You found the perfect fit: that company that fits the final piece of your business puzzle. You are ready to embark on a joint venture, acquisition, divestiture, investment, or other business combination, but is this new entity really as good as it seems? You can save a lot of time, money, and heartache by spending time upfront investigating the legal, financial and other business risks of the transaction.
Of course, every business combination is different, and this post does not constitute legal advice. You should consult an attorney to assist you with the particular facts of your business, the other party, and potential risks.
What are some factors to consider if I found The One?
Depth of Due Diligence
When considering a business combination, you should always conduct some level of due diligence, regardless of your role in the transaction. The extent of your due diligence will depend on a variety of factors, including:
The reputation and general trustworthiness of the counterparty. Here you should consider the duration and quality of your relationship with your potential new partner.
The potential risks and rewards. Considerations include:
level of financial investment, the dedication of resources, and the duration of the relationship;
the likelihood and impacts of potential success or failure; and
legal and/or regulatory implications, such as those relating to antitrust law.
If you know a lot about the counterparty based on a rich history together, and the financial, business, and legal risks of the combination are low, then you may not need to conduct a four-month-long due diligence with a team of attorneys. However, even when presented with the best-case scenario, you should conduct some responsible level of due diligence – if only as it relates to the counterparty’s finances or other key metrics.
Sign an NDA
Regardless of how extensive or limited the due diligence is, you should enter into a mutual confidentiality agreement for information exchanged in the process.
Due Diligence Topics Covered
A good due diligence check systematically analyzes a counterparty’s strengths and weaknesses and serves to safeguard you and assess the regulatory, financial, reputational, and strategic risks posed by the potential business combination. Common due diligence subjects include a review of the counterparty’s:
Books and finances
Assets and liabilities
Board members, shareholders, and officers
Quality control process and procedures
Legal compliance and other company processes, policies, and procedures
Work in process
Negative press or reviews
Litigation
Active contracts
Mitigating Risks
As you can see, due diligence can help you identify, avoid and/or mitigate risks relating to a potential business combination. A good lawyer can help you significantly limit risks by helping you with:
Due diligence strategy, execution, analysis, and related advice; and
Drafting and negotiating the business combination agreements. Information (both good and bad) obtained during the due diligence process lends support to this process.
Get Legal Help Early
Determine the strengths and weaknesses of your counterparty and the business combination transaction sooner rather than later. Avoid expensive litigation or financial or reputational damage. Take the time now, so you don’t pay later. Your livelihood is worth it.
Let us help you build a meaningful and fruitful relationship with your counterparty. Contact us today!