People or companies buy businesses because they have to satisfy some need. The need could be additional revenue or it can be a need for cash flow in the near term. Alternatively, it could be the desire for profits in the long term. It can also be for synergistic purposes: a company buys an asset or another business because it complements other assets or businesses that it already has. Simply by virtue of combining the companies or allocating resources across the companies or assets, an acquirer can achieve cost savings which goes to the bottom line and, as a result, increases profitability.
Due Diligence in Business Acquisitions
Due Diligence is a general term that refers to the homework that a buyer does in order to make sure that it is getting what it thinks it is getting. It ranges from asking for and reviewing the tax returns and financial statements of the seller to hiring surveyors and property inspectors to look at property to having attorneys review all of the contracts the buyer is planning to assume from the business it is buying.
Due diligence often starts before a term sheet is even signed because the seller will occasionally provide some information to all soliciting parties. It continues after the term sheet or letter of intent is drafted and really goes into high gear once the purchase agreement is signed.
In a typical acquisition there is a Due Diligence period which lasts from 30 to 60 days. It is, however, sometimes shorter and sometimes longer.
How a Business Acquisition Lawyer Can Help
Clients know from working with me that I review agreements and contracts with business purposes in mind, as opposed to looking only at the legal aspects. It is easy to focus only on legal issues and miss the overriding business objective of the client.
I always review a contract with the business objective of the client in mind. That is why clients ask me to review their contracts because they know that I am looking at it both from a legal perspective and a business perspective.