What is Due Diligence and How We Can Help
16th October, 2019
Due diligence is the process undertaken by a buyer before buying a company/business. The buyer, working with their advisers, will undertake an investigation into the ‘target’ business.
The information obtained as a result of the investigation will assist the buyer in assessing the target, and in particular, identifying any potential issues, risks or concerns in relation to the target and the transaction generally.
Areas of due diligence
Broadly speaking, a buyer should undertake legal, financial, tax and commercial due diligence on the target. Solicitors, accountants and other professional advisors will often provide the lead on obtaining the relevant information on the target.
As part of the legal due diligence, we would cover the following areas: corporate structure and records; share capital and shareholders; finance and banking arrangements; contracts and trading; assets; intellectual property; insurance; consents and compliance; litigation and disputes; employment and HR; pensions; land and buildings (real estate); environment and health and safety.
The scope of the investigation will vary from transaction to transaction depending on whether it is a purchase of the shares in the target company or a purchase of the target’s assets, the circumstances of the deal and the level of detail the buyer wants to undertake in its review.
Dealing with any issues found
Issues, queries and concerns may be revealed when carrying out the due diligence process. Some issues can be dealt with to the satisfaction of the buyer prior to completion. However, for more serious issues, a buyer may seek to:
- obtain an indemnity from the seller for any losses arising from the identified issue;
- reduce the purchase price;
- re-negotiate the terms of the purchase; or
- withdraw from the transaction altogether.
How we can help with due diligence
We help sellers to manage the due diligence process that can be overwhelming and particularly time consuming, detracting from the day-to-day running of the business. We will manage the ‘data room’ (typically housed in a secure online platform) where the information is presented and we will support with obtaining information and documents. Prior to sale, we assist sellers to undertake their own preliminary due diligence to identify and put right any issues before the buyer carries out its review.
We also strongly recommend that sellers obtain confidentiality undertakings from any perspective buyer. As part of the due diligence process, the seller will be revealing sensitive commercial and other confidential information about the company/business, including its customers, suppliers, trade processes, and business know how. Sellers may want to consider releasing the information in stages, with lesser sensitive information being disclosed in the first instance with more sensitive information to follow when the buyer has shown commitment to a transaction.
We assist buyers with their legal due diligence by reviewing the areas set out above, asking appropriate questions and reviewing the information received from a legal perspective. Where issues are found, we will advise on ways they can be dealt with effectively and minimise risk to the buyer.
A buyer may want to seek an exclusivity period from the seller (meaning the seller cannot engage with other perspective buyers) during the due diligence process and up to completion.
We have a huge amount of experience in advising both sellers and buyers across a number of sectors on legal documents and issues related to selling and buying businesses – come and talk to us.
Corporate & Commercial
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