What due diligence teams keep missing — and why it matters.
By Maureen Grollman, Practice Leader, Dunbar
Mergers and acquisitions involve exhaustive due diligence. Legal teams scrutinize contracts, financial advisors model projections, and tax professionals examine liabilities down to the penny. But there is one category of liability that routinely falls through the cracks: unclaimed property.
It’s an understandable oversight. Unclaimed property doesn’t appear as a line item on most balance sheets. It doesn’t show up in standard tax provisions. And many companies don’t fully understand their own obligations under state unclaimed property laws. The result is that acquiring companies inherit liabilities they never knew existed.
What Gets Missed
Unclaimed property can arise from virtually any business function that generates a financial obligation to a third party: uncashed vendor checks, unresolved customer credits, outstanding payroll, abandoned insurance benefits, dormant bank accounts, unredeemed gift cards, and unclaimed securities, to name a few. Every state has its own dormancy periods, reporting deadlines, and exemptions. A company operating in multiple states may have compliance obligations in dozens of jurisdictions.
When a target company has never reported, has gaps in its reporting history, or has been applying the wrong dormancy periods, the acquiring company may take on that exposure, depending on the type of acquistion. And states don’t forgive past-due obligations just because ownership has changed. The liability follows the entity.
“I’ve seen acquisitions where the buyer discovered millions of dollars in unreported unclaimed property after the deal closed. At that point, your options are limited and expensive. The time to identify this is before you sign.” — Maureen Grollman
The Audit Risk Is Growing
States are more aggressive than ever in pursuing unclaimed property enforcement. Third-party audit firms working on behalf of state agencies are actively identifying companies with extensive M&A history, and the lookback periods in some examinations can stretch back a decade or more. A company that acquired a noncompliant target five years ago may find itself answering for obligations that predate the acquisition entirely.
What Smart Acquirers Are Doing Differently
The most sophisticated acquirers are incorporating unclaimed property into their due diligence process from the start. This means engaging unclaimed property professionals to conduct a compliance review of the target company before closing. A proper review identifies whether the company has been filing in all required jurisdictions, whether the correct property types and dormancy periods have been applied, whether the company has received any audit notices or inquiries, and whether there are historical gaps that could trigger enforcement.
When issues are identified early, they can be factored into deal structure through purchase price adjustments, escrow holdbacks, or indemnification clauses. Some acquirers have negotiated escrow accounts specifically to cover the costs of bringing a target company into compliance, insulating themselves from post-close surprises.
Don’t Let It Become a Post-Close Problem
Unclaimed property is one of the most commonly overlooked liabilities in M&A, but it doesn’t have to be. A targeted compliance review before closing is far less expensive than a state examination after the fact. Companies that address unclaimed property proactively are protecting themselves from inherited risk, preserving deal value, and demonstrating the kind of operational rigor that distinguishes disciplined acquirers from everyone else.
Dunbar’s consulting and advisory team specializes in unclaimed property risk assessments for mergers and acquisitions. Contact us at info@dunbargroup.com to learn how we can help protect your next deal.