Mergers can give the acquiring company an opportunity to grow market share.
By combining business activities, performance will also increase and costs will decrease due to business synergies between the two entities. Essentially, a business will attempt to merge with another business that has complementary strengths and weaknesses.
Financial Due Diligence
Financial Matters. Assess the target company’s historical financial statements and related financial metrics, as well as the reasonableness of the target’s projections of its future performance.
Technology/Intellectual Property. Review and evaluate the quality of the target company’s technology and intellectual property.
Customers/Sales. Assist the buyer to fully understand the target company’s customer base including the level of concentration of the largest customers as well as the sales pipeline.
Material Contracts. Critical components of a due diligence inquiry is the review of all material contracts and commitments of the target company.
Tax Matters. Tax due diligence may or may not be critical, depending on the historical operations of the target company, but even for companies that have not incurred historical income tax liabilities, an understanding of any tax carry-forwards and their potential benefit to the buyer may be important.
Related Party Transactions. Understanding the extent of any “related party” transactions, such as agreements or arrangements between the target company and any current or former officer, director, stockholder, or employee.
Online Data Room. It is critically important to the success of a due diligence investigation that the target company establish, maintain, and update as appropriate a well-organized online data room to enable the buyer to conduct due diligence in an orderly fashion.