Buying another company is a heady, exciting endeavor for any business. Yet it’s also an undertaking that could be fraught with consequences. Pick the wrong business to buy — or fail to conduct due diligence — and that would-be happy, synergistic merger quickly may become a painfully mismatched integration.
The numbers of acquisitions that have gone bad may surprise you. Multiple studies have found that 70 percent to 90 percent of mergers fail. Yet if the right opportunity arises — and thorough background vetting of the target company is achieved — a well-timed acquisition can pay big dividends for both companies.
With that in mind, here is a checklist featuring some of the key tasks that must be done when vetting a company for acquisition.
Take a Hard Look at Financials
Companies are sold for all sorts of reasons, including flagging or uneven financial performance. Some sellers will attempt to obscure lagging performance in an effort to appear more attractive. This is one reason why using a professional vetting company or a firm with vetting services is critically important. These corporate investigative services can help you vet potential new personnel and verify key financial data. Once a target is properly vetted, you can enter into a purchase agreement with much greater confidence.
Investigate Possible Legal Liability
Some buyers are unaware that purchasing a company can make you legally liable for that firm’s past actions. So-called successor liability laws can expose buyers to civil and even criminal penalties. Because of these laws, it’s vitally important that target companies are thoroughly vetted for potential legal liabilities. A failure to vet can have devastating consequences.
Explore the Target Company’s Culture
One of the core challenges involved with any merger involves reconciling two distinct corporate cultures. Generally speaking, companies that have shared cultural values and objectives are easier to meld together. Before entering into any deal, it’s imperative to take a hard look at the culture of your target company. That way you can integrate what works, dispense with what doesn’t, and minimize any cultural incompatibility between existing employees and new hires.
Focus Due Diligence on Potential Problem Areas
The due diligence process can be quite protracted and detail driven, so it’s a good idea to start as early as possible and to adopt an overriding strategy. Generally speaking, companies should direct their focus on areas that could prove problematic: regulatory compliance, legal compliance, and any agreements, contracts or behavior that could pique the interest of regulators. Vetting services also can be useful when it comes to rooting out issues that may raise red flags.
Consider Cross-Jurisdictional Issues
Buying a company that is based overseas comes with an entirely different set of challenges. Often the local laws and regulations governing both firms are vastly different. Professional practices, customs and standards also may vary considerably. By focusing on these differences early, companies can prevent serious integration problems down the road.
The Next Step
Vetting a company before a sale closes is critical — and hiring a corporate investigative firm such as Global Verification Network is one of the best ways to ensure that you receive accurate, verified information. Global Verification Network helps companies mitigate risk by employing highly effective investigative methodologies to verify that key data and credentials are accurate. Companies in virtually every sector use Global Verification Network for background screening, employment screening, and business vetting and investigations. Banks, schools, businesses, hospitals and nonprofits all partner with Global Verification Network to ensure accurate personnel screening and financial transactions.
If you’re in the M&A market and need assistance vetting a target company, Global Verification Network can help. We are a leading consumer reporting agency, and have been helping property owners, business owners, human resource departments, real estate agents, health care organizations and technology companies verify key data and credentials for 65 years. If you’d like a quote, please click here or call today!