Essential Due Diligence required in M&A

We look at Merger and Acquisition as smart move of Buyer Company to grow faster in shortest possible time and at the same time a safe exit of Seller Company to maximize the return of his works output.

Mergers and acquisitions (M&A) is the area of corporate finances, management and strategy dealing with purchasing and/or joining with other companies. In a merger, two organizations join forces to become a new business, usually with a new name. Successful business grows faster with smart merger, which brings win-win-win situation for both the companies, their investors and the ultimate clients. We recognize potential buyers growth opportunity in a perfect M&A and at the same time we empathize the situation of and help him to exit smoothy without drama.

For successful M&A, we work side by side with Buyer to do due diligence with issues like what is the Product or Service, the contingent liability of the targeted company, problematic contracts, litigation risks, Intellectual property issues. Specially if the company is not publicly listed, finding all the factors by buyer is hard. We also assist the target company to cooperate with all due diligence matters required for M&A. We also help target company to do “reverse diligence” to protect it’s own interest.

Our professional M&A team assists with the following elements that are extremely important for a possible M&A.

The target company will be better prepared to complete the deal if all these important legal and business due diligence issues taken care of by the seller.

Sometimes target company also should do “reverse diligence” to protect it’s own interest. Most of the issues described below will apply to both sides of the transaction.

1. All historical Financial Statements, Financial Matters and the reasonableness of the Seller company’s projections of its future performance, as for examples Company’s annual, quarterly, and if available monthy financial statements and related notes to explain all current and contingent liabilities, growing or deteriorating margins of the business, assumptions of for future projection, required working capital, capital expenditure and other expenditure to continue the business, company’s current capital commitments, condition of assets and liens, outstanding or guaranteed indebtedness, any unusual revenue recognition issues, accounts receivable, quality of earnings, financial resources to both continue operating in the ordinary course and cover its transaction expenses between the time of diligence and the anticipated closing date of the acquisition.

2. IP & Technical Matters like Virtual Presence ,Intellectual Property and Technological Efficiency of the seller company, e.g. domestic and foreign patents (and patents pending) intellectual property, confidentiality and invention assignment agreements, employee rights, registered and common law trademarks and service marks, copyrighted products and materials, Company’s trade secrets,IP infringement, litigation issues with IP and similar issues, customer backlog etc.

3. Client Base, Product line, Offered Services, customer concentration issues/risks, warranty issues, sales terms/policies, returns/exchanges/refunds, financial incentives.

4. Strategic Match of Target Company with buyer’s organization and up to what extent the targeted company will fit strategically in the new large company. New product and service line, key human resources to be retained after merger, total integration process and period, cost saving and synergies and ultimate revenue enhancement.

5. Evaluation of Material Contracts, commitments of the target company on guaranties, loans, and credit agreements, customer and supplier contracts, partnership or joint venture agreements, limited liability company or operating agreements, settlement agreements, past acquisition agreements, equipment leases, indemnification agreements, employment agreements, exclusivity agreements, agreements imposing any restriction on the right or ability of the company (or a buyer) to compete in any line of business or in any geographic region with any other person, real estate leases/purchase agreements, license agreements, powers of attorney, franchise agreements, equity finance agreements, distribution, dealer, sales agency, or advertising agreements, Non-competition agreements, union contracts and collective bargaining agreements, contracts the termination that would result in a material adverse effect on the company, approvals required of other parties to material contracts due to a change in control or assignment.

6. Standard of Employees and quality of management, Management organization chart and biographical information, labor dispute records, any previous, pending, or threatened labor stoppage, employment and consulting agreements, loan agreements, schedule of compensation paid to officers, directors, and key employees for the three most recent fiscal years showing separately salary, bonuses, and non-cash compensation (e.g., use of cars, property, etc.), summary of employee benefits and copies of any pension, profit sharing, deferred compensation, and retirement plans, Employment manuals and policies, involvement of key employees and officers in criminal proceedings or significant civil litigation, plans relating to severance or termination pay, vacation, sick leave, loans, or other extensions of credit, loan guarantees, relocation assistance, educational assistance, tuition payments, employee benefits, workers’ compensation, executive compensation, or fringe benefits, agreements or incentive arrangements to retain key employees, layoffs and resultant severance costs will be likely in connection with the acquisition.

7. Pending, threatened, or settled Litigation, arbitration, or regulatory proceedings involving the target company.

8. Complete Tax Matters and claims.

9. Antitrust and Regulatory Issues if the company is in a regulated industry that requires approval of an acquisition from a regulator, understanding the issues involved in pursuing and obtaining approval.

10. Key Insurance Policies.

11. Organizational Documents and general corporate matters,charter documents (certificate of incorporation, by-laws, etc.), Good standing and (if applicable) tax authority certificates, list of subsidiaries and their respective charter documents, list of jurisdictions , list of current officers and directors, lists of all security holders (common, preferred, options, warrants), warrant agreements, stock sale agreements, stock appreciation rights plans and related grants, rights of first refusal or first negotiations in connection with a sale of the company or its business and all minutes.

12. Environmental Audits and issues, records and reports for each owned or leased property, including results of tests or audits of the company’s properties and possibly neighboring facilities, hazardous substances used in the company’s operations, environmental permits and licenses, environmental litigation, claims, or investigations, records from any public agency investigation of the company’s properties or any neighboring properties with respect to any environmental laws.

13. Related Party Agreements or arrangements between the target company and any current or former officer, director, stockholder, or employee, including any direct or indirect interest of any officer, director, stockholder, or employee of the company in any business that competes with or does business with the company or in any asset (real estate, intellectual property, personal property, etc.) of the company

14. Governmental Regulations, Filings, and Compliance with Laws, citations and notices received from government agencies, pending or threatened investigations or governmental proceedings, material reports to and correspondence with any government entity, certification of compliance with, or any deficiency with respect to, regulatory standards of the company.

15. Target company’s Property Including, Deeds, leases of real property, deeds of trust and mortgages, title reports, other interests in real property, financing leases and sale and leaseback agreements, conditional sale agreements and operating leases etc.

16. Production related matters including Subcontractors, suppliers, monthy manufacturing yield summaries by product, inventory reports, agreements and other arrangements related to the research, development, manufacturing, and testing of the company’s products etc.

17. Marketing Arrangements including sales representative, distributor, agency, and franchise agreements of the company, sales literature, including price lists, catalogs, purchase orders, etc.

18. Competitive Environment of the target company, principal current and anticipated competitors, technologies compared to those of competitors.

An M&A transaction typically involves a significant amount of due diligence by the buyer and the buyer’s counsel and accountants. By being prepared for the due diligence activities that a target company will encounter, the process can go smoothy and quickly, serving the best interests of both parties to the transaction. We assist both the parties in all matters important to make the M& A successful.

Due Diligence
Understanding M&A
Market Assessment