdom in going light on due diligence. Management skill, environmental liabilities, discrimination suits, overall financial strength, and a multitude of other liabilities and assets are challenging to determine and value. SAC Attorneys LLP has a team ready to take on this challenge and to provide your business with insights into your target acquisition. The following blog post offers a 30,000-foot overview of just a few of the many considerations SAC makes in our thorough due diligence process.
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.Top Due Diligence Considerations
Financials—the purchasing company must review the target company’s annual, quarterly, and monthly financial statements for at least the past three years. The purchasing company will want to make sure that all financial statements have been audited and that the amount of working capital required to continue the business is available. This review will also include all local, state, and federal tax liabilities.
Intellectual Property—what is the quality and quantity of the target company’s intellectual property. The purchasing company will want to determine the value of the intellectual property, including what patents the company or its employees hold. The legal basis and cost of maintaining those patents will need to be fully understood before purchase, and the purchasing company will want to understand the sufficiency of the target company’s efforts to retain its intellectual property, including whether any intellectual property has been licensed to third parties.
Outstanding Materials Contracts—one of the most critical elements of due diligence is reviewing all of the target company’s material contracts, including supplier contracts, customer contracts, loans, credit agreements, equipment leases, indemnification agreements, equity finance agreements, and many more. Any one of these contracts may chip away at the target company’s value. While going through each materials contract is tedious, it is better than being surprised later.
Employer/Employee Issues—it is vital that a purchasing company understand the labor landscape of the target company. Is a strike imminent? Are labor contracts up for negotiation in a challenging financial setting? Is there a widespread culture of harassment or discrimination? The answers to any of these questions could doom a target company, bringing down the acquiring company with it. Additionally, a complete review of pay scales and management and employee compensation needs to be conducted.
Litigation—due diligence should always include a review of all pending or filed litigation against the company, as well as judgments issued. Perhaps more importantly, a review should look at all attorney’s letters to auditors, which provide a more precise look into the business’s legal health.Attain the Mergers and Acquisitions Counsel You Need Today
Most leaders are too busy growing their business to be able to take the time to give due diligence the scrupulous attention it demands. Keep your eye on your business and 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.