- Monday, April 29, 2024
By: Eastern Eye Staff
No matter the transaction size, mergers and acquisitions are often an intensive process requiring endless hours of effort day and night to spot the positives and negatives. In the end, a comprehensive analysis is done based on opportunities and risks to arrive at a decision. But what is this process that works as a powerful weapon in the buyer’s arsenal? It’s due diligence. Almost every M&A transaction uses due diligence to make the deal equitable and efficient. The experts or the concerned parties follow a thorough checklist to analyze the target company’s health from every aspect per the collated information and make a fair judgment.
Due diligence covers all divisions and departments of the company, such as finance, commercial, legal, IP, IT, HR, tax, marketing, and more. One should be ready with their due diligence questions for M&A to avoid missing any critical information that becomes a cause of concern later. Let’s briefly explore what to ask a target company, so you know it inside out.
The financial statements from the last five years are crucial to study. So, you can ask the company to furnish these reports. Inquire about balance sheets, accounts receivable/ payable, tax files from the last three years, credit reports, fixed and variable expenses, detailed accounts of gross profit margins, product value, tax returns, etc. Ask the business if they have any debt on them.
You want to investigate the company’s corporate structure and business model. To do this, you must learn about ownership, hierarchy, stockholder details, outsourcing status, competitors, and annual reports for up to the last five years.
Knowing the company’s marketing plan, as well as its competitors and suppliers, is essential. You also want to obtain insights into industry product trends. Asking the company about the entire range of services or products they offer, manufacturing costs, margins, and growth percentages will help.
No customer, no business. Hence, one must be aware of the target company’s consumer base, including the loyal ones. Everything related to contracts, policies, and sales must be accessible. Inquire how they reach out to potential customers and acquire them. Having all the customer-related information is essential for legal purposes, too. Nevertheless, you can ask them to give you access to customer databases, marketing strategies, purchasing agreements, correspondence with customers, refund policies, litigation threats, etc.
Employees are the most critical assets of any business because they are the real force behind every success. That’s why you will want to know what different employees do and their responsibilities. You can ask for information about key players to retain them. Getting details about them during the deal’s lifecycle is crucial because you need them to run a business. So, you can ask the company to give the list of employees with a spotlight on critical players, job description, roles, employment agreements (severance, non-compete, etc.), complaints, attrition rate, etc.
One will also need information from the target company’s lawyer regarding licensing, permits, and insurance. In intellectual property, you need to know who controls the IP rights, if the company has patents, revenue from the IP, and more. Collect information on physical assets, including warehouses, offices, furniture, equipment, etc.
Clear communication should be the core of the due diligence process. You can hire experts to cover all the areas without fail.
