Ensuring Legal Due Diligence in Merger & Acquisition Deals

Mergers and acquisitions are the processes by which companies may combine entities or one company buys another, normally to serve a strategic business purpose, such as expanding market share, accessing new technologies, or reaching new audience sectors. The process by which mergers and acquisitions occur is highly complex, requiring a key foundational step: legal due diligence.

Importance of Due Diligence

Due diligence is the comprehensive examination of all aspects of a company’s operations, including operational, financial, technological, regulatory, and tax, among other departments. This process should occur before companies enter any binding contracts to make informed decisions in mergers and acquisitions. The auditing can be conducted in various ways—including through internal teams, external advisors, and/or third-party experts  

Though the due diligence process can be both time and financially consuming, it serves as the foundation for ensuring a successful deal by determining any potential risk factors, dealbreakers, and negotiation points, among other things, prior to the commencement of a merger and acquisition transaction.

Private Versus Public Businesses

A key factor in navigating merger and acquisition due diligence is whether or not the businesses involved are public or private entities. The main differentiation between public and private companies includes that public businesses are already publicly listed with stock currently being publicly traded in the equity market, whereas private businesses are not publicly traded on any stock market index.

Differences to consider when navigating merger and acquisition due diligence between public and private businesses include ownership, capital source, and disclosure of information.

Industry-Specific Regulations

Additional conditions that may affect the mergers and acquisitions due diligence process include the respective industry in which a business resides. Different industries and jurisdictions will have varying regulations for businesses to comply with in merger and acquisition transactions. This can include differing antitrust laws, security regulations, and general legal frameworks. Not abiding by these industry regulations can result in financial penalties.

Importance of Proper Legal Counsel

Mergers and acquisitions are transformative business strategies that can significantly impact a company’s future, making thorough due diligence an indispensable part of the transaction process. By closely examining all aspects of the target company’s operations, whether private or public, and adhering to industry-specific regulations, businesses can identify potential risks and ensure a smoother integration.

The complexities of mergers and acquisitions highlight the importance of utilizing proper legal counsel to mitigate risks and protect the interests of all parties involved.