Mergers and acquisitions typically involve a substantial amount of due diligence. Before committing to a transaction, the acquirer will want to ensure that it knows what it is buying and what obligations it is assuming, the nature and extent of the target company’s contingent liabilities, problematic contracts, litigation risks and intellectual property issues, and much more. This is particularly true in private company acquisitions, where the target company has not been subject to the scrutiny of the public markets, and where the buyer has little (if any) ability to obtain the information it requires from public sources.
Comprehensive Advice and Guidance
Quinn M&A have the expertise and experience to guide you throughout the completion of your Due Diligence process. Many or all of the activities and issues described below will, in such circumstances, apply to both sides of the transaction.
1. Financial Matters – The buyer will be concerned with all of the target company’s historical financial statements and related financial metrics, as well as the reasonableness of the target’s projections of its future performance.
2. Technology/Intellectual Property – The buyer will be very interested in the extent and quality of the target company’s technology and intellectual property.
3. Customers/Sales – The buyer will want to fully understand the target company’s customer base including the level of concentration of the largest customers as well as the sales pipeline.
4. Strategic Fit with Buyer – The buyer is concerned not only with the likely future performance of the target company as a stand-alone business; it will also want to understand the extent to which the company will fit strategically within the larger buyer organisation.
5. Material Contracts – One of the most time-consuming (but critical) components of a due diligence inquiry is the review of all material contracts and commitments of the target company.
6. Employee/Management Issues – The buyer will want to review a number of matters in order to understand the quality of the target company’s management and employee base.
7. Litigation – An overview of any litigation (pending, threatened, or settled), arbitration, or regulatory proceedings involving the target company is typically undertaken.
8. Tax Matters – Tax due diligence may or may not be critical, depending on the historical operations of the target company, but even for companies that have not incurred historical income tax liabilities, an understanding of any tax carry forwards and their potential benefit to the buyer may be important.
9. Antitrust and Regulatory Issues – Antitrust and regulatory scrutiny of acquisitions has been increasing in recent years.
10. Insurance – In any acquisition, the buyer will want to undertake a review of key insurance policies of the target company’s business.
11. General Corporate Matters – Counsel for the buyer will invariably undertake a careful review of the organisational documents and general corporate records (including capitalisation) of the target company.
12. Environmental Issues – The buyer will want to analyse any potential environmental issues the target company may face, the scope of which will depend on the nature of its business.
13. Related Party Transactions – The buyer will be interested in understanding the extent of any “related party” transactions, such as agreements or arrangements between the target company and any current or former officer, director, stockholder, or employee.
14. Government Regulations, Filings, and Compliance with Laws – The buyer will be interested in understanding the extent to which the target company is subject to and has complied with regulatory requirements.
15. Property – A review of all property owned by the target company or otherwise used in the business is an essential part of any due diligence investigation.
16. Production-Related Matters – Depending on the nature of the target company’s business, the buyer will often undertake a review of the company’s production-related matters.
17. Marketing Arrangements – As part of diligence, the buyer will want to understand the target company’s marketing strategies and arrangements.
18. Competitive Landscape – The buyer will want to understand the competitive environment in which the target company’s business operates.
19. Online Data Room – It is critically important to the success of a due diligence investigation that the target company establish, maintain, and update as appropriate a well-organised online data room to enable the buyer to conduct due diligence in an orderly fashion.
20. Disclosure Schedule – As part of any M&A transaction, the target company will be required to prepare a comprehensive disclosure schedule addressing many of the key diligence topics described above, and identifying any exceptions to the company’s representations and warranties in the acquisition agreement. Careful preparation of this disclosure schedule is extremely important and time-consuming for the company. It is not unusual for the company to have to revise and update the document a number of times before it is ready for delivery to the buyer. That means that is essential for the company to begin preparing the disclosure schedule very early in the planning stages of an M&A transaction.
An M&A transaction typically involves a significant amount of due diligence by the buyer and the buyer’s counsel and accountants. By being prepared for the due diligence activities that a target company will encounter, the process can go smoothly and quickly, serving the best interests of both parties to the transaction.
Let Us Help You
If you are currently considering completing a business acquisition or merger, or if you are in the process of selling your business, call Quinn M&A on +612 9223 9166 or submit an Express Enquiry form to arrange a confidential, no-cost consultation with one of our Directors.