Most companies that enter into acquisition negotiations face a due diligence process as part of the acquirer’s investigation into the assets and risks they may acquire in the transaction. However, target companies often do not take steps before entering into acquisition negotiations to understand what assets and risks will be disclosed by the due diligence process. As a result, due diligence can lead to devaluation of the target company or, in extreme cases, to a decision not to proceed with the transaction.
By conducting its own due diligence and addressing problems and risks that are identified prior to the acquisition negotiations, the target company may obtain a higher final valuation and speed up the acquirer’s evaluation. In addition, the target company may, through its own due diligence process, strengthen its IP portfolio by capturing IP that had not previously been identified, which can further strengthen its position going into any negotiations.
