Mergers and Acquisitions Due Diligence Checklist

When a business decides to acquire, or merge with, another business, the individuals who make that decision have a duty to exercise due diligence. The failure to exercise due diligence may result in the buyer paying more than a business is worth or taking on unforeseen operational/financial problems and liabilities when the transaction closes. Failure to perform adequate due diligence has the potential to weaken (or destroy) the buyer’s business and to trigger shareholder lawsuits.

Due diligence requires a thorough review of everything that affects the value of the business that is being acquired. Due diligence should begin as soon as the Letter of Intent and/or Non-Disclosure Agreements are executed. Because due diligence requires a review of material that might be voluminous, adequate time should be budgeted to gather and inspect the necessary documents and to conduct necessary interviews.

Hundreds of tasks might need to be undertaken before a due diligence review is completed. Here are a few key examples.
 

Understanding Financials

It is essential to have a complete understanding of the financial condition of the business being acquired. Critical steps in the process include review and verification (including potentially reviewing same with legal counsel and/or accountants) of:

Understanding Business Assets

To know what you are buying, you need to obtain:

Understanding the Corporate Structure and Human Resources

Gaining familiarity with the business being acquired will require you to interview key personnel and understand their role in the business. It is also important to review:

Understanding Suppliers and Customers

Suppliers and customers are both integral components of a business’ success. To know what you are acquiring, you need to review:

Understanding Potential Liabilities

To be sure that the newly acquired business will not expose your business to hidden liabilities, you must review:

Other Information

As general diligence, you will need to become familiar with the market the target serves, major competitors, marketing strategies, and market research. You will need to understand the products the company produces and products that are under development.

Due diligence investigations should be guided by a law firm. They also require the assistance of accountants and other business professionals. Assembling the right team assures that you will discharge your duty to engage in due diligence before completing a merger or acquisition.

To learn more about how Marshall Grant, PLLC attorneys can guide you in your corporate law and transactional matters, contact us at [email protected] or at 561-361-1000.

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