10 Things to Look For When Considering a Merger or Acquisition

Mergers, acquisitions and related major business transactions are often indicators of expansion and success for organisations. This can be an exciting time, with business growth being one of the inherent goals among most organisations and their leaders. It’s also a time to be cautious, however. There are plenty of risks – some apparent, some hidden – when engaging in mergers and acquisitions. At such a critical juncture, conducting thorough, comprehensive due diligence is the key to mitigating those risks. Our parent brand CRI Group™ has built a list of 10 important things every organisation should know before conducting a merger or acquisition:

1. The company you are acquiring might be overvalued

Have financials been inflated? Assets overvalued? Sixty percent of financial professionals say overpaying for deals is the biggest risk facing buyers, according to a survey conducted by the Financial Executives Research Foundation. An investigation and gathering of business intelligence including site visits and an expert review of financial information can help mitigate this risk factor.

2. The organisation might be involved in behind-the-scenes legal battles

Your growth strategy probably doesn’t involve taking on another entity’s legal entanglements. Proper due diligence can help uncover legal filings, liabilities and even criminal actions that might not have been disclosed up front in merger or acquisition negotiations.

3. Companies in foreign jurisdictions might play by different rules

Due diligence can help you avoid becoming partnered with an organisation that treats bribes, kickbacks and other illegal activity as “business as usual.” Such conduct will affect your own organisation in several ways, including causing harm to finances and reputation while also having obvious legal consequences.

4. Cultural differences can cause business problems

International expansion is a key goal among many larger organisations. Mergers and acquisitions have failed, however, due to cultural clashes among employees. The preparation process should include a compatibility factor that takes cultural and social differences into account.

5. You might absorb new credit risk

An organisation that is overextended, has claimed bankruptcy or is faced with debtor filings can become a serious detriment to your business. Comprehensive financial investigations will uncover these financial risks and help you move forward in a prudent fashion.

6. Transparency is key

The terms of a merger or acquisition should be clearly spelled out and communicated clearly before finalising any deal. Background investigations are essential. Discrepancies or misunderstandings can cause discontent among leaders and employees at either party (or both), which can cause the merger or acquisition to fail. Also, anti-bribery and anti-corruption policies should be implemented at this stage to determine any risk factors for the transaction.

7. Fraud is a risk in mergers and acquisitions

One of CRI Group’s clients, a multinational corporation engaged in the provision of medical equipment and supplies, was looking to merge with a company based in the Middle East. CRI Group’s due diligence experts and a third-party risk management assessment helped the client avoid becoming entangled with what turned out to be a fraudulent business run by an alleged criminal. Merging with such an entity can result in severe economic loss and a potentially damaged reputation.

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8. Database checks are important…

In the hands of the right experts, database checks are an enormous tool for conducting thorough due diligence. These can include local and regional business records, certifications, compliance records, criminal and court records and other documents and data. Some private services aggregate such records to make it easier to quickly find and review the information needed.

9. …But so are “boots on the ground”

Skilled due diligence professionals know how to find data that large services just don’t capture. Some records might only be accessible in their local principality. Certain broad results might require a deeper drill-down, including actions such as bankruptcy or civil or criminal cases against an entity. What really happened, and how are such cases likely to be resolved? Who are the main actors involved?

10. Conduct background checks.

The principal players in a merger/acquisition should be vetted to help screen for fraud. Conducting thorough background checks on owners, directors and CEOs can help uncover any criminal records and other important information. Transparency in knowing who you are dealing with is key during the due diligence process.

Though there are considerable risks (as outlined above), mergers and acquisitions mean growth and expansion for organisations. When risks are mitigated through proper due diligence, and transparency and communication forms the basis of the transaction, a merger or acquisition can be a win-win for both parties.

Have you been through a merger or acquisition? What advice would you share with other quality experts? Please email info@ABACgroup.com – we’d love to hear from you. CONTACT Us to discuss your anti-bribery, risk and compliance needs.