Growing competition has contributed to asset price appreciation tremendously, but these don’t eliminate risks. Supply chain, hidden and toxic company culture, consumer behavior during unpredictable events, speed of technology, business disruption, and many other aspects require thorough analysis before committing to a merger and acquisition deal. A decision to buy or invest in a company can prove profitable when all the valid answers are sought and weighed in with by asking the correct questions. Otherwise, the entire due diligence process can be futile. Some areas of the target business can remain elusive to your knowledge and become a significant headache later after the completion of the transaction.
To help you avoid an unfavorable situation like this, here is a compact list of some of the most crucial due diligence questions for M&A for an idea.
Financial due diligence questions
A due diligence checklist must consider doing the business’s financial analysis. Buyers need at least five years of financial statements. When you question a vendor or seller, you should learn about its accounting policies, debts, profits, stocks, operational costs, investments, etc. In this context, the following questions can be relevant:
• What was the company’s revenue in previous years?
• How much did it spend in the last few years?
• How do you approach budget, and what tools are used for budgeting?
• What will be your expenses in the coming year?
• What are your current liabilities?
Legal-related due diligence questions
Bidders can meet the target company’s lawyers to inspect legal papers and address their M&A questions. Considering all the old and existing litigations is crucial. One must also enquire about insurance, permits, and licenses. Depending on industry and business niche, queries around health and safety and environmental requirements can also be raised. Some specific questions that deserve to be asked in this context include:
• Do you have to follow any specific law or regulation to do business?
• What regulatory agencies supervise your operations?
• Is your company facing any lawsuit or litigation?
• Does any contract bind your business?
Commercial due diligence questions
Buyers initiate this process to understand a company in and out, its market position, and growth opportunities. Essential questions to ask:
• How can the acquisition help the company meet evolving customer demands?
• How the business can improve its reputation and position in the market?
• What other channels will be unlocked for marketing, sales, and customers?
• Is there any conflict of interest between board members and current investors?
• Who are the company’s prominent employees, and what are their skill sets?
IT due diligence questions
It’s easy to overlook cybersecurity risks in the due diligence checklist. However, these questions will help you address the key concerns:
• Does the company have a proper security plan?
• How frequently do you do security audits?
• What are the leading IT risks, and where do they come from?
• How much will your company spend to achieve complete cyber security?
Asset-based due diligence questions
While it can be part of financial analysis, you can emphasize this aspect separately by enquiring about:
• Are there any hidden or undisclosed liabilities beyond the balance sheets?
• Do you have any intellectual property rights, and what are they?
• Have you taken any equipment on lease?
• What type of financial and physical assets does your company have?
These are a quick glimpse into a few valid concerns every buyer wants to address. Some online platforms offer all types of guidance related to mergers and acquisitions, covering the due diligence process. You can contact them for in-depth ideas.