Acquisitions, due diligence, and factoring depreciation value

Acquisitions, due diligence, and factoring depreciation value

On Behalf of | Jun 6, 2019 | Mergers & Acquisitions |

There are a number of factors that can help determine if an acquisition is in a business’s best interests. The expansion of client base, new market access, and reduction of costs can all spur the takeover of a business.

Yet, there are a number of less obvious matters that must be carefully considered to ensure that a fair deal is reached. Those who fail to adequately address these issues can find that they have overpaid for the acquisition of a business, which can have severe financial repercussions for years or even decades to come.

One those matters that must be thoroughly analyzed is depreciation. Depreciation is an accounting term used to identify the lost value of assets over time. Although these considerations can have tax consequences, they can also shed light on the true value of a business.

For example, say the target business of an acquisition specializes in manufacturing. At first glance, the business’s machines may appear brand new and thus valuable. After careful analysis, though, it may be discovered that the machines age quickly and thus lose value fast. Determining the appropriate depreciation value of those assets can drastically affect the compensation for the acquisition of the business.

There are a number of professionals who can help with this process, including accountants and market experts. But a business law attorney will know how to negotiate the terms of an acquisition to ensure that there are no loose ends or ambiguities that can leave an acquiring business facing negative ramifications. An acquisition is usually a complex process that requires address a multitude of issues, including things like depreciation. Fortunately, though, there are a number of law firms skilled at handling these types of business transactions.