Business-Minded Legal Solutions

Doing transactional due diligence: What does that mean, entail?

The Houston commercial law firm of Stephenson Fournier has a long-established record of experience representing diverse Texas businesses on matters spanning a wide range of considerations.

Some clients need help on matters relevant to mergers and acquisitions, for example. Others seek assistance with equity financing, the drafting of foundational business contracts, tax planning or additional concerns.

One element critical to commercial success — especially from the perspective of an enterprise contemplating the purchase of another existing company — is studied due diligence.

What exactly does that mean?

In a nutshell, due diligence denotes the efforts of a company potentially interested in buying or merging with another to do the requisite homework necessary to make an informed decision on whether — and how — to go forward with a transaction.

That is a key and often highly detailed exercise, with accurate and timely information needed on matters relevant to a target’s identity, finances, history and operations being of core importance. These are areas of common scrutiny and concern:

  • Organizational matters (e.g., collection and close examination of a company’s formation documents , equity issuances and transfers, agreements among shareholders or owners,and documents relevant to good standing)
  • Financial data, including financial statements, key reports linked with planning, budgets, inventory and related matters
  • Material data on assets, liabilities and indebtedness
  • Intellectual property rights and duties
  • Employee matters (e.g., contracts, compensation, benefits and disputes)
  • Environmental and regulatory compliance issues/concerns
  • Insurance and litigation histories
  • Customer and supplier details
  • Tax filings and compliance

That list, though spelling out only a few of the due diligence matters that are commonly addressed, hints at the detail and complexity required in this process. Proven business attorneys routinely help valued and diverse clients effectively work their way through the process.