Why is an acquisition audit or due diligence so important if you really want to make a success of your business acquisition? As a buyer, you have already defined a target and obtained the first information on the company you are considering buying. Only a complete audit will allow you to validate your decision. We explain why you should not skip an acquisition audit.
1. What is the purpose of the acquisition audit?
Its purpose: to gather all the financial, legal, tax and social data on the coveted company, and to detect the possible risks incurred by your target, as well as the potentialities of your acquisition. This information should allow you to confirm your intention to buy and to value your target as accurately as possible. Or, on the contrary, to give up the acquisition, because you consider the risks to be too high. The stakes are high, so it is worth investing time in this step!
2. Protect yourself from possible litigation
The realization of an acquisition audit is not mandatory. You alone can decide whether or not to formalize this step. In its absence, you may be held responsible if you dispute the sale price, for example; you might as well reduce the risk of a possible dispute. By not having a complete audit, you take unnecessary risks…
Remember also that the elements in your possession were transmitted to you by the seller, and are therefore subject to caution. You should therefore avoid skipping an acquisition audit or due diligence!
3. Simple audit or more complex audit
If you plan to buy a business, the audit is simplified because you take over the activity of the seller from “zero”. Indeed, as a buyer, you do not take over the debts or the receivables of the company. You only buy the assets (the business name, the clientele, the leasehold rights, the equipment and possibly the goods).
Be careful, however, to check all the legal parameters related to the activity itself (regulatory obligations) as well as the “social” aspect, i.e. the takeover of all the employment contracts, as you are obliged to take over the personnel with their seniority and acquired benefits.
In case of a transfer of company shares, you must, contrary to the purchase of a business, proceed to an in-depth and more complex audit. Actoria France has precisely the whole of the financial, economic, legal, tax and technical competences to assist you during all the audit phase.
4. Scope of the audit
Different aspects of the company are to be audited and they all have their importance. However, the human resources aspect is sometimes wrongly put aside. To launch your project, you will need to gain the trust of the company’s key employees. Make sure they are on board. If there is a risk of resignation, be sure that there are alternative solutions.
The objective of the accounting and financial audit is to confirm that the business model you are considering is realistic based on the figures and information collected. Among the important elements, check the cash flow statements, the future evolution of the Working Capital Requirement (WCR), the debt repayment schedule, or the review of the accounts receivable.
In addition to the tax and legal aspects, do not neglect the social audit. Employment contracts, managers’ and employees’ remuneration, collective agreements, and internal agreements should be scrutinized. Finally, don’t forget environmental issues. Buyers, especially Anglo-Saxon buyers, are increasingly sensitive to this issue. ISO standards for environmental certification cover a variety of subjects that may concern the target company: from production facilities to logistics.
You have the project to acquire a SME? The realization of an acquisition audit is a crucial and indispensable phase, contact Actoria’s experts to accompany you.
