What Are Key Issues To Watch During M&A Due Diligence?

During mergers and acquisitions, one of the key processes that can determine the success of the transaction is the due diligence process. During due diligence, the acquiring company will review the ins and outs of the company they hope to acquire. That is why consulting with an attorney experienced in the ins and outs of due diligence can be crucial to the success of mergers and acquisitions transactions. 

Importance of Getting Due Diligence Right

Due diligence involves a full review and investigation of a target company. This is done to ensure that there are no risks or liabilities that can sink a deal for a seller or prove problematic for a buyer. Due diligence also helps the seller determine the exact value of the target company and whether it really is a good strategic fit. 

What Type of Information is Reviewed During Due Diligence?

Some of the information that an acquiring company will review during the course of due diligence includes: 

• Company financials: The acquiring company will want to take a close look at the target company’s financials, including financial statements, tax returns, any bad debts, accounts payable, bank statements, and more. 
• Legal: The buyer will request to see any contracts, descriptions of ongoing litigation, and powers of attorney. 
• Organizational: The acquiring company will review information to understand how the company’s organizational structure operates, including its articles of incorporation, bylaws and capitalization tables. 
• Employee Relations: Documents related to the target company’s employees, such as noncompete contracts, will be part of any due diligence process. 
• Insurance: The seller will provide review information on its insurance policies.  

Areas of Concerns During Due Diligence

There are a number of challenges that can come up during the due diligence process, and success can hinge on several potential issues: 

• Timing: For buyers, presenting documents at the wrong time can cause issues with the transaction, so it is important to know when to execute and present requested documents. 
• Cost: Due diligence transactions can quickly rack up costs and should be monitored carefully. Focusing on the most material areas can minimize cost. 
• Rushing the Process: At the same time, it is important not to rush the due diligence process so as not to overlook potential risks and liabilities. 
• Communication Issues: Representatives for buyers and sellers should communicate often to ensure a smooth completion of the due diligence process. 
• Do Your Own Due Diligence: Sellers should not rely solely on buyer’s representations but do their own due diligence in tandem. 

Contact a Naperville, IL Business Law Attorney

Due diligence can be a stressful process for even the most seasoned entrepreneurs. A great deal is on the line, and many complex legal issues should be fully considered before proceeding. Our Naperville, IL business transaction lawyer at Gierach Law Firm can represent business owners during the due diligence transaction. Contact Gierach Law Firm at 630-228-9413 to schedule a meeting to discuss your Illinois business.