Top 10 Due Diligence Requests for a M&A

Top 10 Financial Requests
Top 10 Attorney Requests
Top 10 Employee Requests
Top 10 Founders Requests

Sutter Law has been doing Mergers and Acquisitions in Silicon Valley and San Francisco since 2009. We have worked on M&A deals to the toon of billions of dollars. When helping our clients purchase a company we advise conducting a complete review of a target company’s vitals. Over the years we have distributed the top ten questions that a purchaser should be asking a target company for an M&A.

Top 10 Financial Requests

Financial Statements A purchaser should review the target company’s financial statements, including balance sheets, income statements, cash flow statements, and tax returns. This will help the purchaser understand the target company’s financial health, profitability, and potential liabilities.
Intellectual Property: Review the target company’s intellectual property, such as patents, trademarks, and copyrights, to ensure that there are no potential infringement issues or disputes with third parties.
Legal and Regulatory Compliance: Evaluate the target company’s legal and regulatory compliance history, including any pending or past lawsuits, environmental issues, or other compliance matters that may create liabilities.
Management and Employees: Evaluate the target company’s management team and employees to determine if they are capable of managing the company after the acquisition. This includes reviewing employee contracts, benefits, and any potential retention issues.
Business Plan: Review the target company’s business plan, including its growth projections and market analysis, to determine if it aligns with the purchaser’s strategic goals.
Customer Base: Evaluate the target company’s customer base to determine its size, demographics, and potential for growth. This should be analyzed to determine if the M&A target company will be able to up sale its products to the purchaser’s existing clients.
Supply Chain: Review the target company’s supply chain, including its suppliers and distribution channels, to determine if there are any potential risks or opportunities. There are circumstances where a target company is heavily reliant on one vendor, this can cause problems especially when that vendor is a competitor of the purchasing company.
Technology and Infrastructure: Evaluate the target company’s technology and infrastructure, including its IT systems and physical assets, to determine if they are up-to-date and scalable. Time and time again we have seen negotiations fail due to technical failures of the startup company.
Due Diligence Reports: Review any due diligence reports prepared by third-party experts, including legal, financial, and technical experts.
Cultural Fit: Evaluate the target company’s culture and values to determine if they align with the purchaser’s culture and values, as a poor cultural fit can lead to integration issues and decreased employee morale.

If you would like to speak with an experienced M&A attorney about your acquisition please reach out for a consultation.

Top 10 Attorney Requests

As one of the top Corporate and Mergers & Acquisitions (M&A) law firms in San Francisco and Silicon Valley, we have seen it all when it comes to M&A structure and M&A closing procedures. Over the years we have developed our own list of what a client and attorney need to know before they start a M&A process.

Here are the top 10 things to ask your attorney before engaging in a merger or acquisition:

What are the legal and regulatory requirements for M&A transactions, and how can we ensure compliance?
What are the potential risks and liabilities associated with this transaction, and how can we mitigate them?
What is the best legal structure for the M&A transaction, and what are the tax implications of each structure?
What are the key provisions that should be included in the purchase agreement, and how can we negotiate a fair deal?
What is the due diligence process, and what information should be collected and analyzed?
What are the potential antitrust concerns, and how can we address them?
How can we protect the company’s intellectual property and other valuable assets during the due diligence process?
What are the potential employment law issues, and how can we ensure compliance with applicable laws and regulations?
What are the potential environmental and other regulatory liabilities, and how can we ensure compliance with applicable laws and regulations?
What is the process for obtaining necessary approvals from shareholders, regulators, and other stakeholders, and how can we ensure a smooth and timely transaction?

Top 10 Employee Requests

Sutter Law is one of the best Corporate and Business law practices in Silicon Valley and San Francisco. We have worked on M&A deals to the toon of billions of dollars. When negotiating an acquisition it’s important to remember that the purchasers are not buying a company or its intellectual property, they are acquiring the team that can make the purchased company work. Over the years we have distributed the top ten questions that a target company’s founders and employees ask before an M&A acquisition.

