Do It Yourself M & A Background Checks
While the above techniques are helpful, they are far from foolproof. It is not uncommon for Internet resources to have errors. Also, the Net is likely only to have a part of the background information needed. That is, you will likely use a paid service.
The information you can get from such a service include:
- Criminal violations
- Credit history
- Business media
However, before conducting a paid search, it is important to get the consent of the person involved, so as to avoid privacy problems. A good idea would be to have a separate consent agreement or a clause in an engagement agreement.
What if the person does not provide consent? Well, this could be a sign that there is something to hide.
Also, premium search services are affordable. For example, with US Search, the following is the price structure for a routine background search:
- $70 - Business Credit Report (company's ownership, payment history, bank account balance, credit risk and so on)
- $20 - Court Record Search (Liens, judgments, and bankruptcies)
- $59.95 - Nationwide Criminal Search (US Search gets its information straight from the county court houses)
So, at a minimum, make sure you conduct online searches on the principles of the deal. And it is also a good idea to call references.
Yet, this is no guarantee. A famous case was the merger between HFS and CUC International. CUC got reference checks on the CEO that included Bill Gates, Warren Buffett and Henry Kravis. All had glowing reviews of the CEO.
The CEO, it turned out, was a brilliant con. He had been fabricating the company's profits for about ten years. It was not until CUC closed the deal that it found out about the sham -- resulting in one of the biggest M&A fiascos in history.
Nothing is perfect. But, with routine background checks, you can certainly help mitigate unnecessary risk factors that can wreck a deal.
Tom Taulli is the author of the Complete M&A Handbook and a manager of the Oceanus Value Fund (www.oceanusfund.com), which provides bridge loan financing. He teaches a course on M&A at the USC Marshall School of Business. He has also appeared on CNN, CNBC and Bloomberg TV, as well as quoted in the Wall Street Journal, Barron's, and USA Today. You can purchase his book from his Web site at www.mergerforum.com.
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