The M&A (Mergers and Acquisitions) due diligence process is a critical phase of any merger or acquisition transaction. It involves comprehensive research and analysis on the buyer’s part to thoroughly evaluate the target company, assess potential risks in the deal, and uncover aspects of the seller’s business not evident during the process of courting and offer preparation. As a potential seller, diligence can be a stressful time. You have a formal offer in hand, and you are excited to get to the close of the transaction and start your next chapter. How can you ensure that you know diligence will not create a change in the deal terms, or, worse a deal to fall apart? The good news is, with some proper planning and preparation you can go through the diligence process with clarity and confidence that the deal will close and at the agreed to terms. Here are four essential areas in the M&A diligence process that you need to be prepared for:
Financial Due Diligence:
Financial Due Diligence:
- The buyer will examine your historic financial records and ensure the pro forma (go forward projections) are accurate.
- Be prepared to share commission statements, expense records, and explanations of one-time expense items.
Legal Due Diligence:
- A buyer will conduct a thorough review of all legal documents, contracts, and agreements.
- Identify any pending or potential legal disputes, litigation, or regulatory issues.
- Examine intellectual property rights, patents, trademarks, and copyrights.
- Review employment contracts, employee benefits, and employee-related matters.
- Evaluate compliance with the licensing of the firm and each employee based on their role
Customer Due Diligence:
- Assess the strength of customer relationships and revenue concentration.
- Evaluate your growth potential.
- Identify any potential synergies with the acquiring company in terms of cross-selling or additional tools and resources to strengthen relationships.
- Consider the impact of market trends and external factors on the target’s business.
Cultural Due Diligence:
During the process, the buyer will:
- Continue to assess the cultural compatibility between the acquiring and target companies.
- Identify potential cultural clashes and integration challenges.
- Gauge employee retention risks during the merger or acquisition.
- Develop a plan for cultural integration and change management if necessary.
The specific details and depth of diligence will always vary based on the size and complexity of the transaction. The best way to ensure success in diligence is having an expert advisor alongside you. It is simply not necessary to go it alone in such a complex and important endeavor.
If you’d like to talk more about your company’s valuation, or your diligence readiness, please contact Brett Rosen at 404-992-5541 or Brett@rosenadvisory.com.