Mergers and acquisitions on the rise: the importance of accounting, tax and labor due diligence


Mergers and acquisitions on the rise: the importance of accounting, tax and labor due diligence

When planning mergers and acquisitions, businesses should invest in due diligence for gathering reliable information.

By Marluci Azevedo

Mergers and acquisitions (M&A) are on the rise in Brazil. According to a report by Transactional Track Record (TTR), there were 1453 transactions from January to August this year, moving around BRL 331.2 billion , an increase of 52% compared to the same period in 2020.

This has also been happening on a global scale, and experts already predict to a growth cycle in M&A operations. The technology sector is the one that has been stimulating these agreements the most.

The motivation for buying or selling a business can be attributed to different factors, including growth or survival strategies, expansion of market share or succession issues.

Whatever the reason, it is essential that companies prepare for the M&A process, mapping the risks involved and analyzing the business viability.

Mergers and acquisitions require preparation

Dedicating yourself to the preparatory stage is essential for evaluating the potential of the company that is going to be sold or acquired.

This process involves analyzing the tax, accounting, financial, labor and social security situation of the business, as well as creating an action plan to reduce the identified risks.

Not being prepared to provide reliable and structured information to investors can be a barrier to consolidating an operation.

The importance of Accounting, Tax and Labor due diligence

Due diligence helps to answer important questions that will support decision making. The objective is to understand what would be obligations resulted from the merger or acquisition.

Understand the importance of due diligence:

Reducing risks in transactions

An in-depth check can point out non-compliances, liabilities and litigation, indicating exposure to future risks, problems and expenses. Thus, among the aspects to be investigated in the accounting, tax and labor due diligence are:

  • Review of balance sheets and accounting and financial statements
  • Adequacy of the tax regime
  • Compliance with federal, state and municipal taxes
  • Review of ancillary obligations
  • Credits to be refunded/offset
  • Survey of labor risks and liabilities

This survey will contribute to the definition of the agreement between the parties, as inconsistencies will impact the terms of negotiation and the definition of guarantees between the parties involved.

The product of this diagnosis is an impartial report, which does not judge the feasibility of the operation and does not provide a definition of amounts for the transaction.

The gathered information, however, assists the buyer in evaluating the investment or showing the company interested in selling that there is a need to fix the company before proceeding with strategies in this direction.

Support for M&A operations

When planning M&A processes, it is imperative to find the right and specialized partners to assist the business from the preparatory phase to consolidation.

Domingues e Pinho Contadores has a multidisciplinary team able to guide national and multinational companies in planning and achieving their goals through due diligence and review in the tax, accounting, labor and social security areas. Count on this support to overcome the challenges of mergers and acquisitions processes:

Author: Marluci Azevedo, partner at Domingues e Pinho Contadores.

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