What are the risks associated with a lack of due diligence in a San Diego asset purchase, stock purchase, merger or acquisition? Why are many business professionals more likely to make due diligence less of a priority? Due diligence is so much less “attractive” than the deal making portion of the transaction, and yet this is where the genuine profit (or potential risk) is locked into the transaction. Due diligence is more than fact checking or a review of the books or business transactions of the target in your strategy. Due diligence also encompasses investigation and evaluation of the genuine opportunity in the transaction. Due diligence rises out of the legal fiduciary duty of care any executive, manager or Director owes to a corporation, and as such should be taken quite seriously. In essence, due diligence comes down to doing your homework and thinking things through from start to finish.
Due diligence doesn’t wait for the completion of the asset purchase contract or transactional details. Data collection and analysis should begin when you first begin to consider a business opportunity and continue through the closing of escrow. While access to some information such as the books, financial and accounting records may not be available until after an initial agreement or preliminary understanding is achieved, it should be all but completed before the final contract is signed.
The risks associated with a lack of due diligence easily outweigh associated costs. Allen Barron’s integrated legal, accounting, tax and litigation professionals prepare a detailed strategy including checklists of information to be requested and reviewed, external verification sources and ultimately the contacts to be requested for suppliers, key employees, customers, trade groups and other market and industry experts. There are many factors which should be considered when determining the level of due diligence including, but not limited to:
- The amount of money at risk / size of the transaction
- Reputation and prior experience with target company personnel
- Time constraints and availability of resources
- Probability of reaching an accord
- General risk associated with the products, goods and services associated with the transaction
When our professionals identify a potential risk or concern we also provide options for mitigating or removing the risk. We work to identify potential deal breakers early on in the process to preserve resources and money and to gain information which strengthens our client’s negotiating position.
Are you considering a substantial business transaction, asset purchase, merger or acquisition? We invite you to contact Allen Barron or call 866-631-3470 for a free consultation today.