Check out those ‘bargains’ or they will bite you back says Colin Witherall of Alsters Kelley
Author: Colin Witherall of Alsters Kelley
Last Updated: 11/4/2010 3:40:25 PM
Summary
If your business is tempted to take over another enterprise, up-front investment in due diligence procedures can save you potentially tens of thousands of pounds.
Article
Businesses have to weigh the attraction of acquiring a
competitor or partner business, particularly one in financial
difficulties, against a wider view.
And although you cannot recoup the costs of the exercise if you
decide to walk away from the deal, they are still worthwhile in the
overwhelming majority of cases.
Our team has recently advised a client to walk away from just
such a superficially attractive deal. Everything about the
deal looked right at first glance. Both parties agreed a price and
the plan was to move the target company to new premises at the end
of its current lease in under a year's time.
However, the due diligence exercise revealed that at the end of
that lease, the business would have to pay substantial
dilapidations costs to put the building back into its original
condition. In effect this would put a further 25 per cent on the
cost of the deal and our client was not prepared to fork out for
that, while none of the other parties was prepared to move their
positions either.
A disappointing due diligence search does not necessarily mean
the end of the deal and it might be an opportunity to renegotiate
terms. Sometimes, however, it is a deal-breaker but better to have
spent the money now than suffer the consequences in the long
term
Detailed due diligence is always advisable in any acquisition
and especially so when suspect properties are involved - in this
particular instance the engagement of a specialist commercial
property surveyor saved the day. Failing to invest in time and
money at the outset can lead to a seriously expensive hangover and
threaten the viability of the operation.
The Author
Colin Witherall heads the corporate side of Alsters Kelley's Company
Commercial department. He advises on company law, directors' duties
and shareholder protection, corporate transactions, commercial
contracts and IT, intellectual property and charity-related issues.
He is a former senior partner and now a consultant to the
business.