California companies that are looking to acquire or merge with other businesses need to take the due diligence process seriously. Ideally, they will spend a lot of time listening and learning as much as possible about an acquisition target. Taking this step makes it possible to learn more about whether a business is worth taking over or if there is too much overlap between the two entities.
It is also a good idea to be upfront about any issues that could scuttle a potential deal. This prevents a situation where a transaction is almost completed but can’t be closed because of an unforeseen objection. Companies that are approached about a merger or acquisition should assume that a competitor isn’t serious about a deal at first. An exception may be made if a CEO or other decision maker has initiated contact.
If a competitor is serious about a transaction, the target should ask how it will be funded. There have been stories in the past about companies that went through the due diligence process only to reveal that there was no money to close the deal. Management should also take the time to understand why a competitor is interested in a deal. Typically, a merger is a way to eliminate competition, gain access to a product or acquire skilled employees.
A merger may be either a friendly or hostile acquisition, and this depends on whether the acquired company wanted to take part in the transaction. Regardless of how a merger or acquisition occurs, all parties may benefit from going through the process with the help of legal counsel. This may make it easier to complete the due diligence process in a thorough and timely manner.