When you are buying a business, you want to make sure that you know exactly what you are getting. Not only are you paying money for the company, but you will also inherit its potential liabilities. Therefore, you must take the time to learn about the company before you complete the transaction.
Once you agree to a deal, you will get the opportunity to perform due diligence. This process is when you can get a close look at the company’s documents and internal workings. You may be able to review contracts, agreements, and other important documents. Due diligence is when you can verify that some of the representations made to you during negotiations are actually true based on the company’s documents. You may also learn whether the company has any unforeseen liabilities. For example, there may be a potential lawsuit, and you would be on the hook as the acquirer once you bought the company. For example, Bayer assumed responsibility for billions of dollars of liability in the Roundup product liability lawsuits based on what Monsanto did decades earlier.
It is critical that you take due diligence seriously because it is your opportunity to either back out of the deal or renegotiate if something is not what you originally thought. If you fail to spot something and the deal goes through, you may pay a steep price in the future. You should hire an attorney to help you perform due diligence because a lawyer knows how to notice potential trouble. Take all the time you are allowed to closely review the company’s books and records.
The lawyers at Bountiful Law help companies in the mergers & acquisitions process. To schedule an appointment, you can send us a message online or call us at 425.584.2162