Job Security: The most immediate concern for employees is job security. During an M&A, there may be redundancies or restructuring that could lead to job losses. C-level employees will typically receive a job offer by the acquiring company with an earnout (Golden Handcuffs) to ensure they can’t leave.
Vesting Stock Options: The employees’ stock options at the target company may be extinguished, accelerated, or converted into the target company stock. If the company is being purchased through a fire sale, most of the time the options will be extinguished/Cancelled. If the company is being purchased at a premium with a lot of suiters, then your stock options may be accelerated. However, if your startup is being purchased as a talent acquisition, then most likely the shares will be exchanged for shares of the purchasing company.
Change in Culture: After an M&A, there may be a shift in company culture that could impact the work environment. A startup being merged into a larger company may need to isolate its people to ensure that they continue to maintain their innovative spirit.
Compensation and Benefits: An M&A can lead to changes in compensation and benefits, which could affect an employee’s financial situation. Time and time again we have seen that startup founders can exert their influence to ensure that their team is treated well, however, this is not always the case.
Career Progression: Mergers and acquisitions can result in changes to reporting structures, job responsibilities, and career paths, which could impact an employee’s career progression. In some circumstances, the startup founders will negotiate on par seniority for their team members.
Job Satisfaction: The uncertainty and stress of an M&A can impact job satisfaction, leading to decreased productivity and engagement.
Integration and Collaboration: Employees may be concerned about how their department or team will integrate with the new company and how collaboration will be managed.
Communication: Clear and timely communication during an M&A is essential to ease employees’ concerns and maintain morale.
Company Reputation: An M&A can impact the company’s reputation, which could impact employees’ personal and professional reputations.
Employee Benefits: Employee benefits such as retirement plans, healthcare, and vacation policies may be impacted by an M&A.

If you would like to speak with an experienced M&A attorney about your acquisition, please reach out for a consultation.

Top 10 Founders Requests

Here are the top 10 things a founder should know before engaging in a merger or acquisition:

The company’s value: Before entering into any M&A negotiations, a founder should have a clear understanding of the company’s value. This can be determined through various methods, such as financial analysis or hiring a professional appraiser. A typical measurement is a multiplier on their annual revenue between 8 – 20 X is reasonable for a tech company.
The market landscape: It is important to understand the current market landscape, including competitors, trends, and potential threats. This knowledge can help inform the decision to pursue an M&A transaction and provide valuable insights into the company’s future prospects.
The company’s financials: A founder should have a thorough understanding of the company’s financials, including revenue, expenses, and profit margins. This information can be critical in negotiating a fair deal and determining the company’s value.
The potential acquirer: Researching the potential acquirer is important to understand their business and financials, as well as their reputation and track record in M&A deals. Having a well-researched list of all your M&A acquirers can be indispensable. Even greater is having several offers on the table at the same time.
The legal and regulatory requirements: M&A transactions can be complex and involve a range of legal and regulatory requirements. It is essential to understand these requirements to ensure compliance and avoid any legal issues for your startup.
The due diligence process: Due diligence is a critical part of any M&A transaction, and the founder should be prepared to provide all necessary information to potential acquirers.
The terms of the deal: Understanding the terms of the deal, including the purchase price, payment structure, and any contingencies, is critical in negotiating a fair agreement. Even when the price hits a startup founder’s target, there can be some unachievable goals that severely impact the bottom line. It’s critical that you spend time with your attorney and discuss all contingencies to ensure that the startup team receives the compensation they were promised.
The impact on employees and customers: An M&A transaction can have a significant impact on employees and customers, and the founder should be prepared to address any concerns and communicate any changes in a clear and timely manner.
The integration process: Integrating the two companies can be a complex process, and the founder should have a plan in place to ensure a smooth transition and minimize disruption to the business.
The founder’s role after the transaction: The founder should have a clear understanding of their role after the transaction, whether they will continue to be involved in the business or exit entirely.