Planning for Corporate Due Diligence
Companies that are acquiring other companies will typically perform corporate due diligence to understand the business, learn about the revenues and intellectual property that the company has associated with it, and identify liabilities that can harm the acquiring company in the long-term. In order to have an effective corporate due diligence process a company should develop a plan surrounding their acquisition. Here are some of the considerations that a company should have when handling an acquisition.
Developing a Plan for Acquisition
A plan for acquiring a company is an essential part of the acquisition. The Company should identify what they are looking to gain from the acquisition. Some companies are acquired in order to gain their market share with customers, while others are acquired for some technology or product that they are developing. Others are acquired because of a key asset that they own. A company should understand just what they are looking for from the acquisition so that they can plan for this acquisition effectively.
One step in the planning process involves understanding who should be involved in the acquisition team. Usually this team will include at least one internal executive who is overseeing the acquisition, internal specialists such as an accountant and financial professional as well as the entire legal team, and external consultants. External professionals such as external legal consultants, a professional CPA firm, and a financial consultant that represents the company during the diligence are common. Finally, a specialist who is related to the reason for the acquisition is important as well. For example, if your company is looking to acquire the tech stack of a target, then there should be tech specialists on the team. However, keep in mind that the exact acquisition team should be flexible to bring in only those who are needed to aid the acquisition process.
Once this is done, begin to craft a calendar for the acquisition including when the acquisition should be completed by and scheduled deadlines for the milestones along the way. Identify set periods of time for each deliverable needed, such as reports from external consuls in order to have a firm plan in place for the acquisition. This should comprise the majority of the plan for the due diligence.
Learning about a Business You are Looking to Acquire
Identify key stakeholders in the company that is being targeted to interview. These stakeholders should involve individuals who can explain the company from an overall view as well as individuals who are knowledgeable about key processes surrounding the business such as drafting customer contracts, developing technology, charging and collecting from customers, and reviewing liabilities around the business.
Choose internal or external individuals who are good at pushing others to talk and reveal more about the target. Be sure to have your side asked pointed questions that allow the target’s employees to expand the company and processes that are in place.
Identifying Liabilities in an Acquisition Target
One of the key issues that can derail an acquisition are both actual and potential liabilities. Be sure to consider the potential for liabilities that are reflected on a company’s financial records as well as those that are unrecorded. Examples can include tax liens and improperly filed tax or compliance reports such as unfilled sales tax returns, potential or existing lawsuits, and long-term financial liabilities for pension plans. A company should utilize their internal and external professionals to assess these liabilities early in order to be effective in identifying them.
Due diligence is challenging but a firm plan will allow a company to focus its efforts on the diligence effectively and increase the likelihood that a deal that is beneficial to the acquirer is settled favorably.
