Due Diligence: The Critical Phase in Every Merger or Acquisition

The due diligence process is often the heart of an M&A transaction. It is the moment when promises are tested against reality and potential risks come to light.

For entrepreneurs involved in a merger or acquisition, this phase can be both exciting and sobering. A thorough due diligence involves much more than just a financial check. We distinguish three crucial pillars:

1. Financial & Tax

Here we analyze historical profitability, cash flows, debt position, and future forecasts. The tax structure is also important: are there any outstanding assessments or disputes with the tax authorities? An unexpected tax reassessment can significantly affect the deal value.

2. Legal & Contractual

All important contracts are scrutinized: supplier agreements, customer contracts, employment agreements, lease contracts, and intellectual property rights. Are there restrictive provisions that come into effect upon an acquisition? Are there any potential legal disputes ongoing?

A practical example: during the acquisition of a family business, we discovered a crucial license agreement that would automatically expire upon sale. By identifying this early, we were able to renegotiate and save the deal.

3. Operational & Commercial

How healthy is the business operations? We look at process efficiency, the state of IT systems, dependence on key personnel, and market position. Is a business-critical process built around one person? Are there weak links in the supply chain?

A successful due diligence requires a structured approach, sharp analytical skills, and the ability to see the big picture through the details. The goal is not to block the deal, but to bring it about on a realistic and secure basis.

At Livingston Firm, we guide you through every phase of this intensive process. From drafting the due diligence checklist to translating technical findings into clear negotiation points.