Once you have made the decision to pursue an M&A transaction, the next phase of the process is designed to accelerate progress toward a deal or abandon it altogether.
Before any proprietary or confidential information is shared between a prospective buyer and seller, both parties should negotiate terms within a terms sheet. Term sheets include various items including non-disclosure agreements, which protects the party and provides information against improper use or disclosure by the party receiving it.
When you reach this stage, you can benefit from experienced legal counsel who can ensure that the language in the term sheet is expressly suitable for an M&A transaction, not just a generic or standard term sheet which can omit certain terms and leave one or both parties vulnerable.
Having the terms spelled-out and in place makes it easier to learn whether the other company has financial problems or legal and compliance challenges and signifies that the all-important due diligence process can begin.
Performing due diligence can provide both the buyer and seller assurance that they’re making the right deal. The buyer gets satisfaction from seeing that their expectations for a transaction are and/or will be met following the closing of such transaction. The seller can benefit by submitting to a thorough examination that may show their firm has a higher market value than first thought. Failure to perform rigorous due diligence greatly increases the risk to your professional and financial future.
The eventual effectiveness of any due diligence project is determined by the questions asked and the answers provided. While every M&A transaction has its own unique set of circumstances, below are a few points that should be considered.
- Strategic Fit – What synergies will be created by this particular M&A? How will a proposed transaction affect your company’s culture?
- Financials – Specific questions must be posed on everything from a company’s debt and profitability to a review of audited financials and future projections.
- Compliance – How has the company fared when upholding its compliance obligations? Does the company have any ongoing compliance issues? Are all written policies and procedures, including security safeguards, adequate?
- Information Technology – Are current systems compatible and cost effective? Which third-party providers are being used? In what shape are business recovery plans and cybersecurity processes?
- HR/Workforce – Will there need to be a reduction in the team and/or will you be assuming the employment contracts in place for all of the current team members? What compensation method is being employed? What are the company’s benefit plans?
- Client Base – What’s the retention rate? Are there any existing or unresolved issues and/or complaints that have been brought by clients?
- Marketing – What does the company do to grow its client and overall business operations? How effective are its sales materials?
Don’t let the due diligence become daunting and dissuade you from making a deal that could provide growth opportunities for you, your clients, and your employees. The professionals at Jacko Law Group, PC are ready and able to use their business experience and legal acumen to help you navigate all the M&A stages. Call us at (619) 298-2880 or visit us online at jackolg.com to learn more.
Rachel C. Edwards, Esq. serves as an Attorney at Jacko Law Group, PC (“JLG”) where she supports the needs of our corporate clientele. Her invaluable experience supports their ability to provide advice in connection with a wide ...
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