Mergers and acquisitions represent as many potential risks and liabilities to a company and its executives as the potential benefits. Companies may want to see that such transactions move quickly to take advantage of the economic benefits related to expanded customer bases, access to emerging markets, global scaling, or production capabilities. Though there may be many benefits of proceeding to complete a transaction quickly, it is equally important to fulfill the responsibilities and due diligence needed to assess and investigate the inherent risks in such a deal.
Accounting for unknowns in a transaction
A business’s existing contracts contain important institutional data, as well as signs of potential liabilities, to the executives managing the transaction. Legal structures like non-compete clauses and other contract agreements could represent impediments to the process in addition to the legal risks. Here are some of the concerns for executives when merging with or acquiring a new company:
- The financial state of company assets: Insufficient tallying and calculation of a company’s assets could lead to financial risks.
- Staffing assessments: A company will often have to lay off some of its employees during a merger. If the right evaluations aren’t made, it could lose invaluable staff.
- Existing contract agreements: Those contracts that could become breached or are likely to be breached during the transaction need to be addressed before the deal finalizes.
- Employee agreements/labor conflicts: A company must comply with the wage and labor laws during layoffs and the redistribution of employees within the new organization.
- Tax liabilities: The due diligence necessary for a merger or acquisition should account for the present and future tax responsibilities and how they should be handled in a transaction, including the local tax issues related to payroll.
Accounting for multiple contingencies
As an executive, there are many liability risks for employers attempting to move too quickly on a transaction. Regardless of the circumstances involved in a transaction, you need knowledgeable counsel to guide you through the process of assessing and investigating the many components of a merger or acquisition deal.