Many investors are now considering the option of buying or merging companies to position themselves in a market that is increasingly competitive and difficult for small and medium-sized companies.
These contractual processes, whose technical objective is the signing of the timely deed of purchase and sale of shares or shares, is generally started with a first meeting between buyer and seller, then negotiations and, finally, the signing of a Letter of Intent.
This Letter of Intent expresses the intention to buy and sell, the obligation of confidentiality and the need to carry out a “Due Diligence” process on the part of the buyer that guarantees that the legal, fiscal and financial situation of the company is sound, regardless of whether the acquisition is intended.
“Due Diligence” is a review of the legal, fiscal and financial situation of a company with the aim of obtaining accurate and accurate information in order to assess whether the investment is justified and, if so, to set the price and contractual conditions of the same.
In short, it is a question of obtaining as in-depth a picture as possible of the situation of the company so that the buyer can make a fully informed decision and knowing possible or potential future risks in all areas analysed.
To do so, it is necessary that the seller is involved in this “Due Diligence” process and expressly agrees to provide all the documentation and information that is required. Otherwise, all this work will not have been worthwhile, since if the information is not true or incomplete, the result obtained will not be worthwhile.
Generally, all “Due Diligence” is designed to review the legal, fiscal and financial situation of a company. However, it is advisable that in addition to these generic topics, other aspects that may be considered relevant in each specific case should also be reviewed.
Therefore, we consider that it may be necessary to review, among others, technological aspects (mainly web pages, online sales systems and computer systems), commercial aspects, environmental aspects, contractual situations, etc.
In conclusion, if the intention is to buy or merge with another company, it is highly advisable – not to say essential – to put oneself in the hands of professional experts who analyze the specific situation of the company that is the object of the transaction, so that it can be assessed and evaluated in order to decide to whether or not the investment is sound, and what the future contingencies may be in case of a possible acquisition.
Otherwise, serious errors can be made in the valuation of the acquired company, or in its legal, fiscal or financial situation, with important consequences that can go way beyond the simple loss of the investment.
