Business mergers and acquisitions are complex transactions that have the potential to drastically transform companies’ policies and priorities. Since mergers and acquisitions often affect a company’s most valued stakeholders—from investors to employees and consumers—business owners could be liable for damages if they do not do their due diligence before approving a deal.
Preparing for a Merger or Acquisition
Due diligence normally commences when the interested parties sign a letter of intent or other formal agreement detailing their plan.
Before approving a merger or acquisition, you should initiate a careful investigation of:
- Financial matters. The buyer should overview the seller’s financial statements, records, and history. You may need to review the company’s sales projections, revenue, and expenditures, as well as its internal financial regulation structures and policies.
- Potential tax liabilities. If you are purchasing another company, you must ensure that its taxes are current. Any unaddressed tax liabilities could subject the buying business to an audit or unexpected financial strain.
- Potential legal liabilities. Due diligence should include an overview of the target company’s legal liabilities. This could include unresolved litigation, pending arbitration, or regulatory noncompliance.
- Intellectual property. If the target company has valuable intellectual properties or resources, they should be properly assessed and valued by a merger and acquisitions attorney.
- Strategic compatibility. While you may have sound logic for purchasing or selling your business, due diligence demands a careful negotiation of each entity’s capabilities as well as the benefits and potential downsides of continued collaboration.
- Contractual obligations. Your attorney will have to review all contracts relating to and held by the target company. This is often the most time-consuming aspect of any merger or acquisition.
How an Attorney Can Help
Even small businesses must perform due diligence before merging with or acquiring another company. If you do not carry out due diligence, you might end up saddled with another business’s debts—or even be accused of wrongdoing by your own investors.
An experienced Michigan business attorney could help you conduct a careful overview of the risks, benefits, and legal obligations inherent to a merger or acquisition.
The Cronin Law Firm has the experience, resources, and expertise needed to oversee a business merger or acquisition. Please send us a message online today to discuss your options.