Brown Borkowski & Morrow


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How to do your due diligence for mergers and acquisitions

If you’re considering a merger or an acquisition in Michigan, you may want to double check that all facts are correct before finalizing a deal. You are more likely to make the right decision when you do your due diligence. Before you merge with or acquire a business, make sure you take the following steps.

Look into why the owner is selling the business

It’s challenging to verify the owner’s given reason for selling their business. You may want to check the history of the business to gain insights on what might have contributed to the owner choosing to sell. Prospective buyers usually check if the owner attempted to sell the company in the past and if it has gone through any mergers and acquisitions. They also check for past and current legal issues.

Know the current stockholder agreements

Business law protects certain rights of stockholders, so it may be difficult to obtain the information you want on your own. You may want to learn who the stockholders are and what voting agreements are in place, and you can do this by asking the current business owner.

Review all existing agreements

Other areas where there may be existing agreements include franchises, marketing, distribution, sales representatives and product testing. The business may also have to follow industry guidelines, such as building codes and those designed to reduce environmental impact.

Consider the future projections

Looking over a business model for a company along with financial statements helps you piece together the future projections. You may need to make some tweaks to help a struggling business recover. Evaluating the current staff helps you make these decisions as well. If the company has quality workers, then it’s a good sign for the potential in a turnaround. Trademarks and other intellectual property rights are desirable factors too. A lack of intellectual property wouldn’t be a deal breaker, but IP rights make a merger or acquisition more desirable.

Once you have a thorough understanding of the history of a business, its legal standing and current agreements, you are able to decide whether it’s a strategic match for you. It also gives you more negotiating power on a price. If you uncover issues that decrease the value of the business, then you can point that out during negotiations.