Due diligence is a process wherein lawyers and other professionals conduct research on the target of a merger or acquisition and determine if the target would be a good prospect for a client. During due diligence, professionals review financial statements, corporate governance documents and other materials related to the operations of the target company. Even though due diligence takes time, companies in New York City and elsewhere should conduct due diligence whenever possible before a merger or acquisition.
One important part of due diligence is determining if the target company has any debt. It is likely that a successor company will need to assume the debt of a predecessor business, so it is important to discover all debt obligations of a target company. Accordingly, due diligence professionals look at public and private records to determine the amount and nature of any debt owed by a target company.
Since successor companies may be responsible for the liabilities of a predecessor company, it is important to evaluate the liabilities of a target company. This includes legal claims against the target company, government investigations and related issues. An experienced lawyer should be able to evaluate records discovered during due diligence to uncover the nature and extent of any liabilities.
Companies want to know that they will profit from a merger or acquisition, so they need to determine how profitable a target company is. As a result, professionals review financial records during the due diligence process to ensure that it makes financial sense for the merger or acquisition to proceed.
Companies typically prefer to merge with businesses that have fewer redundancies that would need to be streamlined after a merger or acquisition. This is a nuanced issue, which is why it is important to conduct this part of the due diligence process.