Business Lawyers Blog
Conducting due diligence is a crucial step in any merger or acquisition deal. After making and accepting an offer, the buyer must verify essential information about the seller’s business — a process known as due diligence. The experienced Texas merger and acquisition attorneys at Structure Law Group will guide you through every stage of this process to set your deal up for success.
What Information Do You Need to Review?
In most M&A agreements, due diligence is required as a condition of the buyer’s offer. This is important because if a problem is uncovered, the contract will provide a clear path to resolving the issue or allowing the buyer to back out of the deal. Both parties should avoid closing a deal without conducting due diligence, as it could lead to serious issues arising when it’s too late to address them.
While every M&A deal differs, the basic steps of due diligence are essentially the same. Here are just a few of the critical items that must be reviewed as part of the due diligence process:
- Business Structure: The buyer needs to see the seller’s articles of incorporation and other key organizational documents, such as the bylaws and any foreign registrations in other states.
- Financial Information: The buyer needs to see the seller’s balance sheets, profit and loss statements, cash flow statements, accounts payable and receivable, and tax returns for at least the past three years.
- Asset Information: The buyer needs a complete picture of everything the seller owns, including real estate, fixed assets, motor vehicles, and intellectual property.
- Operational Information: The buyer needs to see all of the seller’s material business contracts, such as employment, non-disclosure, and non-compete agreements with key employees and independent contractors; all stock purchase agreements or employee stock options; loan agreements and mortgages; leases; and distribution and sales agreements.
- Customer Information: The buyer needs access to the seller’s customer databases, including subscriber lists, sales records, and market research data.
- Employee Information: The buyer needs to see a current employer roster and organization chart for the buyer, as well as payroll information, employee tax forms, and copies of any human resources policies and employee manuals.
- Legal Information: The buyer must be informed of any current litigation or legal proceedings affecting the seller, including pending or threatened litigation, the names of any attorneys representing the company, and any outstanding civil judgments for or against the seller.
Contact the Team at SLG Today
Due diligence comes down to reading and reviewing thousands of individual details, any one of which could have a significant impact on a pending M&A deal. Fortunately, you do not have to undertake this process alone if you are the buyer. Our Texas business attorneys are here to help. Contact SLG today to schedule a consultation.