“The time to buy is when there’s blood in the streets.” The quote attributed to Baron Rothschild is especially relevant now. With many companies struggling, mergers and acquisitions can strengthen your position if you are in a place to do so.
Due diligence is the process through which you check that you are buying the business you think you are buying. Not all sellers are honest.
These are some things to include when carrying out due diligence checks:
- Company documents: You need to see if the company is registered correctly and who the shareholders are.
- Financial reports and forecasts: Check the hard data on the profitability of a company. Do not rely on out-of-date economic forecasts. Things may have changed.
- Intellectual property: Ensure that the company has the patents, copyrights and licenses you think it has. Verify their limitations or expiration dates.
- Workforce: Many companies have cut employees. If vital staff members have left, the company may not be worth purchasing after all. Imagine if you had bought Apple then only later realized Steve Jobs and Johny Ive were had gone.
- Client base: If you want to buy a company that makes aircraft engines, consider how many airlines they have left to sell to.
- Litigation: If a company is facing a lawsuit, it does not mean you need to withdraw interest. Yet, you need to understand the risks to you if you do take over the company.
An experienced business attorney is essential to carrying out due diligence. Failing to revise documentation adequately could leave your company joining the others lying bleeding in the street.