Starting Right: M&A Preliminary Due Diligence
When making an acquisition, it’s important to perform preliminary due diligence as a buyer before making an offer or submitting an LOI. To start:
- Request financial statements, including corporate tax returns, for at least 3-5 years. Observe trends in cash flow, profit, expenses, and debt load, for example. Does the valuation make sense based on these numbers and trends?
- Have your accountant review the documents. A sophisticated seller will also have their own quality of earnings for you to review. Have a trained professional review them. If you’re interested in the company, you’ll need to have your own quality of earnings completed as well.
- Ask questions. Does something seem off to you? Is something not adding up? Circle back with company ownership and their broker/investment banker to answer any questions you might have.
- Don’t rush the deal. Saying “no” to the wrong deal for your company frees up time and resources so you can say “yes” to the right deal. Don’t feel pressured by the other side to make a competitive bid just to be in the mix. The deal has to make sense for your company.
Jerome Fogel is a corporate law partner at Fogel & Potamianos LLP, which helps companies lead in today’s market. The firm provides deep expertise in corporate, M&A, and intellectual property to small and middle market companies.