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By James M. Stanford, JD, Partner, ByrdAdatto
Mergers and acquisitions usually involve a good deal of due diligence before a purchaser fully commits to the acquisition of the target company. Due diligence is the period in which the purchaser will access the target company's books and records to verify whether what the purchaser has been told or otherwise believes is true, complete and accurate. Due diligence is not simply the time to verify the financial position of the target company—proper due diligence goes much further, as the purchaser needs to ensure that it has a reasonable understanding of what it is buying and the obligations it may be assuming. The purchaser also needs to understand the nature and extent of the target company's pending claims and litigation risks, contingent liabilities, intellectual property issues, problematic agreements and many other matters.
The following is a summary of some of the primary areas of due diligence that should be conducted in connection with an acquisition.
While some matters may be more or less important, depending on the structure of the transaction and the target company's business and industry, the purchaser should always involve legal counsel and accountants in the due diligence process. Regardless of the purchaser's sophistication and experience with mergers and acquisitions activity, there are certain areas of due diligence that will require legal assessment and analysis. Further, even if the purchaser is an expert in the area of financial matters, there is so much that has to be investigated that the purchaser's time may better spent by hiring a professional to assist with the financial assessment.
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James M. Stanford is an attorney and partner at the ByrdAdatto law firm. From transitions, mergers and acquisitions to structuring complex ownership arrangements, Stanford enjoys the personal reward that comes from bringing parties together and making deals happen. He practices primarily in the areas of health care and corporate law with a focus on intellectual property. A proud father, Stanford served in the U.S. Army and is fluent in Russian. In his spare time, he enjoys hunting, fishing and spending time outdoors.
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