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What are the Due Diligence Activities involved in Merger and Acquisition Transaction?

Merger and acquisition involve a transaction that involves a significant amount of due diligence by buyer and accountants. It is very essential to be prepared for the due diligence activities that a target company will encounter, the process can go smoothly and quickly, serving the best interests of both parties to the transaction. The below-mentioned summary is of the most significant legal and business due diligence activities that are connected with a typical M&A transaction.

Legal and Business Due Diligence activities

Financial Matter

The buyer of the target company will be concerned regarding the past financial statements and related financial metrics as well as the reason for the target projections of its future performances.

The concern regarding the financial matter will include:

  • Concern regarding if the company reveal annual, quarterly and monthly financial statements for the last three years
  • The company financial statements are audited or not
  • Do the financial statements and related notes set forth all the liabilities of the company?
  • The financial statements and the related notes should mention all the liabilities of both current and contingent.

Technology/ Intellectual Property

The buyer will be very interested in the extent and quality of the target companies’ technology and intellectual property.

The due diligence will be targeted on the following areas of inquiry:

  • The company take appropriate steps to protect its intellectual property
  • The common law and registered trademark services provided by the company
  • Concerns regarding copyright products and material are used and controlled
  • Furnishing details regarding companies’ business and maintenance of any trade secrets and if so, what are the steps taken to preserve their secrecy.
  • Concerns regarding company infringing on the intellectual property rights of any kind of any third party.
  • Inquiry regarding if the company is involved in some intellectual property litigation or other disputes.

Read More: Corporate Finance Advisory Service

Material contracts

one of the most time-consuming components of a due diligence inquiry is the review of all material contracts and commitments of the target company. Contracts and their categories are important to review and understand include the following:

  • Guarantees loans and credit agreements
  • Customers and supplier contracts
  • Agreements of partnership or joint venture limited company or operating agreements
  • Contracts involving payments over a threshold limit
  • Settlement agreements

Agreements imposing any restriction on the right or ability of the company to compete in any line of business in any geographic region with any other person.

Employee and Management Issues

The buyer will want to review a number of matters in order to understand the quality of the target company management and employee base including:

  • Management organization chart and biographical chart and biographical information
  • Summary of any labour dispute
  • Any information regarding any previous, pending or threatened labour stoppage.
  • Employment manual a policy
  • Involvement of any key employee in a criminal proceeding or civil litigation

Litigation

An overview of any litigation, arbitration or regulatory proceedings involving the target company is typically undertaken. The reviews will include the following:

  • Filed or pending litigation, together with all complaints and otter pleadings
  • Litigation settled and terms of the settlement
  • Claims threated against the company
  • Consent decrees. injunction, judgments or orders against the company
  • Insurance covering any claims, together with notices to insurance careers

Find more detail: Vendor Due Diligence and Vendor Assistance

Antitrust and Regulatory Issues

Anti-trust and regulatory scrutiny of acquisition has been increasing in recent years. the buyer will want to undertake the following activities in order to assess the antitrust or regulatory implication of a potential deal:

  • If the buyer is a competitor of a target company, understanding and working around any limitation imposed by the company on the scope or timing of diligence
  • Analyzing the scope of any antitrust issues
  • Confirming if the company has been involved in prior trust or regulatory inquiries or investigation

Environmental Issues

The buyer will want to analyses any potential environmental issues the target company may face the scope of which will depend on the nature of its business. when an environmental review is taken place, it may include some the factors mentioned below:

  • Environmental audits, records and reports for each owned or leased property, including results of tests or audits of the company properties and possibly neighbouring facilities
  • Hazardous substances used in the company operation
  • Environmental permits and licenses
  • Any environmental litigation, claims or investigation

Governmental Regulations, Filings, and Compliance with Laws.

The target company is subject to and has to comply with all the regulatory requirements, including by reviewing some of the following:

  • Any govern notices or Citations and notices received from government agencies with continuing effect from an earlier date
  • Pending or threatened investigations or governmental proceedings
  • Material reports to and correspondence with any government entity, municipality. or agency.
  • Any documents showing any certified compliance with, or any deficiency with respect to, regulatory standards of the company
  • Reports on the burdens and costs of regulatory compliance.

Disclosure Schedule.

The M & A transaction also include are prepared a comprehensive disclosure schedule addressing many of the key diligence topics described above, and identifying any exceptions to the company’s representations and warranties in the acquisition agreement. carefully preparing the disclosure schedule is extremely important for the company. The company may not typically revise and update the document a number of times before it is ready for delivery to the buyer.

Merger and acquisition services in UAE

M & A transaction typically involve a significant amount of due diligence by the buyer and buyer’s counsel and accountants. If you’re seeking for the advice of qualified Mergers and Acquisitions specialists or interested in understanding more about our M&A Advisory Service, then meet our experts at Farahat and co and We’d gladly meet you to discuss your specific situation and needs. Please contact us for more detailed information on Mergers and Acquisitions in UAE.