Acquisitions: A To-Do List for Due Diligence
The risks involved in making a corporate acquisition - whether of a large asset, a division of an existing company, or even a competitor - are enormous, in part because there are so many unknowns to consider. Keith Rosenbaum, a lawyer based in Irvine, Calif., who specializes in acquisitions, urges business owners to follow this checklist:
· Housekeeping: "Make certain the person you're negotiating with has the corporate authority to make an agreement." Then double-check the company's articles, bylaws, and corporate minutes to confirm that your understanding of the company (or asset) reflects reality.
· Shareholders: Get a list of all shareholders or partners, including any special rights, stock-transfer restrictions, and pledges that exist against either assets or stock.
· Financials: Check every financial document that the company can provide, including bank statements, audited financial reports, and all bank and financing agreements. Make certain, among other things, that there are no liens against the assets you're interested in.
· Assets: Don't forget to physically inspect all key assets.
· Technical details: Check with a lawyer or industry source to see what other issues are crucial to your particular deal. One example: "When purchasing a company with significant intellectual-property assets, such as patents, you've got to make certain they're held in the company's name so that you wind up owning them," cautions Rosenbaum.