The Due Diligence Process in M&A Transactions

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The due diligence process involves an in-depth review of business inventory, equipment as well as financials, contracts, and intellectual property. It also involves an evaluation of any outstanding legal issues that could affect the acquisition.

Due Diligence plays a significant role in any M&A deal, since it assists investors in determining the real value of a business. Due diligence typically involves reading confidential documents and completing non-disclosure agreements and non-compete agreements. It’s vital that these processes are carried out in a thorough manner to avoid issues that could negatively affect the deal, or lead to it not being completed.

Investors should also consider any concerns related to intellectual property issues, like patents and disputes, as well as licensing. In addition, they should look at the people component of the business and learn about its culture, including golden parachutes, severance package and stock purchase options.

The $9 billion Theranos collapse is a clear warning to conduct thorough due diligence prior to investing. Although some of the red-flags were obvious, it should not be a reason to avoid this process. Due diligence can be a lengthy, time-consuming process that requires coordination among multiple stakeholders and the expertise of experts in different areas. It is important to determine the objectives of due diligence. This will help you determine what resources are needed and how best to utilize them. In certain instances you may have to work with outside experts like lawyers, insurance agents and financial or technology experts.

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