As the economic recovery continues to pick up steam, manufacturers are looking to grow their capacity and expand their markets. Many manufacturers choose to expand their horizons by acquiring smaller companies or merging with a competitor. When properly planned and executed, such transactions can bring great economic rewards. However, when the risks inherent in such a transaction are not properly accounted for, companies may find that they wind up purchasing someone else’s headache. While a target’s finances, liabilities, and intellectual property are the subject of intense scrutiny (properly so), many buyers fail to give sufficient consideration to the pitfalls and headaches that could be buried in the target’s supply chain contracts.
No two transactions are exactly the same. Due consideration should be given to the particular circumstances of any proposed acquisition. For example, acquisitions through bankruptcy present additional considerations. However, in any acquisition, buyers should make sure that they give proper consideration to at least the following issues:
With careful consideration and planning, many of the potential pitfalls presented by these issues can be prevented, or at least mitigated. In some cases, transactions can be structured so as to avoid or minimize the risk posed by a particular issue. Other issues can be resolved through obtaining the appropriate consents in advance of the transaction. However, if an issue cannot be resolved, it is better to know the risks before investing significant capital and resources.