by Rochelle Walk, JD ([email protected])
The excitement of growing a business through a merger can sometimes overshadow the potential for losses if one party fails to get an accurate picture of the liabilities of the other side. Often these liabilities are made apparent during the due diligence process. But sometimes, hidden risks slide under the radar. These secret liabilities can tank the financial benefits of a merger before the newly formed company has had a chance to realize them.
To prevent this from happening in your next venture, here are 2 hidden liabilities to look out for and what you can do to neutralize them before they spoil your deal.
Prior Acquisitions
Most companies today are the byproduct of the acquisitions and mergers that came before it. With those prior deals come a whole host of liabilities that a cursory review may not uncover. So to avoid losses from these previous transactions, merging organizations must perform their due diligence thoroughly.
This not only means learning about previous purchases and sales but also obtaining copies of the operative documents. These documents include sale agreements, leases, deeds, and title searches. By thoroughly reviewing these documents, the merging organizations will have a better picture as to the assets, liabilities, rights, and responsibilities of each company. And they will be better able to manage those obligations in the merger.
Environmental Hazards and Compliance Risks
Another hidden risk when it comes to a merger is environmental hazards and compliance risks. Even if a company isn’t known for working with hazardous materials, it may own facilities or property where a previous business worked with these substances or there might be rules regarding disclosing ingredients or materials used in products. And unless the merging documents contractually transfer the liability stemming from these risks, the newly formed company can be on the hook for remediating these hazards in the future.
Environmental hazards and compliance risks can be some of the most obscure liabilities to uncover when negotiating a merger. So once again, a thorough due diligence process is critical. Merging organizations should take care to review the properties owned by the parties and the history of businesses or residences that once located themselves there.
If you need some assistance protecting your organization from hidden liabilities during a merger, AEGIS Law is here to help. Send us a message or call us at (314) 454-9100.
