Due diligence is one of the (if not THE) most important stages of any Mergers & Acquisitions (M&A) deal. This is where the lawyers are heavily involved, sifting through extensive paperwork, documentation, and elements of a business to verify the legality, efficacy, value, and structure of the deal.
Working directly with an experienced M&A lawyer is paramount in securing peace of mind before moving forward with the final stages of a deal. Due diligence is a vulnerable point in a deal, with both sides exposing details of their organizations that aren’t otherwise accessible to the public and putting great pressure on both sides to ensure everything is in order to proceed with the transaction.
While this is not nearly an exhaustive list of what due diligence in an M&A deal should look like, there are a few areas of importance for an attorney to focus on.
Ownership and Governance
It’s essential to look deeply into the target company to understand its real value and potential risks. Key areas like governance, ownership, and financial standing are critical focal points that reveal a lot about a company’s stability and long-term prospects.
Starting with governance, we look at the foundation—the company’s official documents such as articles of incorporation and shareholder agreements. These documents detail how the business is structured and governed. It’s also crucial to get to know the players involved, from shareholders to directors and officers and to review their past decisions and communications. This helps in assessing whether the company stands on solid legal and operational ground, including checking for all necessary permits and licenses, which are especially important if the company operates internationally.
By analyzing the capital structure, we are able to see who holds the power in terms of shares and securities and what kinds of agreements are in place that might affect future changes in control or ownership. This includes looking at any restrictions that could sway decisions or affect the business post-acquisition.
Financial Health
Financial health is another critical checkpoint. We dig into financial statements and other fiscal reports to paint a clear picture of the company’s financial status. This involves examining everything from revenue streams and cost structures to debts and assets. We also need to ensure there are no hidden liabilities lurking in the shadows, such as unresolved tax issues or complex legal entanglements with financial institutions.
The tax situation often tells its own story. It’s not just about whether the company pays its taxes, but also how well it manages its tax obligations across different jurisdictions. This can highlight potential financial risks or compliance issues that might not be immediately apparent.
By taking a thorough look through these lenses, we can gain a comprehensive understanding of the target company’s operational, financial, and legal health. This isn’t just about ticking boxes; it’s about building a detailed picture that informs a smart acquisition strategy.
Intellectual Property Check
You don’t want to acquire a lawsuit. Businesses that fail to conduct a thorough intellectual property checkup in the due diligence phase may miss conflicting brand and intellectual property registrations that conflict with other businesses and entrepreneurs.
This include verifying the proper registrations of patents, trademarks, and copyrights, as well as a thorough review of what’s considered to be trade secrets crucial to the success of the business. Registrations that attempt to cover too much ground under one umbrella registration as opposed to more focused individual registrations may not hold up to litigation which could significantly impact the perceived value of the business and brand.
Work with an Experienced M&A Attorney
Don’t take this process for granted. It’s imperative that a seasoned and professional M&A attorney or team of attorneys is directly involved in the due diligence phase of any M&A deal. At CLARK.LAW, our focus is on helping growing businesses align their goals and practices with the future of business law. Contact us when you’re considering an M&A deal from either side of the deal, and we’ll help you navigate the crucial components of the deal with confidence.
CLARK.LAW
