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The importance of due diligence in an acquisition

On Behalf of | Nov 17, 2023 | Business & Commercial Law

Performing due diligence tasks is one of the most important steps prior to combining your business with another New York company. The due diligence process may discover the presence of ongoing lawsuits, regulatory issues or other problems that might hurt your company if it were to buy or merge with another organization.

How to perform due diligence

There are a number of steps that you might want to take when evaluating a potential deal. First, you can review the other firm’s books to determine if the company is profitable or if there are any significant roadblocks to profitability. You can also talk to the company’s employees to determine if there are any problems with morale or other issues that may make it harder to create a strong workforce. Finally, you might want to talk with customers, vendors or others who currently do business with the company to determine if there is any reason not to complete the deal.

You assume any liabilities

As a matter of business law, you assume any outstanding liabilities your merger target has when you take ownership of that other firm. For example, if the company is being sued, you may be liable for any judgment rendered against it if that judgment comes after the transaction closes. You might also be on the hook for any fines or other financial penalties imposed on the business prior to the transaction closing.

Due diligence can be performed on your own or with a team of professionals by your side. You should bring on a financial adviser and others who have experience with mergers and acquisitions to properly evaluate whether a deal is worth completing. Your team may also ensure that the deal is completed in accordance with applicable laws.