Business Lawyers Blog
A merger or acquisition is one of the most complex transactions that a Texas business–or, in this case, multiple Texas businesses–can enter into. There is no such thing as an “impulse buy” when it comes to M&A. Both sides need to perform “due diligence” before closing a final deal.
Mistakes during the due diligence process can lead to significant problems for all parties involved. That is why working with an experienced Texas mergers and acquisitions attorney is essential. The team at Structure Law Group can help protect your company’s interest while negotiating a deal and performing the necessary due diligence to help you avoid potential lawsuits down the line.
What Is “Due Diligence”?
If you have ever purchased a house, you are familiar with the concept of due diligence. If you are the buyer, due diligence means ensuring the seller’s representations about the property are accurate. The actual due diligence process would include steps like hiring a home inspector to identify potential defects in the property and ensuring a valid title.
Similarly, due diligence in an M&A deal means that the buyer or acquirer takes steps to verify the seller’s representations about their business. This is usually done after the parties sign a letter of intent, signifying there has been an offer and acceptance. Some due diligence should be done even before the offer and acceptance. For example, the seller typically provides profit and loss statements, balance sheets, and other basic financial documents.
However, once an offer is accepted, the buyer must ensure it inspects all of the seller’s relevant business documents, including bank statements, tax returns, leases, employment contracts, and workers’ compensation insurance policies. Every M&A deal is unique, so the actual number and types of documents provided during the due diligence process will vary.
It’s essential to remember that a buyer has the right to verify that the seller is not falsely presenting any significant details about their business. Due diligence is not about uncovering every possible problem that might arise after the M&A deal closes. In most cases, that would be impossible. But if there has been a misrepresentation or a breach of certain warranties under Texas law, the buyer generally has the right to back out of the deal.
How Long Does Due Diligence Take?
The due diligence period following an offer and acceptance usually lasts at least 30 days. However, the parties can agree to a longer due diligence period if necessary. Remember, if the buyer is unsatisfied with the seller’s disclosures when the due diligence period ends, they can walk away.
Due diligence is just one step in a merger or acquisition transaction in Texas. If your business is involved in such a transaction and requires advice and representation, the team at SLG can help. Contact us today to schedule a consultation.