Implementing a document management solution can be extremely beneficial when navigating the merger and acquisition process. During an acquisition, the acquiring party must choose how important documents (HR files, contracts, invoices, loans, etc.) will be managed and shared with a variety of internal teams (legal, finance, sales, HR, etc.). These records will then adopt the retention policies of the acquiring company.
This process can be made indefinitely easier for all parties involved through the use of electronic documents and an Enterprise Content Management (ECM) system, used to manage, share, and protect your valuable electronic data.
However, before we can discuss the benefits of electronic files, we must first understand the merger and acquisition due diligence process.
What is due diligence?
Due diligence: The process or steps taken by one party to satisfy a legal requirement in regards to the buying or selling of something. In the business world, this generally refers to the process in which a buying company confirms a seller’s contracts, customers, financials, and other critical information. The goal of this process is to investigate and reassure the buyer’s decision to purchase. This information is interpreted to establish an expected return on investment in order to determine whether or not the acquisition has potential.
Beyond the buyer, there will often be a third party involved (often times a bank or equity firm) who will be providing some financing – often adding more strict due diligence requirements. Once a seller is able to meet the demands of both parties, the M&A process can move forwards.
Due diligence is initiated once both parties have signed a letter of intent, signaling the start of a long and arduous process. Once the process has been started, all due diligence data should be made available to the buyer. However, many small to mid-size companies are not prepared to accommodate such a request. Most sellers are unprepared at this stage of the process – forcing them to quickly compile large amounts of data as fast as possible.
However, gathering due diligence data is a timely process and can take months for a company to properly compile all of the buyer’s requirements.
Any organization considering selling should begin to consider the state of their due diligence information. Because business operations must remain active during the M&A process, it would be wise to prepare internal documents before any letter of intent is signed.
Better understanding due diligence will make the M&A process indefinitely easier for all parties involved. Furthermore, a document management system can ease the pain and decrease the time associated with compiling due diligence documents and securely sharing them with the buying parties.
Now that you understand the concept of due diligence in the M&A process, be sure to watch for our next article.