Corporate Law Blog

Due diligence critical in working up to merger/acquisition agreement

We’ve been speaking in recent posts about the merger review process, as well as a recent proposal to streamline that process. As these posts have made clear—at least in the context of dealing with federal regulators—mergers and acquisitions require a lot of planning, a lot of coordination, and a lot of work.

This is particularly the case for buyers, who need to do their due diligence before committing to an agreement. By due diligence, we are referring to planning and coordination of legal and business matters related to mergers and acquisitions. Companies considering a merger/acquisition deal each have unique situations to consider, but there are general matters that must be addressed in every proposal. 

Areas of concern in nearly every merger include: taking stock of the target company’s financial profile and performance, customer base and sales history, existing contracts and commitments, technology and intellectual property holdings, how well the target company will mesh with purchasing business, employee and management issues, existing legal liabilities, existing insurance coverage, tax issues, and regulatory compliance matters. Other important issues to examine include existing property holdings, marketing strategy and arrangements, and general corporate matters.

Thoroughly reviewing these and other issues is critical before deciding to move forward with an agreement, and it is important for businesses to work with qualified professionals to address any concerns, particularly legal concerns. Conducting such due diligence does take a significant amount of time, but it also helps to ensure that any investments a company makes will be smart and ultimately benefit the purchasing company.