Mergers and acquisitions are a corporate restructuring of a business in order to remain competent and be able to offer more products and services to their target market. For business owners in Indiana, merging two companies into one can be a great opportunity to compete with larger businesses. The same applies with acquiring a company that would be cost-efficient and beneficial for both parties. However, every business transaction can come with associated risks, and companies should always be cautious.
The risks involved in mergers and acquisitions can be avoided. There are due diligence activities that address both legal and business aspects of the transaction. For starters, a buying company should be concerned with the economic history of the business they want to acquire. That company’s financial statements, performance and condition prior to the merging or acquisition should be taken into account, as well as the working capital of the business, profits and all its liabilities. Business owners should also make projections of the target’s future performance after it is acquired.
Due diligence must focus on the target company’s intellectual property and technology, because intellectual property rights, patents and licenses can impact the entire business performance. When it comes to sales or customers, a buying company must completely understand the target’s customers, policies and revenues to be able to create an effective strategic plan for the market. A company should also consider employee and management issues, taxes and obligation, as well as any form of litigation filed against the target company.
Merger and acquisition transactions can turn into a big opportunity or a disaster. However, with due diligence activities and a better understanding about the whole process and its aspects, business owners may be able to get rid of the risks and obtain the benefits.
Source: Forbes, “20 Key Due Diligence Activities in A Merger and Acquisition Transaction“, Richard Harroch, Dec. 19, 2014