Mergers and acquisitions (M&As) can be an exciting chapter in your business. These transactions can lead to growth opportunities, allowing you to tap into new markets and generate higher revenue. Although M&As often come with benefits, they also have risks that could hurt your company.
Before you sign binding agreements, conducting due diligence can help you learn more about whether merging or acquiring a target company is a good move. Here are two factors you should not miss during this step.
Intellectual property
Investigate your target company’s intellectual property (IP), as this is a crucial part in meeting your business goals. Review their ownership of patents and trademarks to see if they are at risk of infringement lawsuits. Failure to do this can make you liable for the damages after assuming as the company’s new owner.
Contract transferability
Your target company has contracts with its vendors and customers. Assuming that these agreements automatically transfer to you can be a costly mistake.
Consider reviewing all contracts and checking whether they have anti-assignment clauses. These prohibit the current company owner from transferring their rights or obligations to you. Some contracts may allow transfer, provided that all parties agree on this term before closing. Violating this provision can result in a loss of clients, legal consequences and financial penalties.
Planning your due diligence strategically
Business transactions can be complex and overwhelming. Navigating M&As alone can allow costly errors to emerge, which can turn your supposed investment into a liability.
Planning a purchase can help you protect your capital. Create a due diligence checklist to address potential concerns. Seeking legal advice can offer clarity on uncovering risks, helping you make informed decisions.