Byron Carlson Petri & Kalb, LLC | attorneys at law

Engaging in proper due diligence before acquiring a business

On Behalf of | Jan 4, 2023 | Business & Commercial Law

A business acquisition or a merger with another company could be a great option for you as an individual or the company that you run. When you purchase another company or start negotiating to merge with that business, you can potentially benefit from that organization’s established brands, its staff roster and even its trade secrets, like patented formulas.

There are many benefits to acquiring another company, but there are also numerous risks. Engaging in adequate due diligence prior to negotiating with another business for the purpose of an acquisition or a merger will protect your company from various risks.

You need to identify possible liabilities

Issues ranging from a pending employee lawsuit to a recent decline in product quality could potentially result in financial liability for your company after it acquires another business. A thorough review will involve not just looking at what information the other business openly provides to your organization or the public but other information as well.

Looking at court records for any lawsuits they may have previously settled and even talking with some of their clients or employees may be necessary to establish what the company is truly worth and what liabilities it carries.

If you purchase or merge with a business, you need to specifically address known issues in your agreement or risk becoming responsible for them. For example, your company could end up paying out thousands of dollars to someone who files a sexual harassment lawsuit against the company you purchased unless you carefully address that pre-existing liability in your purchase agreement.

In the case of a merger, avoiding that liability won’t necessarily be possible, so the company needs to identify all of those risks and possible future threats before moving forward with the transaction.

Professional support is often necessary during an acquisition

The amount of information that a business needs to gather and review to evaluate another company for the purpose of a merger or acquisition is enormous. It is far too much for a single executive to manage on their own, especially if they do not have experience with the process.

Bringing in professional help allows leadership at a company to continue focusing on daily operations and business growth rather than spending weeks looking into prospective acquisitions. Having the right support will be crucial for owners and executives considering a large-scale business transaction, like the acquisition of a business.