Due Diligence Goals for Buying a Company in TexasBy James Blake on
Due diligence is an important part of the process of buying a business. If you are purchasing a company in Texas, it’s wise to consult with a Texas business lawyer to structure the Due Diligence Process and to help Limit Liabilities in the Due Diligence Process. A Texas business lawyer can also help you with an objective assessment of your goals and the sufficiency of the Due Diligence Information that the business buyout target discloses.
Fundamental Goals of Due Diligence
If you are buying a business, there are two fundamental goals in the due diligence process:
• Identifying Business Buyout Deal-Breakers: Confirm assumptions and facts, validate reasons for business acquisition.
• Identifying Warranty & Indemnity Issues: Discover contingencies and liabilities, estimate value of the risk, develop mechanisms to price-in and protect against these risks.
Before entering the due diligence process, a Texas business attorney can help you draft your due diligence information requests to discover information that is critical for fact checking and assumption-testing. If you’re buying a company in Texas, it’s good practice to outline the reasons why the business buyout target is right for you, the criteria for the business acquisition, the assumptions of the business acquisition goals, and the deal breakers. Test all these theories and be prepared to walk away if the due diligence information doesn’t meet the business buyout criteria.
Modeling Value-Add Business Acquisition Strategy
The next stage of due diligence for buying a company requires the buyer to identify hidden value in the business buyout target. To start, analyze the seller’s weaknesses and forecast improvements in profitability anticipated after the business acquisition and implementation of your systems, resources, and expertise. Some common areas of hidden value include:
• Leveraging Your Purchase Power: Lowering COGS with larger volume or relationships with strategic partners.
• Leveraging Your Human Resources: Application of your expertise and service infrastructure can improve management and operations of a business buyout target.
• Implementing Your Technology: Modernize the business acquisition target’s operations, capture more sales, and improve labor, inventory, and COGS margins with better POS, labor management, inventory tracking, and dashboard reporting systems, for example .
• Business Investment: What capital investments can meaningfully drive higher sales volume or revenue?
Due Diligence & Business Valuation for Buying a Business
At the end of the due diligence process, your analysis should produce business acquisition criteria for:
• Pricing the Business Acquisition: Modeling business valuation by combining risk estimates, hidden value estimates, cash flows, asset values, and transactional costs such as business taxes and professional fees.
• Benchmarking for Post-Business-Buyout Analysis: Measure the performance of the company after the business acquisition to re-test your business buyout assumptions and make better executive decisions.
Our Texas business law firm regularly counsels clients who are buying a company in Texas or engaged in a business buyout. Call a Texas business lawyer to discuss the due diligence process for buying a business today.
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