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Questions to Ask a Potential Merger Partner

Today, business is often done with partners. But no matter how great your relationship is, you should make it right. In this article, we will provide the basis of a partnership agreement and the common questions to ask a potential merger partner.

What is a partnership agreement?

The legal technique of conducting M&A transactions, the preparation for them has determined standards.  Another aspect is the interaction with potential merger partners. Planning avoids disputes and costly legal battles later. No matter how much of a friend you are to your potential partner, you should never enter into a business partnership with them without a formal partnership agreement.

In addition, since partnerships are a complex topic, it is better to have partnership agreements drafted by lawyers who can explain partnership issues in more detail and ensure that the partnership agreement says exactly what is needed in a given case. Using a written partnership agreement to formalize your joint venture saves the day because it allows you and your partner(s) to agree on how you are going to handle specific situations before they arise.

What questions should be asked?

There is a list of common aspects that should be considered with a potential merger partner:

  • mission and values. One of the main issues that need to be discussed when concluding a partnership agreement is the mission and values of each of the partners. This is followed by personal and business goals.
  • expectations of partners from each other. This is one of the complex issues that is not discussed, but in the end, it gives resentment, discontent, and mutual accusations.
  • responsibilities of partners. Everyone should have their role, even if it’s just an investor. This is especially important if each of you works within your own business. It is necessary to distribute who and in what matters is the main and responsible.
  • business plan, costs, and revenues. Here it is important to discuss who and what contributes, in what terms, in what way. And if there are unforeseen costs, how will they be distributed and where will the funds come from. If these are borrowed funds, be sure to discuss the responsibility and conditions for their return.

How does financial due diligence work?

Financial due diligence is the necessary element of any M&A process. It is an important stage of deal planning that should be discussed with a potential partner.

When concluding a contract for the provision of the due diligence service, the customer receives a full expert assessment of the business being inspected, i.e. receive objective information about its real value. Based on the data obtained, a picture is formed about the magnitude of potential costs and their economic feasibility. All this available information will later serve to determine the reliable price of the object being sold. Besides, for the transparent and secure procedure, a virtual data room is used. It provides a secure collaborative workspace.

The due diligence service mainly consists of legal and financial due diligence. Financial due diligence confirms the valuation of the organization’s property, the presence of understated liabilities, and overstated assets, which together overestimate net assets and unreasonably make it more investment attractive.

Financial due diligence includes:

  • Analysis of accounting policy and accounting system;
  • Inventory of key assets;
  • Assessment of the internal control system;
  • Analysis of the document management system;
  • Analysis of income in terms of business segments and major counterparties;
  • Diagnosis of costs by elements and in terms of segments of activity;
  • Analysis of assets and liabilities;
  • Analysis of the loan portfolio and collateral;
  • Cash flow analysis.