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What are some common due diligence activities? Part two

The importance of performing due diligence tasks before undertaking mergers and acquisitions cannot be understated. Our last post covered a few common due diligence tasks a company in New Jersey may want to take before a business merger or acquisition. This post will continue to explore what a buyer might want to know about its target company prior to purchase.

One due diligence activity that is important for a purchasing company to undertake is a detailed examination of the target company's corporate records and organizational documents. If the target company has any "related party" transactions like, for example, an agreement between it and a former officer, this should also be discovered through due diligence. Moreover, the buyer will want to make sure it knows about all the property that the target company owns.

The buyer may also want to undertake an environmental review of the target company. This includes any environmental audits, permits and licenses the target company has. The purchasing company will also want to make sure that the target company is following government regulations and laws.

Another aspect of due diligence is understanding the target company's production related matters. For example, lists of the target company's subcontractors and suppliers should be reviewed. The buyer will also want to know how the target company markets itself, as well as what the target company's competition is like.

The target company also has activities to undertake as part of the buyer's due diligence. For example, in order for the buyer to properly complete its due diligence, the target company will want to set up an online data room that will allow the purchasing company to perform its due diligence in an organized manner. In addition, the target company should make a full and accurate disclosure schedule, which may need to be updated at times.

In the end, the amount of due diligence the purchasing company needs to undertake can be quite complex. However, it can identify any issues that need to resolved prior to completing the business deal, which can be in the best interest of the buyer. In the end, due diligence is an important part of ensuring the merger or acquisition runs smoothly.

Source: Forbes, "20 Key Due Diligence Activities In A Merger And Acquisition Transaction," Richard Harroch, Dec. 19, 2014

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