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Jun 17, 2019

Sammy Redlick speaks to Advocate Daily about the warning signs companies need to steer clear of in the acquisition process

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While profitability and a healthy balance sheet are often top of mind for companies looking at potential acquisition targets, they should also be on the lookout for possible warning signs during the due diligence process, says Toronto corporate lawyer Sammy Redlick.

In addition to financial health, most acquirers — whether they are financial buyers, such as private equity funds interested in growth potential or strategic buyers looking for synergies — also favour strong management teams in a target company, says Redlick, partner with Torkin Manes LLP.

“They want a strong management team that they believe is going to be around for a while, is going to be incentivized and have their interests aligned with the acquirer, which is why oftentimes in these acquisitions you will see that it’s a condition of closing that long-term employment contracts are signed with key people in the organization,” he tells Advocate

However, Redlick adds, when the primary owners of the target company are also the key members of its management structure, this should be considered a potential red flag.

“If you don’t structure the deal adequately, then you run the risk of the owners not being incentivized to stick around and help transition the business, and you run into problems,” says Redlick.

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