Due to the complex nature of mergers & acquisitions, the due diligence process could take between several weeks to several months.

1. First step in the due diligence process is to assemble a team that is responsible for the entire investigation. A due diligence team is usually composed of: investors, accountants, lawyers, personal consultants, and other specialists or services’ providers, if needed.

1. Next step of the process: gathering the important documents. The team makes a list with the necessary documents that must be verified and adds the corresponding time frames in which these documents must be delivered. After signing a non-disclosure agreement, the due diligence team may demand this information from the target company.

1. In some cases, the buyer and the target company may organize a series of meetings in order to discuss the M&A process and the requirements concerning the necessary documents. During these meetings, both parties are able to determine whether or not they are compatible and if the buyer is satisfied with his investment.

The requested documents for the due diligence investigation may vary, depending on the business in question and its scale. As a result, there are a number of domains that need to be covered by the whole verification: legal, economic, corporate & commercial, fiscal, intellectual property, past & pending lawsuits, public authorizations, information about the shareholders.  Moreover, the buyer may demand information about insurance, leasing contracts and other financial information. It is essential for the buyer to clearly comprehend the financial situation of the target company, the state of its assets, the legal aspects and the strategy of the respective company. If any of these aspects present issues, it is possible to have the whole transaction cancelled.

1. The next step would be analyzing all the information and documents that were gathered. If the buyer has concerns regarding certain documents, this is the right time for the target company to address them.

If, due to any reason, the documents from the target company do not provide satisfactory answers to the buyer’s concerns, then the buyer should demand additional information.

1. During due diligence, the team establishes whether the identified issues could lead to cancelling the whole transaction or whether the purchase offer should be adjusted. In some cases, the information gathered could modify the merger’s structure or its timeline.

To accelerate the process, the assembled team should organize regular meetings with the target company in order to receive answers to any concerns in due time. Once the buyer is satisfied with the provided information and is willing to continue the purchase, the final step would be writing the due diligence report and send it to the target company for approval.

This report should include a summary of all the issues identified during the due diligence process and all the domains that were taken into consideration.

Once the due diligence report is done, the buyer should conclude a final assessment of the whole transaction:

1. In many cases, the buyer will view the purchase as a solid investment and, as a result, the M&A process continues as planned.
2. The buyer will demand the whole purchase to be adjusted according to his findings during the due diligence.
3. If the issues that were identified are too challenging to overcome, the buyer should cancel the whole purchase.

Simona Reithofer, Partner, Oglinda & Partners