Virginia Business Law Update : Virginia Business Lawyers & Attorneys : PCT Law Group : Litigation Defenses, Contract Disputes, Business Formation : Northern Virginia, Arlington, Fairfax, Alexandria

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Are you or your company considering the acquisition of another business? If so, you will want to discover and analyze all material information necessary to fully understand the target company before signing on the dotted line.

Due diligence is one of the most risk-fraught elements of the transaction; however, it rarely receives the attention it deserves in acquisitions involving small privately held companies most often because of budgetary constraints.  You don’t need to skimp on this phase, though – the proper implementation and execution of a well conceived due diligence review can control costs and expenses, reduce risk, and maximize the value of your investment.

A due diligence review reveals more than just potential “deal killers” in the target, it provides information that will be useful for valuing the stock or assets of the target and defining representations and warranties in the final sales agreement. Otherwise, how will you confirm that the business is what it appears to be and is worth the asking price?

The key to effectively and efficiently managing the due diligence phase of an acquisition is to include the following organizational elements into the review process:

• Prepare a Player’s List: Prepare a spreadsheet of contact information for each responsible person involved at the target company as well as your own team (i.e., address, telephone numbers, facsimile numbers and email addresses).
• Organize a Due Diligence Checklist: Prepare and organize a comprehensive Due Diligence Checklist with items grouped together in categories and columns for the names of the responsible team members, notes and status of each items.
• Assemble a Due Diligence Team: Assign a key staff member(s) to gather certain categories of documents. For example, make your accountant responsible for gathering and reviewing relevant financial documents and tax returns of the target company; chief operations manager responsible for gathering customer contracts; human resource manager responsible for gathering employee contracts and benefit information; etc.
• Structure the Due Diligence Process: Develop key phases for specific tasks, such as, the gathering documents, including on-site and off-site review; conducting research on target’s organization, liens, and litigation; researching the target’s industry, competition, long-term prospects; meeting with key management of the target company; document review; etc.
• Develop Milestones: Set reasonable deadlines for the review process with check points along the way to ensure complete and proper implementation of the due diligence process.

Due diligence should be approached as a business process in order to maximize the monetary benefits of the deal. Achieving success and efficiency in this phase of the transaction can be as simple as organization plus disciplined implementation.