COMMERCIAL DUE DILIGENCE for a Business Acquisition

Contact Neufeld Legal PC for corporate transactional and legal matters at 403-400-4092 / 905-616-8864 or Chris@NeufeldLegal.com

Commercial due diligence involves a comprehensive investigation and analysis of a target business's market, customers, and competitive environment to assess its long-term viability and growth potential. Commercial due diligence looks forward, aiming to validate the business's strategic value and the assumptions behind its business plan, which is used in conjunction with the other areas of due diligence, including legal due diligence, to assess the viability of the target business and those concerns that need to be addressed prior to completing the proposed transaction.

Key areas of commercial due diligence include, but are not limited to:

• Market Analysis: This involves evaluating the overall health of the market the target company operates in. Key questions to answer include:

  • What is the market size, and is it growing or shrinking?

  • What are the major market trends, and how will they affect the business?

  • Are there any threats from new technologies, regulatory changes, or substitute products?

• Competitive Landscape: You must understand where the target company stands in its market. This involves:

  • Identifying the main competitors and their market share.

  • Analyzing the target company's competitive advantages (or disadvantages).

  • Assessing barriers to entry for new competitors.

• Customer Analysis: A business is only as strong as its customer base. This part of the due diligence process examines:

  • The composition of the customer base (e.g., are they diversified or concentrated?).

  • Customer loyalty, churn rates, and satisfaction levels.

  • Customer acquisition costs and lifetime value.

• Business Plan Validation: The seller will have a business plan outlining future growth. Due diligence verifies that the plan is realistic and achievable. This includes:

  • Evaluating revenue forecasts and growth assumptions.

  • Assessing the feasibility of expansion plans.

  • Reviewing the company's sales and marketing strategies.

Commercial due diligence provides an objective, data-driven view of a business's commercial health. It helps a buyer avoid overpaying for a business with a weak market position or flawed strategy. The findings from this process directly inform the final valuation and can be used to negotiate a lower purchase price or adjust the deal terms to mitigate identified risks.

When it comes to the legal component of corporate mergers & acquisitions, beginning with legal due diligence, that is when the law firm of Neufeld Legal P.C. comes into play. Such that when you are seeking knowledgeable and experienced legal representation in orchestrating and completing business mergers, acquisitions and divestitures, contact us at 403-400-4092 [Alberta], 905-616-8864 [Ontario] or Chris@NeufeldLegal.com.