Many of us know that mergers and acquisitions (M&A) can represent a massive opportunity for your business. Completing the professional M&A due diligence process before a deal closes helps investors and companies understand the overall nature of the transaction, the potential risks involved, and whether the deal fits with their portfolio. Significantly improve your chances of M&A success by being able to make informed decisions based on valuable intel. As experts in conducting due diligence, CaptureINTEL has discovered numerous red flags throughout the years.
Uncovered Intel in the M&A Due Diligence Process
Overall, no specific industry is immune to red flags within an investigation. The smaller and more closely held business you have, the more likely there will be risk. Equity investors generally deal with very high risk, so that sector typically relies on CaptureINTEL for searches on all prospective transactions. The top three red flags we have discovered during the M&A due diligence process include:
Financial Issues
The subject may have overextended credit, past credit-related litigation, or numerous late or unpaid payments. They may also have past liens or judgments. Detecting any of these financial issues can help determine the monetary risk involved with trusting your investment in them.
Litigation
Risk levels can vary per client, but we carefully review all litigation. As an example, if there are several cases with past business partners and shareholder agreements, that is a red flag. In addition, there could be personal litigation among the owner/top executives, such as multiple divorces, domestic violence, and more. If the subject is the plaintiff in several cases, they may be a ticking timebomb.
Criminal Activity and Fraud
Target company executives may not self-disclose issues such as felony cases. They may misrepresent information, such as providing a fake name, past education degrees, or prior employment, to make it seem like they are more qualified than they actually are. Confirming these facts can make or break a business transaction.
Ultimately, the top concern of our clients is revealing the true character of the person. Are they who they say they are? The red flags uncovered in our M&A due diligence process help to paint a picture of someone who may or may not have integrity.
M&A Case Study
During an M&A investigation for a private equity firm, we discovered several red flags on one of the two owners of the business they were acquiring. The subject had old criminal records and claimed that the case was expunged when, in fact, it was not. He served time for three counts of indecent exposure, which was also reported to the California Sex Offender Registry. One of our expert investigators found that the subject had also been charged in Florida as a sex offender, even though he had never lived in Florida. In addition, he had some past drug charges, miscellaneous debt-related civil cases, and a foreclosure.
The history of the subject led to several concerns for our client. If we had limited the search to just the county of residence, only the foreclosure case and one small claims case would have been reported. Since the client wanted a comprehensive investigation conducted, we were able to investigate further and share the full scope of findings.
After understanding your specific goals, a dedicated CaptureINTEL representative is immediately assigned to your account to provide prompt responses. They will keep you apprised throughout the M&A due diligence process of any red flags, especially the ones mentioned above. Count on us to help you minimize risk and maximize gain with your next M&A transaction!