Introduction of the service
Congratulations!!! You have decided to purchase a business, merge with another company or invest in someone else's company or evaluating any of these.
You have probably been busy learning the business, talking to the seller about the operation, conducting market research and planning how you can run it better than the previous owner.
It does not matter if you are buying a small cell phone store, a large high-tech company or investing in a friend's "next big thing". There is one thing you should seriously consider: A Due Diligence.
Features of Due Diligence Services
- Identification of a probable objective for merger, acquisition or investment.
- Seasoned experts proactively identify and close gaps in search scopes
- Statistic analyzation of financials, risks, various terms and conditions that will be critical for the partnership
- Listing various matters, which can directly or indirectly impact the circumstances of the deal and the buying costs
- Quantifying the amount of taxes, which may impact the deal in commercial terms
- Accurate, transparent upfront estimates with no hidden costs
Due diligence is an investigation of a business or person prior to signing a contract, or an act with a certain standard of care.
Let’s assume that you are planning to buy out one of your competitor who is retiring. The business is attractive to you because it’s perfectly positioned in an area of town that is tough for your business to reach. Before you purchase the business, you with the help of outsourced legal service providers would like to perform due diligence.
- Does the business have healthy cash flow?
- By looking at the books, can you tell where the revenue stream is coming from?
- If the company has physical assets, are they valued correctly and fairly?
- Are there any hidden liabilities?
- How reliable are its financial projections and what multiple is it placing on those earnings?
- Are the company documents complete? (Articles of incorporation, board meeting minutes, tax registration, etc.)
- Is the business up to date on its taxes?
- Does it lease property? If so, when does the lease end?
- What insurance information is provided and what is covered?
- Are there complete employee files including salary and benefits?
A dedicated legal advisory and due diligence team can assist with financial, legal, tax and environmental due diligence and business analysis for organizations that are contemplating investments, strategic partnerships, mergers, and acquisitions or that are looking to enhance organizational effectiveness in an existing business unit or portfolio company.
How it helps:
- They conduct due diligences with the sole objective to generate valuable due diligence reports and business analyses for our clients, that become an integral component of their decision-making and negotiation processes.
- They offer a confidential, sound, unbiased perspective and are the ideal complement to client’s internal resources
- To focus on providing value-added services that enhances client business decisions by combining a thorough understanding of technologies, logistics, corporate strategy and finance with an ability to summarize complex issues into concise, easily understood terms
In a business purchase, it is usually performed after the intent to purchase documents have been signed but before the formal purchase agreement.
During due diligence, you should:
- Examine all records and documents, as described below
- Spend time at the business location, talking to managers, executives, employees.
- Check sales against customer lists to verify that the business has the customers it says it does
- Look at potential future plans for expansion, condition of facilities, equipment, furniture and fixtures to verify that they are as reported
- Look at all documents which might incur liability for the company, including sales agreements, purchase agreements, liens on assets
- With the assistance of your attorney, examine documents relating to any ongoing or potential lawsuits, and recent litigation that has concluded.
They vary massively in scope and cost is largely driven by scope (hours billed for the consulting firm) and the pedigree of the firm you hire. If you hire a small outsourced legal service provider vs big name like McKinsey, you'll pay very different prices.
As a rule of thumb, all of your transaction-related expenses shouldn't be more than 5% of the purchase price.
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