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Corporate Due Diligence For Mergers and Acquisitions of Natural Resources Companies

Thomas A. Richardson, Mergers and Acquisitions of Natural Resources Companies (1994)

A prospective buyer of a company has a very simple goal in conducting due diligence prior to the acquisition of a company — to reach an acceptable level of assurance that the buyer will realize the value of the business that the buyer is paying for. This involves confirming the existence and ownership of the assets of the business and, when a merger or stock acquisition is involved, the identification and quantification of liabilities and commitments of the company being acquired. Achieving the goal of value realization requires an understanding of the concerns about a company's value and the methods available to identify, quantify and deal with the concerns.

Timing of Due Diligence

From the standpoint of a prospective buyer, in an ideal world a complete investigation of a company should be performed prior to entering into a binding commitment to purchase the company. At that point, the purchaser could decide whether to make an offer and, if the decision is to proceed, the price and all other terms of the offer could be finalized, all based on full information about the benefits and drawbacks of the purchase.

A number of factors usually make this ideal world unrealistic. If the buyer is not committed to the purchase (subject only to objective conditions) then, under contract law requiring consideration from both sides, the owners of the target company