Buyers usually will conduct a significant amount of mergers & acquisition due diligence before they commit to any transaction. Those buyers would like to make sure about the things they will buy, the obligations they are assuming, also the extent and nature of the contingent liabilities of the seller.
Conducting due diligence will also help the buyers understand the risks of litigation, problematic contracts, issues about the intellectual property, and many more things. Due diligence is especially important in acquisitions of private companies since some sellers aren’t subject to markets’ scrutiny.
The Goals of M&A Due Diligence
Recent M&A litigation and activity have highlighted the buyer’s need to conduct due diligence carefully in order to understand the potential risks. The goal of conducting due diligence is to investigate the data breach, financial statements, and also cybersecurity issues.
The M&A due diligence will also help buyer see if there are issues with the intellectual property, employment law, or liability of sexual harassment. Buyers are going to employ additional due diligence activities that are highly specialized, when they are investigating organizations in regulated industries.
Sellers can prepare a plan for the activities of due diligence conducted by the buyer so buyers can anticipate any related risks and issues. By doing so, the buyers will be able to prepare the negotiation.
Mergers & Acquisition Due Diligence in Financial Sector
Buyers are going to be concerned with the entire historical financial statements of the seller and the financial metrics that are related and also the reasonableness of the future performance of target’s projection. There will be some topics that will be asked during the financial due diligence.
Some of those topics will be what do the financial statements of the seller reveal about the financial condition and performance? Are the financial statements of the seller audited? How long the financial statements are audited for? Does the report include the qualification of going concern?
Buyers want to know the financial condition of a company it is going to buy. If they find something wrong about the financial condition of a company, the M&A deal will be affected.
The Technology and Intellectual Property Due Diligence
Buyers will also be extremely interested in the quality and extent of the intellectual property and technology of the seller. The due diligence is going to focus on some inquiry areas, such as what foreign and domestic patents are owned by the seller?
Did the seller take any appropriate step in order to protect the intellectual property? Is there any material exception from the assignments such as the rights preserved by consultants and employees? What common law trademark and registered and service marks that are owned by the seller?
What copyrighted materials and products that are controlled, owned, and used by the seller? Those questions will affect the decision made by the buyers in making the M&A deal.
Many More Process in Mergers & Acquisition Due Diligence
The buyers will also conduct due diligence in some other sectors, including sales and customers, seller’s future performance, material contracts, and many more sectors to make sure they don’t make the wrong decision.