Auditing Mergers and Acquisitions

In M&A, most sellers assume diligence begins 𝙖𝙛𝙩𝙚𝙧 the LOI is signed… But by that point, the clock is already ticking, exclusivity is locked in, and any surprises (real or perceived) can become deal-breakers or issues that chip away at price. The truth is, buyers walk in with a very specific checklist. They’re not just verifying financials, they’re looking for risks, for inconsistencies, and sometimes, for anything that gives them leverage, or even a reason to walk away. Here’s the good news: if you’re the seller, you can beat them to it. It starts with understanding what buyers are looking for: 🔎 HR and compliance gaps 🔎 Messy or incomplete contracts 🔎 Unclear financial adjustments or owner add-backs 🔎 Potential unresolved tax liabilities 🔎 Customer concentration risk 🔎 Unresolved litigation or contingent liabilities 🔎 Cap table confusion or unresolved equity promises These aren’t just technical details, they’re signals to the buyer, and in an M&A process, well-prepared diligence wins deals. What can sellers do? ✅ Assemble your own diligence checklist before buyers do. A good M&A advisor will help you do this during the preparation phase ✅ Have your financials reviewed or normalized by a third-party QofE provider ✅ Clean up contracts, org charts, cap tables, and compliance documentation ✅ Identify “gray area” risks early and prepare thoughtful explanations ✅ Think like a buyer, then remove any friction. Make it easy to buy your company. In diligence, the goal isn’t perfection, it’s being able to give the buyer confidence. When a buyer feels like you’ve done your homework, the dynamic shifts. You’re no longer defending surprises. You’re leading the deal with transparency and strengthening the value you’ve worked so hard to build. #mergersandacquisitions #Investmentbanking #MandA #exitplanning

The UK’s former tech darling Michael Lynch’s fraud trial started last week in San Francisco. He is facing 16 counts of wire fraud, securities fraud and conspiracy. Hewitt-Packard wrote down USD $8.8M the year after it acquired Autonomy. The sad part, all of this could’ve been avoided! Large M&A deals of this kind require all sorts of diligence. But this particular case had failings in books and records diligence, customer/vendor diligence and reputation and integrity diligence. Before a deal is officially signed - all of these could’ve have been done to prevent such a scenario. #1 — Books and records diligence. Making sure you do a forensic review of the company’s accounts and practices is crucial to uncovering fraud or malfeasance. - I’ve heard M&A teams tell me that it books and records review isn’t necessary bc the company has been audited by a legitimate accounting firm its entire life. That they can trust that just gives me goosebumps. You can’t trust anything. Verify it! - Books and records review is especially more pertinent now than ever with the DOJ M&A Safe Harbor Policy where fraud/malfeasance identified and reported upon the close of an M&A deal, then rectified within six months, is beneficial to the acquiring company as the authorities won’t go after you! #2 — Vendor/customer diligence. This diligence is not undertaken nearly enough. Typically, M&A teams might focus on the top vendors and/or customers. Instead, use technology to your advantage. Our team uses data analytics to identify conflicts of interests, vendors and/or customers that could be fake, and other anomalies that could point toward malfeasance. #3 — Reputation and integrity diligence. Understanding Autonomy and its senior management’s business track record, business ethics, governance and management dynamics would have been crucial in identifying these issues prior to the close of the transaction. Talking to customers and former Autonomy employees could’ve found snippets of their business practices that would make the books and records review easier because you know what you’re looking for. For tech deals like this, I’d even add in an extra layer of cyber diligence to make your acquisition even more secure as you might be able to tell whether that proprietary data or tech that you’re acquiring has already been leaked or stolen. All in all, doing proper diligence means covering it from all angles. Six hours is definitely not enough. #duediligence #mergersandacquisitions #financialmisconduct #malfeasance #safeharbor

