Due Diligence Phase of Mergers and Acquisitions (M&A) Process More Important Than Ever Amid COVID-19 Pandemic

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The existence of the COVID-19 pandemic has limited mergers and acquisitions (M&A) activity, as many businesses have been forced to limit or completely halt operation. However, for businesses that are still thriving and have the resources necessary to combine with another company, the phase of due diligence during the M&A process now holds particular importance.

What Is Due Diligence?

Due diligence is the initial phase of the mergers and acquisitions process. During this phase, a formal investigation into all relevant information about the seller is conducted. An analysis of this documentation and information pertaining to the seller allows for crucial assessment of whether acquisition of the company should be pursued. Any red flags are identified, and all information that would impact the buyer’s decision to acquire the company is addressed.

Every facet of the seller’s business is assessed during due diligence. Parts of the target business that are assessed include finances, assets and liabilities, their existing customer base, leases, existing contracts, intellectual property and real property. A lawyer can aid in thoroughly acquiring this information through examination of records, interviewing relevant individuals such as employees and suppliers and examining places where inventory is stored.

Emphasis on Certain Considerations During Due Diligence Phase as the Pandemic Persists

With the existence of COVID-19 and the grave impact it has had on many businesses, some key questions are now more important than ever to address during the due diligence process.

With an increased focus on due diligence, some of these important questions that need to be considered include:

  • During a time in history when physical contact is particularly limited, how can a buyer come face to face with employees and management to gain familiarity?  How can physical inspections be conducted? These processes may need to occur virtually.
  • Is the seller solvent? Do they have the financial resources to follow through with future obligations?
  • How believable are the financials that the company provided?
  • How has the pandemic impacted the target’s employees? Does the target have enough employees to successfully continue business as usual?
  • Has the target complied with state and federal laws pertaining to furloughs and payoffs?
  • How much does it cost to provide healthcare to furloughed workers?
  • Has the target been able to keep up with lease payments?
  • What is the demographic of the target’s main customers and how has their financial well-being been impacted by the pandemic?
  • Does the seller have a crisis management procedure, and what does it entail?
  • Has working from home impacted the target’s employees, and have additional costs been necessary in order for the seller to provide necessary equipment to employees (working remotely)?
  • Has the target taken the proper steps to mitigate hackers gaining access to video conferences?
  • If the target is eligible for taking advantage of loans under the Coronavirus Aid, Relief, and Economic Security (CARES) Act, how do the terms of these loans impact the buyer’s future expectations and plans?
  • Has the seller followed state, local and federal orders pertaining to the pandemic?

Careful examination of these areas during the due diligence process is crucial for buyers in the world we live in today.

Elevate Your Business Strategically

As a result of two companies joining together, expansive innovations and benefits can result for both parties. A lawyer who is seasoned in business and corporate law matters can ensure M&A agreements are drafted in conformance to state and federal laws. A lawyer can also negotiate the terms of the sale or merger to secure a deal that benefits your business. Many things can go south during the mergers and acquisitions process, especially during these unprecedented times. However, the insights of the lawyers at Walden Neitzke & Kuhary, S.C. will ensure your transaction is successful. We will anticipate your needs and provide strategic legal advice throughout the process, in order to protect your interests. Our attorneys ensure your business is destined for present and future success. For further information, contact either Attorney Jim Walden or Attorney Jim Dunlap at 262-547-5517 or click here to schedule a free consultation.