A Faith-Based Law Firm

Attorney Jadinah Gustave

Why due diligence matters in mergers and acquisitions

On Behalf of | Feb 8, 2023 | Business Law

When an opportunity presents itself to acquire a Florida company, it’s crucial that you have all the necessary information to decide whether or not it’s time to move forward. Due diligence is a way of investigating or auditing a potential investment to verify all the facts related to the deal from a financial perspective. It’s a thorough financial assessment of the ins and outs of the potential deal.

What does due diligence look like?

In business law, due diligence covers all pertinent information that comes up in the process of investing. The process takes place prior to the closing of the deal, which allows buyers to have certainty about what they’re agreeing to before they sign any papers. One of the biggest upshots of doing your due diligence is a higher likelihood of having a transaction that’s successful.

With due diligence, you can ensure that the decisions you make are based on complete information. Buyers know what to expect because the process gives them access to information that they wouldn’t have had otherwise. Skipping due diligence makes M&A deals much riskier from a buyer’s perspective.

It’s a common practice for the seller to prepare a due diligence report of their own before they decide to go through with the transaction. In some cases, the seller might discover through this process that the company being sold has a fair market value that’s higher than they expected.

Why due diligence?

Due diligence is an invaluable tool for investors. It also allows companies as a whole to grasp what the deal will mean to them. This includes elements like its riskiness or whether it’s truly a logical fit. You could see due diligence as a form of business homework.

For M&A transactions, due diligence encompasses a broad range of activities. The essentials include an overview of the target company, its financials, target consumer base and any technology or patents that it owns. Due diligence also covers the larger business strategy that this deal fits into. You’ll also find out during this process if there are any legal issues with the target company, whether still pending, under threat of litigation or if it’s already settled.