Due diligence in mergers and acquisitions

The current environment of mergers and acquisitions (“mergers and acquisitions”) evolves. There is a constant movement in the mortgage industry with the desire for growth and expansion. It is easy to be blinded by the final goal of increasing the credit volume and the qualitative origination of talent. So it has never been so important to concentrate on the necessary diligence when analyzing an acquisition objective of the mortgage industry.

In a typical transaction, the due diligence checklist can be overwhelming – pages on pages in length. The checklist deals with broad areas and topics such as: organizational structure; dispute; compliance; intellectual property; real estate; financial and tax; labor and work; material, supplier and software contracts; insurance; And customers. Under each important head, the checklist goes into detail to bring potential problems that the company can devalue, can expose a buyer to liability or even endanger the transaction. This article is not intended as a comprehensive assessment of due diligence, but is intended to tackle some important mergers and acquisitions and to keep the topic of top-of-mind.

Branding/Intellectual Property: Trade Names, DBAs and Domain Names

Trade names, DBAs, trademarks, fictional company names or supposed company names are what the world knows the company. If the name recognition has value or interest for future activities, you want to ensure that the name or names in each state are correctly registered where the company is being carried out or at the US Patent & Trademark Office. A buyer wants the right to use those names and markings with a superior title from the rest of the world. The last thing a buyer wants is to find out after the deal is concluded that the founder of the company has registered a name or trademark in his own name and has never awarded it to the company correctly. The same applies to domain names. Check if the company owns the domain name. Even if the intention is not to continue to use a website, the buyer wants to check it to destroy future searches.

Regulatory compliance

The mortgage industry is heavily regulated and subject to the investigation by both national and federal agencies. This is a potential mine field. Are there any research or threatened research that is not generally known to the public? Any infringements of privacy? Is the seller subjected to a probationary review? Have complaints been submitted that can influence licenses or “tickets” of companies sponsored by the government? Is there a potential pattern of questionable practices and activities based on allegations that have been submitted to government organizations? It is not an understatement to say that one of the aforementioned questions are answered, yes, can be a dealbreaker. It is often simple enough to perform a first online search to search for red flags.

Material contracts

There may be countless contracts that contain provisions that can cause liability or exposure when selling a company. A certain care relates to software licenses. With the refinement of the mortgage industry, contracts with software suppliers are extremely necessary and expensive. Important issues include financial fines for early termination, restrictions on the allocation of the contract after a change in the ownership of the seller and incompatibility for the transfer of data to another system. Even if the buyer uses the same provider, they must continue to pay for a second license based on the seller’s existing contract. The contracts must also be revised to guarantee the correct legal electricity prohibitions for suppliers. These issues are not a consideration when the M&A discussions start, but it can significantly influence the final purchase price to tackle unforeseen liability.

Important managers and employees

A clear care from the buyer is the possibility to retain important people. What about those people you don’t want to keep? Are those employees subject to non-competitors, confidentiality and non-application agreements? Are those agreements allocated to the buyer? All these documents must be revised. Are employees also promised future equity in the seller? This could be through a formal agreement or plan, in an employment contract or even an e -mail. The acquirer wants to ensure that there are no employees after making that claim he should have been paid during the closing or were obliged to give permission for the sale.

Miscellaneous/Conclusion

This head of various is misleading. All these items are important. Here is a further sample of the many detailed items to investigate during Due Diligence: (i) liabilities with a loan left (buying back, safeguard agreements, defective loans, EPO/EPD among MLSAs); (ii) joint marketing agreements, joint ventures, affiliated business schemes and other essential business relationships; (iii) office instance and loss agreements; (iv) loan pipelines; and (v) protect and procedures for confidential consumer information – state and federal level.

The devil is in the details when it comes to due diligence. It requires that a team not only understands general issues that are common for mergers and acquisitions, but also members of the team must understand industry and its nuances. Don’t let the excitement of Deal ensure that someone rushes the process.

Gary M. Remer is a shareholder at Maddin Hauser. Gary focuses on mergers, acquisitions, joint ventures, franchising, tax and employee benefits for companies in the spectrum, including the mortgage industry. He also serves as an external general adviser for his clients and helps with legal and operational issues.

Brian A. Nettleingham is a shareholder at Maddin Hauser. The practice of Brian’s financial and mortgage services includes legal, transactional and disputes of the legal, including capital and secondary market transactions, mortgage loans and origin, reverse mortgage products, correspondent programs, joint marketing agreements and agreements for financial suppliers.

This column does not necessarily reflect the opinion of the editorial department of Housingwire and the owners.

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