Acquirers, stop thinking of the diligence phase in M&A as just "producing a diligence report". ✅ Yes, a key part of the diligence phase is combing through the data room, reviewing information, talking to the seller's team, and analyzing the data. ✅ Yes, having the diligence report is a key deliverable. 🎯 But as an acquirer, you're not looking at this the right way unless your process is actively prioritizing and planning for these outcomes. 1️⃣  Risk assessment - identify and assess the potential risks associated with the target. 2️⃣  Confirm valuation - ensure that the agreed-upon valuation (in the LOI) is justified. 3️⃣ Support commercial negotiations - (based on the issues found) renegotiate deal terms, adjust the purchase price, or restructure the deal 4️⃣ Inform the sale and purchase agreement negotiation - inform the language in the agreement (including reps and warranties, indemnification clauses, disclosure schedules) 5️⃣ Plan for integration - highlight the potential challenges, synergies, and areas requiring special attention just before, and after the deal closes 6️⃣ Potentially acquire M&A insurance (this is becoming fairly common in mid-market deals) 7️⃣ Inform the board and key stakeholders - use it to communicate transparently about the status of the acquisition, risks, and overall feasibility of the deal 8️⃣ Adjust deal timing - (based on the issues found), update your sign and close timeline as well as the other steps required (e.g. landlord or customer consents) to close Anything less, and you may be just checking the box without using this phase as it should be. If you're working on an acquisition and need help in setting the scope and / or executing the diligence, reach out. We've been expanding our team and also have a network of partners who can help. #mergersandacquisitions #diligence

Merging companies is like merging bodies. Would you do it blindly? Imagine you had the opportunity to merge with another person. Not just work with them—literally take on their habits, history, strengths, and weaknesses. Before doing it, you’d want answers: - Do they have past surgeries that could slow you down? - Where’s their entire health history? Could it shorten your lifespan? - What’s their diet? Do they even exercise? - Do they go to therapy? Unprocessed traumas? - What about their childhood? Was it a good one? - Do they have addictions? This is just the tip of the iceberg. Because once the merge happens, their condition becomes YOUR condition. Now apply that to M&As — Here’s my story: When we acquired Agrupate (one of our major competitors) in 2015, weren’t just “buying a company.” We were inheriting: - 55 employees, each with their own work habits, politics, and expectations. - All financial baggage—good and bad. - Operational inefficiencies that could become our problem overnight. - A culture that wasn’t built by us—but could impact our own. And six months prior, we had already acquired another company with 25 employees. At that point, we were no longer playing the guessing game. We needed extreme transparency. Here’s what we focused on: 1. Full financial & legal audits — No liabilities hiding under the rug, no legal traps waiting to explode. 2. Cultural & operational deep dive. We had to know exactly how the team worked—who were the A-players, who needed to go, and what processes would break post-merger. 3. Straight-up conversations. No fluff. No “we’ll figure it out later.” Everything on the table, before signing a damn thing. Why? Because in any acquisition, the real risk isn’t what you see—it’s what you DON’T know. And yet, many founders walk into negotiations half-blind: They see revenue but don’t check how much depends on one or two clients. They see a strong team but don’t ask who’s actually driving results and who’s just taking up space. They assume a great product but don’t analyze if it’s future-proof or already on its way down. If you wouldn’t merge with another human without a full medical checkup, why would you merge companies without a deep, transparent audit of every moving part? M&A isn’t about “sealing the deal.” It’s about not buying a ticking time bomb. — I share real-world lessons on scaling, selling, and structuring companies the right way every week. Subscribe (link in comments) to stay sharp.

