Due diligence for government contractors: Beyond financial diligence

Successful mergers are a result of addressing risk, compliance, and technology at multiple levels. Whether planning for a merger or working through integration issues, utilize the questions below to prepare your organization for success.  

Risk

Effective mergers are an outcome of addressing risks at multiple levels. Key risk areas include:

  • Organizational risk – How will the new entity be structured? Will the entities merge or operate independently?
  • Financial risk – Can profits be maintained or losses mitigated? What drives profits and losses?
  • People risk – How will talent preservation, leadership transition and corporate culture be managed?
  • Control environment risk – Are internal controls adequate for the new organization structure? Who owns it?
  • Process risk – Are business processes similar or will significant retraining be required?
  • Post-merger integration risk – Are synergies achievable? Is the timeline too aggressive? Is there adequate internal support?

Compliance

Onerous rules and regulations must be considered. Most importantly:

  • Are there cleared contracts triggering DSS notification requirements? Are there issues related to foreign ownership?
  • How will the transaction impact FAR and CAS compliance? Will there be cost accounting practice changes
  • Do intellectual property ownership of valuation issues exist?
  • Are there Federal Supply Schedule Compliance issues? How will multiple schedules be harmonized post- transaction?
  • Does historical DCAA, DOL, and other audit agency activity indicate issues? What is the current audit activity? How will risk related to open years be mitigated?

Technology

Merger preparation includes critical decisions about historical financial data.  Consider the following during acquisition planning:

  • Will financial systems be integrated?  What is the scope of the integration?
  • How does integration impact custom interfaces and reports?
  • Will integration occur immediately or at a future date?
  • Will summary balances or transactional detail be converted?
  • Is data to be converted clean and accurate or is cleanup required?
  • How will historical data be accessed? Paper reports, data warehouse or read only access to historical systems?
  • How compatible are the account, organization, and project structures?

For more information on this topic, or to learn how Baker Tilly government contractor specialists can help, contact our team.