The business world is often transitional, and the landscape changes as entities grow or industries change – and the players involved have to change with it. Mergers and acquisitions are examples of these “transitional times,” and they are also among the most critical times to conduct proper and thorough due diligence.
There are inherent risks involved with the “unknown factor” that outside entities represent. By nature, merging with another entity, or acquiring it altogether, can be an exciting time, but background screening is especially crucial at this juncture.
When conducting due diligence before a merger or acquisition, what are some of the red flags that should make you take a closer look?
CRI® Group has conducted numerous due diligence engagements for clients undertaking major business deals. Our agents have also conducted many investigations for organisations that failed to do proper due diligence, and as a result became victims of fraud. Our findings in those investigations have provided a road-map of things to look for, and be cautious about, when in the pre-merger or pre-acquisition stage.
Here are a few red flags for any organisation undergoing a merger or acquisition:
1. Legal issues
When merging with or acquiring another entity, due diligence will uncover legal proceedings, including any troubling issues that the entity might have been trying to keep hiding. Past or current litigation or even criminal proceedings have been uncovered in background checks.
2. Credit risks
Some potential partners might be financial landmines, bringing the kind of baggage your organisation cannot afford. Has the entity claimed bankruptcy? Have they dissolved prior companies or are they faced with debtor filings? Proper due diligence will uncover these and other financial risk factors.
3. Lack of experience
If your organisation is looking to partner with a contractor or service provider, what is their experience level in the industry? Have they successfully completed past projects of a similar scale? Nothing can hurt your reputation with clients and customers more than having your deliverability affected by a contractor that cannot handle to job.
4. People problems
Hopefully, your organisation conducts thorough employee background screening of all potential and current employees. Can you say the same for the entity you are considering for a merger or acquisition? If not, the risks are great: fraud risks, criminal conduct, even employees without the needed training or skill level doing dangerous jobs could all come back to damage your own organisation and reputation. Comprehensive and thorough background screening, including of owners and principals (perhaps these are most important) will uncover such risks.
None of these red flags, on their own, are necessarily absolute roadblocks to a proposed merger or acquisition. Some scenarios can be explained, and certain circumstances simply require a fuller explanation.
But the key is having the information. In business, being surprised is generally not a good thing. This is never more true than when dealing with mergers and acquisitions.
Who is CRI® Group?
Based in London, CRI® Group works with companies across the Americas, Europe, Africa, Middle East and Asia-Pacific as a one-stop international Risk Management, Employee Background Screening, Business Intelligence, Due Diligence, Compliance Solutions and other professional Investigative Research solutions provider. We have the largest proprietary network of background-screening analysts and investigators across the Middle East and Asia. Our global presence ensures that no matter how international your operations are we have the network needed to provide you with all you need, wherever you happen to be. CRI® Group also holds BS 102000:2013 and BS 7858:2012 Certifications, is an HRO certified provider and partner with Oracle.
In 2016, CRI® Group launched Anti-Bribery Anti-Corruption (ABAC®) Center of Excellence – an independent certification body established for ISO 37001:2016 Anti-Bribery Management Systems, ISO 37301 Compliance Management Systems and ISO 31000:2018 Risk Management, providing training and certification. ABAC® operates through its global network of certified ethics and compliance professionals, qualified auditors and other certified professionals. As a result, CRI Group’s global team of certified fraud examiners work as a discreet white-labelled supplier to some of the world’s largest organisations. Contact ABAC® for more on ISO Certification and training.