A market check is a research investigation performed to determine a fair price for a company that is being targeted for acquisition or merger. Market checks are done by request from the target and the information gathered during the investigation will be used in negotiations. Companies looking to acquire or merge with targets perform investigations of their own as they evaluate a company to see if it will be a good purchase and to find a price that would be reasonable.
Usually an investment banking firm performs the market check. It looks into the finances of the target, considers its position in the market, and evaluates other factors that may play a role in the price, such as pending litigation that might result in a big settlement. During the evaluation, investigators work on determining a fair price for the company itself, as well as its assets.
The report from the market check is used as a negotiating tool by the target's board. The board members can contest a price being offered, arguing that the market check shows that a higher price would be more reasonable. They can also use the information to demonstrate that they are financially viable and strong. There are many different types of acquisitions and mergers that can occur, and the role of the market check can vary, depending on what kinds of negotiations are occurring.
Having a third party evaluate a company ensures that the information is reasonably unbiased. The firm that conducts the market check has an interest in performing the investigation thoroughly and well. It has no reason to conceal or alter information to nudge the deal in a particular direction and thus can be viewed as a reliable source of balanced information about the company, its history, and the pricing that people should consider during negotiations.
It is normal for both sides on a deal to conduct pricing investigations and this is expected. Companies do not usually want to make acquisitions without having some information about the target to confirm that the buy would be a good business move. Likewise, companies do not want to accept offers for acquisitions or mergers without confirming that an offer is an accurate reflection of their value. Members of the board cooperate with the investigators performing the market check to provide information that will assist the firm conducting the check in the preparation of a complete and comprehensive report.