Corporate mergers and acquisitions have been effectively implemented for many decades. In the United States, over 325,000 mergers and acquisitions have occurred since 1985, generating values worth nearly $35 trillion when adjusted for modern inflation.

Every merger and acquisition carries a certain degree of risk with the potential for more lucrative rewards. When conducting these corporate transactions, the acquiring company’s legal, compliance, financial, and operations departments conduct thorough due diligence to gain transparent insight into the target company’s structure and compliance.

What is the purpose of M&A due diligence?

Large corporations operate on a global level, often with multiple entities and subsidiaries affiliated under the corporate umbrella. The depth and breadth of a global corporate presence requires thorough due diligence of each reporting entity and subsidiary before a merger or acquisition can be completed.

During the discovery phase of a merger or acquisition process, legal and compliance teams review the target corporation’s corporate governance policies. These policies identify things like internal or external risk factors, as well as reporting data from all entities and subsidiaries.

Corporate governance data helps legal talent identify any risks that could subject their corporation to non-compliance penalties once the merger or acquisition is completed. Any gaps in the data can be flagged to the target company’s corporate leadership. If answers aren’t provided, it gives the acquiring company justification to pull out of the intended acquisition.

What’s included in the M&A due diligence checklist?

Forthright data transparency allows the merger or acquisition process to proceed uninhibited by unwanted surprises. All parties can satisfy their respective corporate interests and minimize risk by entering into full cooperative agreements to share corporate records.

Here are the most important items to review when conducting a merger or acquisition due diligence process.

Organizational charts

Organizational charts provide a transparent overview of the company’s corporate structure. They provide detailed accounts of executive leadership and their respective responsibilities. If you have questions about financial statements or compliance programs, organizational charts allow your team to directly contact the person in charge of those departments for answers.

Legal records

Legal records include entity and subsidiary management data, including all minute book records, cap tables, NUANS reports, incorporation agreements, IP rights, compliance programs, and more. Make sure that you receive a detailed accounting of all legal matters to gain deeper insight into the target company’s current legal standing.

Financial statements

One of the most important aspects of the due diligence process involves the financial statements of the target company. You need a thorough accounting of income statements, balance sheets, bookkeeping policies, growth forecasts, and operating budgets. This information will help you negotiate a fair acquisition price to complete the merger.

IT solutions

Part of any merger or acquisition process is the integration of two separate corporate entities and their distinct operating processes. You want an upfront understanding of what solutions are in use by the target company so you can decide what to retain and retire as you complete the integration process. Speak with the heads of the IT departments for more transparent records.

HR policies

HR reports help you understand current department headcounts, and the specific terms of employee agreements for each member of the target company. You can use this information to assist with the integration process once you complete the merger or acquisition.

How due diligence supports M&A risk management

Every corporate transaction carries a certain degree of risk, and mergers or acquisitions are amongst the biggest gambits corporate entities can undertake. The due diligence process is a preventative measure that mitigates risk through transparent entity and subsidiary data management.

Both sides of the merger or acquisition benefit from the due diligence process. The acquiring company gains an accurate valuation of the target company, as well as insight into any underlying non-compliance risks. Transparent disclosures of this information enable the acquiring company to negotiate with an open mind and conclusively determine if the transaction carries greater reward than risk.

Conversely, the target company remedies any gaps in their compliance programs to improve their negotiating position. Delivering a corporate structure with no gaps in compliance or governance processes increases the value of the business. As a result, shareholders from the target company can negotiate a greater acquisition price that improves their profitability.

Use entity management software to assist M&A due diligence

The key to any corporate merger or acquisition is transparency, and the due diligence process provides transparent insight into the underbelly of each target company in an acquisition process. Due diligence minimizes risk and helps move the acquisition process forward.

Entity management software is a helpful resource to assist both sides of a merger or acquisition. Entity management platforms provide a single source of truth for all corporate entity records, which offers significant time saving benefits during the due diligence process.

Rather than go seeking for all legal, compliance, financial, HR, and other information from individual department heads, entity management software compiles all this data in one convenient location. As the acquiring company, your legal team can review all entity and subsidiary records of the target company with their own legal department.

Working in tandem together, you can acquire a visualized overview of the current corporate standing of the target company. This shared workflow will save valuable time and help accelerate the acquisition process. The detailed records will give your acquiring company greater confidence in their acquisition, allowing both sides to agree on a fair price to complete the purchase and conduct the merger.

Make MinuteBox your standard for corporate entity data

Whether you have a merger or acquisition underway, or you intend to complete such a transaction in the future, entity management software can streamline the whole process. Get ahead of the game by integrating entity management software into your current operations today.
MinuteBox is the only entity management platform that has achieved both ISO 27001 and SOC 2 Type II certifications. Data transparency improves the acquisition process, but data security is also vital to protect your existing corporate interests. MinuteBox’s dual certifications are validated proof that it’s the best platform to support data security and corporate compliance.

Join the MinuteBox revolution today to standardize your minute book records and provide more transparent oversight of corporate entity data.