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M&A Transactions – Performing Valuation and Due Diligence

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The M&A market is constantly changing. The motives and the structure of deals change from year to year however one thing remains constant that is the amount of work needed to conclude the deal. The process of valuing and due diligence are two of the most tedious aspects of the process.

M&A can make companies more resilient and better able to weather tough times. The strength of a combined company is more likely to last in a changing world than the weaknesses of one entity. Banks, for example utilize M&A to protect the financial health of their companies by buying out struggling rivals such as Merrill Lynch.

M&A also enables companies to expand their product range and achieve economies of scale. For instance, a tech company could buy a platform company to increase the range of services and products it can offer its customers. This strategy can also increase the satisfaction of customers, which will in turn improve the financial performance of the company.

The M&A begins with a high-level meeting between the seller and buyer, to determine how their values are aligned and to explore synergies. The next step is due diligence which involves the creation of financial models as well as operational analysis and evaluation of cultural fit. Due diligence is an extended process. Therefore, the timeframe in the letter-of-intent (LOI) should be considered when planning the work. A key part of due diligence is conducting searches, which includes UCCs fixture filings, federal/state tax lien, lawsuits, judgment liens, bankruptcy and intellectual property searches.

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