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For companies looking to expand their reach and what they can offer, merging with or acquiring other entities is a great way to increase size and profit. Unfortunately, carrying out the steps in a merger and acquisition (M&A) can be difficult - this is especially true for due diligence, which is a vital final step before sealing any M&A deal.
Your company won't be at serious risk of taking over a business with hidden legal or financial issues by doing your due diligence. Here's how to improve due diligence in mergers and acquisitions and why it's important.
How to Improve Due Diligence
Using the assessment phase of the M&A process to vet and research your candidate companies thoroughly can help avoid nasty surprises during due diligence. However, no matter how much time and research you set aside during the assessment phase, you'll still need to perform due diligence.
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Gather your team: Who's going to be responsible for conducting the due diligence? Make sure you have legal and financial experts with expert knowledge in M&As.
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Get your documents: Create a detailed checklist of the documents you need and what time scale they're due. This can include anything from corporate records to IP contracts and litigation history. Once you've signed the confidentiality agreement, you can request the information from the entity you're merging with or acquiring. Use these meetings wisely and take a thorough look over the documents to ensure you aren’t overlooking anything.
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Review all of the information: If you have questions, now is the time to raise them to address your concerns. This is your opportunity to review information or review any red flags that can cause potential problems. If you're still going ahead, make sure to fix these concerns before signing.
And this is just a top-level overview on improving due diligence in mergers and acquisitions. The process can take months. Dedicating extra time to due diligence is vital, as rushing your vetting and research could prove a costly mistake.
The output of resources and time needed is a burden to most companies, especially those who don’t benefit from a large team with much or no prior experience and knowledge on M&As.
Overall, the best and easiest way to improve due diligence in mergers and acquisitions is to allow a professional in this area to help you.
The insight and guidance of an expert Global Professional Employment Organization (PEO) is the best way to improve your due diligence process. While this may be your first experience with M&As, Global PEOs have ample experience in this arena. They’re fully knowledgeable and armed with the expertise and resources many companies don’t have. From identifying suitable candidates to setting up offices in other countries for expansion, Global PEOs have a lot to offer the M&A process.
Global PEOs don’t just help with due diligence either. They're perfectly placed to make your entire M&A process run more smoothly by supplementing your HR and can help in all areas of M&A, including:
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Training programs
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Paid time off policies
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Payroll administration
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Job titles and reporting structure
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Employee onboarding and offboarding
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Employment contracts and agreements
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Performance evaluations and incentive programs
Due to the nature of due diligence and the level of investigation needed, it’s a process that can take anywhere from several weeks up to several months. Do you have the ability to set aside so much?
Allowing a Global PEO to assist you in the M&A process ensures all stages of the journey - including due diligence - are done right and won’t deplete your resources and time on this project.
Other aspects you'll receive support in include identification, vetting, streamlining, integration and retention. According to Harvard Business Review, 70-90% of all M&As fail. Enlisting the expertise of a Global PEO could be the difference between your business becoming another statistic or defying the odds.
M&As are a huge undertaking that requires a large commitment of time, money, effort and resources. Having time and money doesn’t compare to having industry expertise and multiple successful M&As under your belt.
Why Is Due Diligence Important?
Without due diligence, your company may be at risk of inheriting hidden obligations or legal issues. To ensure your company is fully informed and prepared to seal the M&A deal, the due diligence investigation should provide clarity on whether you’ll inherit any of the following from your chosen candidate:
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Long-term customer agreements
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Pending or potential lawsuits
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Debts
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Leases
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Employment contracts
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Warranties
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Distribution agreements
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Compensation agreements
Due diligence lowers the risk of unexpected financial or legal problems and is one of the most effective ways a buyer can protect themselves against unforeseen risks. This is why performing due diligence correctly is so important in achieving a successful M&A.
Aside from getting expert help, the best way to improve any stage of this process is to know the common mistakes made and how to avoid them. Our comprehensive guide runs through the biggest pitfalls of mergers and acquisitions so you’re prepared for this journey.
Mergers and Acquisitions: Be Prepared and Improve Your Process
Be fully prepared and avoid simple mistakes during your M&A process with our ‘Mergers And Acquisitions: The Common Pitfalls and How To Evade Them’ guide.
Learn how to avoid mistakes before making them, saving your business from becoming one of the many entities that experience M&A failure. Get your free copy now by clicking on the link below.
