Due Diligence Archives

Red Flags in Purchasing a Business

As I’ve written before on this blog, due diligence is a crucial part of purchasing a business. I was recently interviewed by The Ambulatory M&A Advisor, and the resulting article can be found here: http://www.ambulatoryadvisor.com/current-red-flags/

While The Ambulatory M&A Advisor specializes in M&A for ambulatory care centers, the issues discussed apply to any business.

Enjoy!

Selling Your Business – Practical Tips for Sellers – Part 5: Due Diligence

This post was jointly written by Jennifer Wilson and Casey W. Riggs.

This is the fifth in a series of posts discussing the sale of a business from the seller’s perspective. In the first four posts, we provided an introduction to this series and discussed asset versus stock sales, seller financing, earn-outs, and letters of intent. In this fifth post, we’ll discuss the beginning of the deal process (after signing of the LOI), which typically begins with a comprehensive review of the seller’s business by the buyer (generally referred to by those in the M&A industry as simply “due diligence”).[1] [Read more…]

Drafting Nondisclosure Agreements in the M&A Context: Consider What Will Happen When the Deal Goes South

Let’s say you’re buying a business. As a condition to receiving more information, you are required to sign a nondisclosure agreement that contains all of the usual blather. You then start to sift through the mountains of information provided (and have your accountants and lawyers do the same, at considerable expense) to decide whether the company is worth purchasing, and on what terms. You like what you see, so you negotiate a letter of intent, and continue your due diligence investigation. You spend five or six months in negotiations and due diligence to the tune of many thousands of dollars (or more). [Read more…]

Looking to Invest? How to Determine Whether an Investment Is Worth It

This article was originally posted on business.com on May 1, 2012.

Investing in a new venture can be exciting. In addition to the potential to make a profit, many people invest in start-ups for the thrill of being involved with helping a fledgling company make its mark. The possibility of funding a breakthrough company is enough to get many investors enticed, committed, and involved.

However, it’s also a fact of life that many, if not most, start-up companies fail. Alongside that, some investment opportunities are fraudulent, being promoted by people only looking to swindle you out of your money and then move on to pursue other ventures (and victims). [Read more…]

Due Diligence for Buying a Business 101 – Part 4: Operational Due Diligence

Previously, I wrote about the need for the purchaser of a business to conduct due diligence on its prospective acquisition target.  As I discussed, due diligence on a business can be split into three sections: legal, financial, and operational.  This post will explore what is involved with the operational portion of due diligence.

The operational portion of due diligence involves ensuring that the business will be able to function as the purchaser expects after it has been acquired.  The business, in the hands of the seller, may be generating a handsome profit; however, upon transfer that profitability may be impaired due to a whole host of reasons.  Key employees may quit or key contracts may be non-assignable and thus end up being terminated upon the sale of the business, or worse yet, may even go into default. This is especially true in the context of leases and existing indebtedness.  Leases and loan documents often prohibit the transfer of the agreement, even indirectly through a stock purchase.  In addition, if applicable, the buyer will also need to make an inquiry into the ownership of the IP of the company, including the company’s trade names. [Read more…]