Due Diligence For M&A in Japan
Jul 29, 2014
Why is Due Diligence Necessary for M&As of Small to Midsized Companies?
What do foreign investors in Japan need to know?
In our experience, the establishment of a new company can be more fruitful than acquiring an existing company. However, if one is contemplating an M&A, particularly of a small to midsized business (SMB), a key element to success is, of course, to be well informed of the investment choice that you are making.
Without understanding in detail the conditions within the target company, and without the guarantee of being able to obtain the material documents that contain the necessary clues, opportunity-seeking investors should be aware that the target company prior to acquisition compared to the business after completion of the transaction can be markedly different.
Investors need to understand that when acquiring an SMB, they are essentially paying for the company’s human assets and their established customer relationships. In the absence of obtaining and analyzing key information, ill-informed investors might unexpectedly find that those benefits on which they based their valuation of the transaction might quickly disappear after completion.
However, with thorough due diligence in which all key documents are reviewed takes time and could ultimately get in the way of completing a good deal before it slips through one’s fingers. As in all business decisions, the benefits need to be weighed against the costs. That being said, in the case of an M&A of a SMB we suggest that, in our experience, obtaining the assistance of an experienced, strategic due diligence team who can check the necessary documents and swiftly identify and summarize the material information is vital in order to avoid potential time and money wasting disappointments down the track.
Concluding an agreement with a Japanese business person
Japanese business people are not always to be trusted; as in the rest of the world, it depends upon the person and the circumstances.
Without a background check, there is a risk that you will lose money. In some cases, you may lose the goods that you delivered to your Japanese buyer. You may also lose the most invaluable asset: time.
In most cases, a well-crafted contract will include conditions that can help avoid such risks in cross-border transactions. In order to further minimize risks, you should check the background and reputation of your future partner.
Even if the person is reliable, this information is never wasted. The more you know the more able you are to negotiate.
As such, we suggest utilizing the assistance of a trustworthy data bank service to secure your transaction.
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