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What is financial due diligence for mergers and acquisitions?

Mergers and acquisitions can sometimes be very viable ways of extending a business presence or keeping a business from closing altogether. For some entities, this is an ongoing part of a planned corporate strategy. This can happen in the form of a friendly acquisition, a hostile acquisition, a private merger or a public merger.

Florida businesses that are looking to acquire other companies or to engage in a small business merger will need to do their due diligence before signing a completed contract. Many factors will go into this process but when it comes to the purely financial ones, following are some of the key elements to be researched according to Forbes:

  • The appropriateness of the current company’s budgets relative to its business goals
  • The trend of the company’s margin performance
  • A comparison of financial projections with prior actual performance
  • A three-year lookback of detailed monthly, quarterly and annual financial statements and audits
  • The amount of capital required to continue the business, including any capital expenditures that will be needed
  • The overall condition of the business’ accounts receivable and any outstanding issues

In addition, when acquiring a new business, a full list of the company’s assets, liabilities and liens should be obtained and reviewed. Potential buyers should also assess whether or not a company to be acquired has available the financial resources to remain in business until a merger or acquisition is fully completed.

This information is not intended to provide legal advice but general information about mergers and acquisitions in Florida.

 

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