Business acquisitions typically require the purchaser to undertake a significant amount of due diligence. This invariably includes a thorough review of historic and current financial statements and testing of the future projections and underlying assumptions to check they are reasonable and believable. It is also critical to understand what obligations will be assumed, in particular, any ‘hidden’ contingent or inherent liabilities. Below is a summary of a number of areas of potential risk and exposure to consider for most acquisitions:

Employee/management: an understanding of the quality of the management and employees will reveal any skill shortages required to take the business forward. Other specific areas to consider include the cost of dealing with any pending disputes or grievances; whether employees are offered any financial incentives; whether key people are likely to leave and if so what the cost is of finding a replacement.