When a buyer first looks at acquiring a business, it is easy to focus on the numbers — revenue, profitability, purchase price, and projected growth.
But after years of working on business acquisitions with clients here in Alpharetta and across Georgia, I’ve learned that one of the most important questions a buyer can ask is much simpler:
What am I actually buying?
A successful business is rarely just the assets listed on a balance sheet. Its value may depend on key customer relationships, employees, intellectual property, contracts, leases, licenses, technology, or even the continued involvement of a particular owner or executive.
That is why due diligence is such an important part of any acquisition. The purpose of due diligence is not simply to find reasons not to do the deal. It is to understand the business well enough to make an informed decision about the deal you are making.
Looking Beyond the Financial Statements
Financial performance is important, but the financial statements do not always tell the entire story.
A company may have strong revenue, for example, but what happens if a significant percentage of that revenue comes from one customer? Is there a long-term contract with that customer, and can it survive a change in ownership?
The same questions can arise throughout the business. A valuable software platform may turn out to depend on technology licensed from a third party. A recognizable brand may have trademark issues that were never addressed. A key employee responsible for important customer relationships may have no employment agreement or restrictive covenant in place.
Consider a common scenario: a buyer negotiating to acquire a services business discovers during diligence that its largest customer contract — representing a significant share of revenue — includes a change-of-control clause allowing the customer to walk away within 30 days of closing. A finding like that doesn’t necessarily kill the deal, but it can change the purchase price, the structure, or what the seller needs to deliver before closing.
None of that means the deal is bad. It means you need to know it before you decide what the business is worth — and how to structure the deal around it.
Why Due Diligence Is About Understanding Risk
Every acquisition involves some level of risk. The goal is not necessarily to eliminate every risk — that is rarely possible. The goal is to identify the risks that matter.
During the due diligence process, legal counsel may review areas such as:
- Material customer and vendor contracts
- Employment and independent contractor arrangements
- Intellectual property and trademark ownership
- Software and technology licenses
- Commercial leases and real estate matters
- Existing debt and other financial obligations
- Pending or threatened disputes
- Licenses, permits, and regulatory requirements
What matters most will depend on the business. For a technology company, intellectual property and software ownership may be critical. For a service business, customer relationships and key employees may drive much of the company’s value. For a business with multiple locations, leases and real estate obligations may deserve particular attention.
Good due diligence should reflect the business being acquired rather than simply following the same checklist for every transaction.
What You Learn in Due Diligence Can Change the Deal
One of the reasons lawyers should be involved early in an acquisition is that due diligence can affect much more than the legal documents.
What a buyer discovers may influence the purchase price, how the purchase price is paid, what representations and warranties are required, whether certain liabilities remain with the seller, or what needs to happen before the transaction can close.
Sometimes an issue can be addressed before closing. Sometimes additional protections can be negotiated into the purchase agreement. And sometimes the information uncovered during diligence changes the buyer’s view of the transaction entirely.
The important thing is discovering those issues while there is still an opportunity to do something about them.
Know the Business Before You Buy It
Buying a business is ultimately a decision about the future. A buyer is making an investment based not only on what the company has done in the past, but on what the buyer believes that business can become.
Due diligence provides an opportunity to test those assumptions.
After decades of working with business owners and handling transactions, I have found that the best acquisitions are usually the ones where the buyer enters closing with a clear understanding of both the opportunity and the risk.
The question is not simply whether the documents are in order. It is whether you understand what you are really buying — and finding that out before you sign, not after, is what our Mergers and Acquisitions team is here for.
If you’re considering a business acquisition, our Mergers and Acquisitions team can help you understand exactly what’s involved before you sign. Contact us to schedule a consultation.