M&A transactions, like most transactions in life, involve a cost/benefit analysis. Some cost/benefit analyses are relatively easy to perform. For example, if I buy an energy efficient appliance, I can calculate the likely savings in energy costs over the useful life of the appliance (the benefit) and compare it with the acquisition cost of the appliance (the cost). M&A transactions, of course, involve far more complex cost/benefit analyses. But the key to any such analysis is the ability to identify and quantify the costs and benefits with some measure of confidence. Every line of business has its own quirks and idiosyncrasies, and they need to be understood when evaluating the acquisition of a company that operates in that line. More than most, the business of government contracting is replete with such quirks and idiosyncrasies, and they can have a dramatic effect on the “cost” side of the cost/benefit analysis.
One of the more costly aspects of government contracting derives from the all-encompassing oversight role of the Government and the uncertainties that it can introduce into the evaluation of a target business. It is important, therefore, to know what to look for when your team descends upon the data room, what to ask for, and what it portends. If you need a mnemonic to help guide your tour through the data room, think “AID” – “Audits, Investigations, and Disclosures.” Access to information relating to those three topics will serve to identify a variety of risks and liabilities that can significantly affect your cost/benefit analysis.