Thais Cordero
Lawyer at Marcos Martins Advogados
It’s a fact that a lack of legal, financial and operational support is fatal to any business. Regardless of the company’s valuation and its visibility in the market, the union of legal, financial and operational intelligence is essential to achieve business perpetuity and, above all, to guarantee success in purchase and sale operations. This is the balance that has been widely discussed in the process of acquiring Twitter, by businessman Elon Musk, who suspended the process of acquiring the company due to the absence of information that was crucial to the operation. In this sense, due diligence, a procedure that aims to understand whether the figures, contracts and procedures referenced and adopted by a company reflect its reality, as well as its potential and risks for the future in the short and long term, is proving to be decisive.
With more than 1.3 million registered accounts, according to data from the social network itself, the platform entered the radar of the renowned entrepreneur, considered to be the richest man in the world, to integrate his extensive business network. Even in the face of clear interest, the lack of negative proof as a guarantee that less than 5% of the accounts created are fake is generating an immense impasse in the negotiation and the consequent international discussion about the next steps in the case.
Every investor requires legal and financial security when integrating or acquiring a business, which is demonstrated through documents that clarify its revenue from customers and partners, its cash flow, operating costs such as payroll, debt to banks, among many other complementary and strategic information for the smooth running of the business. Visibility of these operations, in their fullest possible reality, becomes extremely important for greater clarity for investors, reducing contingency risks and speeding up processes that can be hindered by inconsistencies in data or information. This is why due diligence is so necessary.
The procedure, which should be carried out periodically and not only in the case of M&A processes, is fundamental to guaranteeing the legitimacy of the information provided to the market. After all, every company, regardless of size or segment, is a combination of income and expenses, asset valuation and many other factors that define its market value. That’s why you need to build solid foundations, with data that is constantly verified, checked and, when necessary, audited, to avoid inconsistencies that could compromise your operations as a whole.
Through this prior analysis of all areas of the organization, it is possible not only to develop a clearer view of internal operations and bring this objectivity to the investor, but also to predict favourable scenarios for the company’s future. In sales and purchase transactions, due diligence is even more decisive, ensuring that all those involved can be sure, objectively and materially, whether or not to go ahead with the purchase procedure and, if so, what the conditions are for paying the agreed price.
When there is no clarity and confidence about the information in question, the operation will inevitably be unsuccessful and the sale process may be delayed if the company’s credibility is affected – which can happen if the information is disclosed to the market in these circumstances.
Faced with such complexity, the need for recurring due diligence, carried out by professionals with a high technical level, is essential. It is also important to add to this equation that, in any M&A operation, there is always a lot of emotion involved – both on the part of the seller, who has a link to the history of the business, and the buyer, who has his ambitions and plans for his new management in the company. For this operation to be successful, the procedure needs to be precise in order to guarantee a positive outcome for both parties.
Thais Cordero is a lawyer and head of the corporate area at Marcos Martins Advogados.
About Marcos Martins Advogados: Founded in 1983, Marcos Martins Advogados is highly regarded in the areas of Corporate, Tax, Labor and Business Law. Based on values such as commitment, ethics, integrity, transparency, responsibility and the constant specialization and improvement of its professionals, the firm positions itself as a true partner for its clients.
