BUYER BEWARE: Importance of Due Dilligence in Mergers & Acquisitions

BUYER BEWARE: Importance of Due Dilligence in Mergers & Acquisitions

Nicolas V. Dolce, JD

Tech giant, Microsoft, made headlines last week when they publicly announced their recent acquisition of the industry leading video game publishing company, Activision – the deal is set to be worth in excess of $67 billion. While from the outside that figure seems colossal, if you dig a little deeper, it actually may prove to be quite the bargain.

Activision is one of the most well-known video game publishing companies, primarily because of its development of the “Call of Duty” franchise. Recently, Activision has made headlines for other reasons: facing down a high-profile sexual harassment lawsuit brought by multiple former female employees. The deal in place between Microsoft and Activision is what is commonly referred to as a “stock deal”, meaning Microsoft will take on not only the majority ownership interest, but also Activision’s legal responsibilities as part of the acquisition.

In a recent Business Insider article examining the potential ramifications Microsoft faces by inheriting such legal troubles, author Katie Canales opines that the acquisition cost of the video game publisher is a rather conservative figure, stating “the $68.7 billion price tag may even reflect the costs associated with grappling with the legal woes.” Similar articles which have surveyed the acquisition state that Microsoft masterfully leveraged its position to get the best price possible – the tech giant is set to acquire a huge selection of intellectual property and game-development resources as we quickly approach the dawn of the virtual reality known as the “Metaverse”. For an industry powerhouse like Microsoft which generates $165+ billion in revenue annually, the cost associated with managing the lawsuit would be small potatoes. But the extent of the negative optics Microsoft potentially faces with the forthcoming lawsuit is yet to be determined, and only time will tell.

This is just one example which highlights the importance of due diligence necessary for businesses when considering the possibility of a merger or acquisition of another business, no matter the size or industry.