Business growth can occur in many different ways. Those who are considering a merger or acquisition to jump-start their growth in 2019 can benefit from the following tips.
Why business owners may consider a merger or acquisition: Acquiring or merging with another business can allow a business to grow into a new market or take advantage of a different set of clientele. Whatever the reason for the merger, it is important to complete thorough due diligence before finalizing the transaction.
Tips for successful due diligence: A few tips to help mitigate the risk of any surprises after the transaction is complete and make it a successful acquisition include:
- Checklist. Have a checklist of all the aspects of your target company that you want to know about. Early in the process sit down with your accountant and attorney and put together a list of due diligence items you need to know about your target. Then follow your checklist. Don’t complete your deal until you are satisfied with the response to every item on your list.
- Financials. Your checklist should include a review of the financial statements of your merger partner or acquisition target. A recent piece in Forbes strongly recommends a careful review of the target company’s financial statements for at least the previous three years, as well as a review of the condition of assets and presence of any liens. Also evaluate any tax obligations that may accompany the merger. Be aware of who prepared the financial statements. Was it an outside professional or were they internally prepared. If they were prepared internally, do some extra back up checking to verify them.
- Intellectual property. Businesses today often rely upon intellectual property at some level. This can include both foreign and domestic patents, trademarks, copyrights and trade secrets. Consider how important these assets are to the value of the business. It is important to inquire about the presence of any licenses and to also take steps to protect these works during the transaction.
- Litigation/Liability. Ask the target/merger partner about any litigation or government actions against them. Follow up with a litigation search and regulatory review. This review can give you great insight not only into the type of business you are buying and how well it has been managed, but also into the legal issues it faces on a regular basis
- Others. This list just scratches the surface. Additional reviews will depend on the type of business and are critical. They can include an environmental assessment, review of a business’ strategy in the marketplace abroad and a review of its products or services to determine whether they are current or out dated
It is also important to take the companies’ cultures into consideration. Take steps to help meld the two cultures during the deal and in the months immediately following the transaction to better ensure a smooth transition.