Do your company’s 2026 strategic plans include a business acquisition? Whether you already have your eye on a target or are still weighing options, plan now for extensive financial due diligence. To help ensure a successful transaction, it’s critical to review a seller’s statements and other records for signs of owner or employee fraud.
To determine whether unusual income figures indicate systematic manipulation, forensic experts usually consider whether insiders had the opportunity to commit fraud — for example, if the business has failed to implement and enforce solid internal controls. Regulatory disapproval, customer complaints and suspicious supplier relationships can also raise red flags. If warranted, an expert may perform background checks on a target company’s principals.
It’s important to know that some sellers adopt legitimate accounting practices to present a selling business in the best possible light. However, if your forensic accountant finds misrepresentations — especially by executives — you’ll probably want to rethink your acquisition offer. In less serious cases, you may need to make purchase price adjustments or change the deal’s structure. In severe cases, you may need to walk away.
One way to protect your transaction, even if a seller successfully hides financial manipulation and other illegal activities, is to include an indemnification clause in your purchase agreement. Your M&A advisors may have to negotiate with the seller over liability limits and other details, such as the definition of “fraud.” But such clauses can help you manage acquisition risk.
Professional expertiseM&As are transactions you never want to attempt without the guidance and expertise of professional advisors. Effective deal teams typically include investment bankers or brokers, attorneys and accountants with various specialties. To avoid M&A fraud, make sure you include a forensic accountant on your team.