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Wiley & Mathews
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Due diligence and negotiations for acquisitions and mergers

Mergers and acquisitions are fairly commonplace in Ohio. These two business strategies allow companies to grow by sometimes buying out a competitor or a partner. For the seller, it may also provide the means to retire early and peacefully.

However, as with any other business process, acquisitions and mergers require due diligence. This is as true for buyers as it is for sellers. Both parties have a lot to lose and a lot to gain, so it is in both of their best interests to read through all the fine print and verify the information before negotiating.

For the buyer

Forbes recommends that buyers should evaluate a business carefully before adding it to its profile. One of the most important factors to consider is how well the business has been performing financially over the past few years. Is the business making a consistent profit? When was the last time the financial statements were audited by an external auditor? What did the auditor say?

When one company acquires another, their intellectual property is typically a part of the deal. However, current patents and user agreements may affect how the new company may be able to use this intellectual information. Buyers should look out for government assistance and any liens against the property.

For the seller

Forbes recommends that businesses prepare to negotiate a fair price.However, they also warn that a business must be able to prove its value, especially if the asking price is high. In addition to this, sellers should brace themselves for a potentially long negotiation process along with all the prodding and poking that comes with the buyer’s due diligence.

When buyers compete, sellers are in a much better position to earn payment at or above their asking price. As a result, many companies entertain multiple bidders. Because these potential buyers will typically be competitors, the different companies may be more willing to pay higher prices to outdo each other. It is possible to set up an auction to simplify the process.

When it comes to acquisitions and mergers, buyers conduct due diligence to ensure they are not buying fools’ gold. Sellers, on the other hand, want to know they are properly compensated for giving up their company. It is a competitive process and when handled fairly it can be mutually beneficial for both parties.

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