Risk Management
During M&A, the management has hard time obtaining risk-related information. The target company is generally not very open about the risks associated with its business. Also the management handling the acquisition may underestimate the risks of the acquisition or the target company’s business or might assume that the higher officials are aware of the risks that such an industry faces. But it is very important, not to overlook the risks while making an acquisition.
The important questions that need to be asked before an acquisition is made are
- What is the risk management infrastructure of the target company, presently?
- What ability does the business of the target company have to face unexpected financial pressure?
- How thorough is the acquiring company’s management in its study of the risks affecting the business of the target firm?
- What possible pressures are there on various expected synergies?
- What are the potential risks of the acquisition transaction itself?
- Do the transaction terms include risk mitigating factors?
- Has the company taken expert advice about the business of the target company and about the acquisition process as a whole?
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