Strategically planned, mergers and acquisitions have become common phenomena in a competitive global environment. M&A activities are a way of expanding business, horizontally, vertically or across different markets. Now, mergers and acquisitions are definitely a valued proposition for companies, however there are equal amount of risks involved.
Risks or pitfalls like, non performance of the target business as per your expectation, key members leaving the organization, incompatible business culture, key resources diverting away from your primary business focus and ultimately the benefits that you expected in terms of investment which you had expected do not materialize. There is always an inherent uncertainty associated with mergers and acquisitions, and hence it is essential to take calculated risks, else it can damage the performance, the bottom lines and in turn the reputation of your business.
Both mergers and acquisitions can damage your own business performance because of time spent on the deal and a mood of uncertainty. Hence, when a company considers a merger or an acquisition, a due diligence investigation becomes imperative.
Risks or pitfalls like, non performance of the target business as per your expectation, key members leaving the organization, incompatible business culture, key resources diverting away from your primary business focus and ultimately the benefits that you expected in terms of investment which you had expected do not materialize. There is always an inherent uncertainty associated with mergers and acquisitions, and hence it is essential to take calculated risks, else it can damage the performance, the bottom lines and in turn the reputation of your business.
Both mergers and acquisitions can damage your own business performance because of time spent on the deal and a mood of uncertainty. Hence, when a company considers a merger or an acquisition, a due diligence investigation becomes imperative.
Due diligence support in M&A activities
Due diligence support work for M&A deals involves investigation of all the corporate or LLC documents, review of major contracts and insurance policies, study of all the licenses and permits to identify particular cases where the sellers permit is required and investigation of the list of major assets and liabilities of the company to be acquired. Further, a due diligence support team can also extend the investigation by searching for customer reviews and related problems. Risk identification and mitigation strategies are planned and evaluated, thereby; the viability of a merger/acquisition is established.
At Hi-Tech, we provide you our due diligence support team evaluates your business prospects and understands the potential risks associated with your M&A. We investigate and summarize all the provisions from contracts, emails, property documents, organizational documents, licenses and permits and other government approvals.
We also:
- Review the paperwork for the M&A activity, if required suggest rewording or restructuring of the legal documents to avoid any future misunderstandings and disputes.
- Evaluate the actual worth and condition of the physical plant, equipment and machinery as well as the other tangible and intangible property included in the M&A deal.
- Determine, whether the proposed deal complies with the existing laws and regulatory restrictions.
Due diligence reports, generated by our experts can help determine if the M&A activity is a viable strategy and help businesses take informed decisions.
What are the common due diligence mistakes you need to be aware of and try to avoid?
Companies might have to pay a heavy price for M&A deals done without due diligence or if there are any loop holes and laxities in the due diligence. Often the encumbrances and liabilities on a company’s assets get transferred to the other company, as a result of the lax due diligence investigations.
Due diligence investigators might misidentify the risks involved in an acquisition, or they might overlook an important element of the said company’s corporate culture. Another major mistake that due diligence team makes is just gathering the virtual facts and investigating them, while never actually doing a physical audit and investigation.
Often it happens so, that after a thorough due diligence, the involved risks and flaws in a deal come to light. However, executives are so much in love with the deal that they choose to ignore the identified risks. Now this can be a totally fatal proposition if they defy the due diligence results and move ahead.
Due diligence for M&A and the role of LPO
In most of the cases due diligence includes reviewing high volumes of data, undertaking an online research and other due diligence support work. This is why engaging LPO organization, is emerging as the most viable solution for law firms and legal counsels dealing with the immense pressures of M&A work. LPO organizations have a permanent team of document collection, document review, and due diligence support experts to efficiently handle M&A due diligence activities, hence they are better positioned to support acquirers. Besides, Legal process outsourcing firms who regularly handle legal support work for international clients understands the importance of confidentiality and client data security. LPOs with internationally recognized certifications and security control are the best equipped to handle M&A due diligence projects.
Ref. Link: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2294836
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