The Right Due Diligence Questions for Merger and Acquisition Can Help You Avoid Major Financial Risks in the Long Run!

Acquiring a company involves many aspects and additional responsibilities. At the same time, there are many risks involved as well. When considering an acquisition or merger, it is essential to consider all the pros, cons, and necessary aspects. Unless you think the company's assets, debts, liabilities, litigation risks – how can you expect to take a well-informed call? Commercial due diligence is not easy, and you cannot hurry through the process, no matter how lucrative the acquisition offer is. Below are some Due Diligence Questions for M&A.

Question: Does the target business align with your company's strategic goals?

Answer: You should look forward to acquiring a company that seamlessly merges with your existing business. The employees should be willing to work under the new management and your administration. It would help if you also considered the integration cost to see whether the cost fits your acquiring budget.

Question: What is the target company's hierarchy and corporate structure?

Answer: The best way to get a definitive answer is to source different documents and data, such as security holder lists, tax certificates, board of directors' meeting details, organizational charts, and so on. 

Questions: How is the company doing financially?

Answer: Ask the target company's management to hand out all the previous and existing financial statements and the company's future projections. Please review all these data to learn more about their cash flow, balance sheet, expenses, investments, EBITDA, etc.

Question: What is the company's status as far as taxation is concerned?

Answer: Ask the company to submit its last three to five years of tax return filings. Note all the local, state, and federal taxation areas. Don't forget the audit reports, sales tax returns, tax settlement papers, employment tax returns, undisclosed tax liabilities, excise duty filings, etc. 

Questions: What are the company's assets?

Answer: Once you collect the relevant data, you will have clear information on the company's liabilities, debts, and other financial aspects.

Question: Is the company facing any regulatory or legal issues?

Answer: Before you take the final call and sign on the dotted lines of the acquisition paper, ensure no legal cases are pending against the company. You want to avoid purchasing a company fighting legal battles and having regulatory complaints against it. No one knows when these battles will be over and how much money must be spent to get the desired results. It is better to stay away from such companies.

Summing it up:

Acquisition and merger are significant steps for both parties involved. As the principal buying company, you must be careful about what you are getting into. It would help if you had to clearly understand the market status of the company you wish to purchase to avoid getting embroiled in many risks and threats that can pose threats to your own in the long run. So, don't jump the gun no matter how lucrative the acquisition offer is. Consider all the pros and cons, and at the same time, make sure that you tick off all the essential questions you should ask as part of your commercial due diligence check.