Due diligence activities in any M&A transaction can be very expansive, and the costs of conducting due diligence reviews or evaluations are often justified because performing this work typically means companies can avoid the significant costs associated with not performing due diligence. There are five major issues all due diligence reviews should be sure to focus on.
Target Company Overview
The first thing you need to understand is exactly why the company owners are seeking to sell their business. Were there any previous efforts to sell the company?
You should also be aware of a company’s business plan and long-term strategic goals. Get an understanding of how complex the company is when it comes to its products, services, and subsidiaries.
Was the company recently acquired, or did it merge with another company? Also examine the geographical structure of the company.
Financial Concerns
Any buyer will want to be aware of all a seller’s historical financial statements and related financial matters. Try to get a seller’s annual, quarterly, and monthly financial statements for at least the last three years to fully examine its financial performance and current condition.
See if the seller’s financial statements have been audited and how long this has been the practice. Also see if the financial statements set forth all current and contingent company liabilities.
Determine whether revenues and margins for the business are growing or deteriorating. Are a seller’s future financial projections reasonable and realistic?
Examine whether margins are increasing or decreasing. You also want to know what amount of working capital will be necessary to run the company.
Intellectual Property Rights
Does the seller have any domestic or foreign patents or trademarks? What steps has the company taken to protect its intellectual property?
Examine which copyrighted products and materials the company uses or owns. You will also want to know whether the seller is involved in intellectual property litigation or other disputes or has received offers to license or demand letters from third parties.
Customers and Sales Statistics
Make sure you know who the seller’s top customers are and how much revenue it generates from each of them, possibly the top 20 or so. Also know whether there might be any issues with relationships should you become the new owner.
You should also be aware of any possible warranty issues or obligations a seller owes to its customers. Be aware of any unusual levels of returns, exchanges, or refunds.
Contractual Agreements
You are certainly going to want to know what contracts and commitments a seller has. This includes guarantees, loans, and credit agreements, as well as customer, reseller, and supplier contracts.
Also be aware of settlement agreements, past acquisition agreements, indemnification agreements, and employment agreements. Agreements imposing restrictions on business activities of a seller or the rights or abilities of a seller to compete with certain businesses or in geographic regions should also be known.
Call Us Today to Speak with an Austin Property Acquisition Lawyer
Are you currently considering an M&A transaction in Texas? You will want to be working with an Austin property acquisition attorney to be confident that you are performing every aspect of due diligence necessary to successfully acquire another company.
Structure Law Group, LLP regularly handles these types of cases and knows all of the proper steps to take. You can call (512) 881-7500 or contact us online to receive a consultation with our Austin business lawyer.