- Due diligence review before corporate acquisition
- August 28, 2015 | Author: Michael Rainer
- Law Firm: GRP Rainer LLP - Bonn Office
- Many small and medium-sized businesses are set to be faced with a change at the helm of their companies in the coming years. This can also result in the sale of the company.
GRP Rainer Lawyers and Tax Advisors in Cologne, Berlin, Bonn, Düsseldorf, Frankfurt, Hamburg, Munich, Stuttgart and London - www.grprainer.com/en conclude: The Frankfurter Rundschau reported on a study by the German bank KfW (Kreditanstalt für Wiederaufbau) [German Reconstruction Loan Corporation] according to which change is in store at the top of around 580,000 small and medium-sized businesses in Germany in the next two years. The study shows that one in every six businesses will be affected by a change.
The preferred option is to pass on the mantle to a family member. According to figures contained in the KfW analysis, one in every five company bosses over the age of 60 is also contemplating an external successor. Since the search for an internal or external successor can prove challenging, one of the consequences will be the sale and acquisition of companies. In the case of company acquisitions or the purchase of shares in a company, a due diligence review plays an important role. Within the scope of this review, the strengths and weaknesses of the object of purchase are analysed with due diligence in order to ascertain a suitable purchase price based on the risk assessment, taking into account all of the factors which are relevant to the transaction.
Important factors in this context may include, for instance, the legal form of the company, the existing contracts with business partners, employment contracts, liabilities, the situation regarding orders, patents, copyrights or the tax implications. These need to be carefully examined and appraised in order to be able to assess the risk of the investment and determine an appropriate purchase price.
At the same time, a due diligence review ought not to be a ready-made solution with respect to which one works through a list of questions. Instead, the specific circumstances pertaining to each transaction must be carefully examined and weighted so as to arrive at a realistic appraisal of the planned transaction. Each investment has to be evaluated according to its own criteria. The scope of a due diligence review can be determined by the buyer and seller.
Corporate acquisitions and the purchase of shares in companies also have legal implications. These need to be taken into account as well. It is therefore advisable when dealing with a due diligence review to bring on board lawyers who are competent in the field of company law.