Many acquisitions are doomed to failure because the purchasers failed to do appropriate research into the target. Luckily, most business leaders in California have enough sense to thoroughly investigate companies before they decide to merge or purchase them outright.
After all, unforeseen consequences are difficult to overcome if you wait until the deal is done to start asking the right questions.
What does “due diligence” really mean?
In professional terms, it simply means to research opportunities before a commitment is made. When you buy a house or a car, you should read disclosures about prior damage or financial liens against the title.
When it comes to something as consequential as mergers and acquisitions, due diligence is much more complex than doing a title search or reading a disclaimer. You need to know pertinent financial and legal details about a company that could impact your liabilities or bottom line before the deal closes.
How due diligence protects everyone’s interests
Risk is often considered in terms of how a merger or corporate acquisition will affect the buyer, and with good reason. Due diligence protects the buyer during the M & A process in several ways. However, it benefits the seller as well.
For example, a forensic accounting of a company’s financials could uncover game-changing information, such as the true market value of a company or an expiring patent.
In order to be complete and comprehensive, the research should include:
Financial matters. Has the company been audited? Is it financially viable?
Corporate history. Is the the first time the company has been sold, If not, why?
Corporate culture. What are the long-term business goals? Are they in line with your own corporate mission and values? How difficult would it be to align interests?
It’s also important to determine staffing matters, such as who will stay on and how leadership roles might change. Will the target audience remain the same, or will the acquisition require retooling marketing and outreach. What are the PR implications of the move?