Over 60% of M&A fail due to poor due diligence In India, the stakes are even higher 𝐃𝐚𝐲 𝟰𝟰/𝟕𝟓 𝐨𝐟 𝐭𝐡𝐞 𝐬𝐞𝐫𝐢𝐞𝐬 "𝐋𝐚𝐰 𝐔𝐧𝐩𝐥𝐮𝐠𝐠𝐞𝐝: 𝐓𝐡𝐞 𝐛𝐮𝐬𝐢𝐧𝐞𝐬𝐬 𝐥𝐚𝐧𝐝𝐬𝐜𝐚𝐩𝐞" In the rush to close deals, many stakeholders skip  Legal due diligence, which is the most dangerous mistake This mistake can cost companies: ➛ Billions ➛ Wreck reputations ➛ Leads to regulatory setbacks Try to understand this, why these deals fail The answer often lies in one thing ➛ 𝐈𝐧𝐚𝐝𝐞𝐪𝐮𝐚𝐭𝐞 𝐥𝐞𝐠𝐚𝐥 𝐝𝐮𝐞 𝐝𝐢𝐥𝐢𝐠𝐞𝐧𝐜𝐞 Here’s a detailed checklist that can set the foundation: ✅ Corporate Structure & Governance ➛ Review the company’s governance documents (AoA, shareholder agreements), undisclosed director interests (Companies Act, Section 173). ✅ Intellectual Property (IP) ➛ Audit patents, trademarks, and licenses. Ensure proper IP transfer. IP disputes can cripple post-merger success. ✅ Financial Health & Liabilities ➛ Scrutinise financial statements. Look for hidden liabilities and off-balance sheet items (Companies Act, Section 128). ✅ Key Contracts & Agreements ➛ Review third-party contracts for “change of control” clauses. Watch out for any clauses that could impact the merger. ✅ Ongoing Litigation & Disputes ➛ Investigate all ongoing legal disputes. Hidden litigation can derail the deal and trigger penalties (CrPC, IBC). ✅ Regulatory Compliance & Approvals ➛ Verify compliance with FEMA, ITA, and industry-specific laws. Necessary regulatory approvals be obtained (Competition Act, 2002). ✅ Employment Issues & Labor Laws ➛Ensure compliance with labour laws like the Industrial Disputes Act and review employee disputes and severance obligations. ✅ Tax Liabilities ➛ Assess pending tax liabilities, audits, and ongoing investigations (Income Tax Act, 1961). PS: Have you done the case study of the major merger flops in the corporate industry like "Microsoft and Nokia"? It does give you a practical viewpoint of companies. 

I want to share the importance of how navigating the complexities of acquisitions requires more than just thorough due diligence. While we aim to uncover every stone, some challenges only reveal themselves post-transaction. These risks range from financial discrepancies to operational vulnerabilities. In a recent article written by Eric Chow and me, we delved into the multifaceted nature of due diligence and the unforeseen risks that can emerge. Despite the most meticulous processes. Here are some key ways to ensure preparedness and proper due diligence: Transaction Structuring - Whether it’s an asset deal or a stock deal, understanding the implications of each structure is key to mitigating risks effectively. Insurance as a Safety Net - Representations and warranties insurance (RWIs) are gaining traction, not just as a risk management tool, but also as a strategic asset in making bids more competitive. Indemnification and Beyond - The nuances of indemnification provisions are critical for protecting against unforeseen liabilities. When transactions do not include RWIs, they typically use indemnification provisions to help risk management and prevention. The Power of Escrows and Holdbacks - Leveraging financial safeguards can assure that the seller meets their indemnification obligations. The power of escrow and financial safeguards can help guarantee that the seller will follow through on their indemnification obligations. Continuous Vigilance - Post-closure, the journey of due diligence continues with monitoring and addressing any issues that audits may unveil. Audit cycles can sometimes reveal things that go unnoticed during a transaction. The due diligence journey reminds us of the importance of being prepared for the unexpected and the value of continuous learning and adaptation in acquisition transactions. Let's discuss further - what do you think are the most effective strategies to protect against unforeseen liabilities and risks in acquisitions? #duediligence #acquisitions #businessstrategy #riskmanagement #transactions #stockdeal #assetdeal #siliconvalley #garage2global #risk Foley & Lardner LLP, Natasha Allen, Brandee Diamond, Lyman Thai, Nicholas O'Keefe, Steve Millendorf, Jennifer Urban, André Thiollier