Acquiring a company is a huge decision. If you are planning on acquiring a company, you should know as much about the company you are targeting as possible.
The process of reviewing a company before an acquisition is called due diligence, and it is a crucial part of the acquisition process.
Due diligence
Due diligence is the process of reviewing all the financial and legal information of the target company. For private acquisitions, this process is especially important because private companies do not face the same level of scrutiny from regulatory agencies that public companies do.
An attorney’s expertise
An attorney can help sort through the numerous financial and legal documents of a company during the process. Their expertise can help you sort through a variety of issues, including:
- Litigation: When buying a company, you are not only purchasing its assets, but you are also assuming its liability. You will want to know what litigation the company has faced in the past, currently faces or may face in the future.
- Antitrust and regulatory issues: These concerns vary depending on each situation. For example, antitrust laws prevent monopolies from forming. So, if you are buying a competitor, there may be some regulations that you need to account for. Some industries are regulated and require all acquisitions to be approved by a regulator. A lawyer can inform you about any potential issues and help you avoid them.
- Intellectual property: Intellectual property is a big part of a company’s value. When purchasing a company, you will want to know what intellectual property–trademarks, copyrights, etc.– the company has, and how well they’ve protected this property.
- Governmental regulations, filings and compliance: As a future owner of the target company, you will want to understand what governmental regulations apply to your company. You will also want to make sure that there are no pending or threatened investigations.
- Material contracts: Reviewing material contracts can be one of the most time-consuming and important parts of the due diligence process. Contracts that your lawyer can review include any employment, exclusivity and settlement agreements. These contracts can be crucial for maintaining business operations after the acquisition.
With each of these areas, an attorney can discern what may be a potential concern, and what may affect the value of the business you are purchasing. Conducting a thorough due diligence process can help ensure you get a proper valuation of the target company, and save you trouble down the line.
