In any crucial business acquisition, an investigation or audit of the target is normally carried out. This thorough process is referred to as due diligence. Its purpose is to provide the acquirer/investor with material facts confirmation regarding the target. And/or to analyze risk areas which might require further consideration.
The due diligence task scope often covers all business aspects. Including: legal, commercial, technical, financial, taxation, environmental, tangible property, management, employment, pensions and intellectual property.
The investor / acquirer may perform the due diligence himself if he has the technical skill and competency to do so. But always employs the services of an advisor to assist him with the process. The process needs to be carefully project managed, where more than one team of advisors are acting for the investor / acquirer regarding different aspects of the due diligence For example, legal due diligence as opposed to financial alertness.
Typically, the acquirer/investor, after having signed a non-disclosure agreement, would brief his advisors as to the essence of the deal and of the target’s business and aspects. Having advanced a good understanding of the potential investment, the advisors would prepare a questionnaire for the target to complete. Requesting that responses are relied by a specified date in accordance with the agreed timeframe for the transaction. By preference, the seller may prepare a “data room”. Whereby information on the target company is collated by the seller often to enable potential purchasers to formalize the terms of an offer. In electronic communication system, a ‘virtual’ data room could be created with scanned copies of the documents uploaded to a secure server. And made available for looking via a protected web interface.
It is necessary for the target to appreciate reliance will be placed by the acquirer/investor on the accuracy. And the validity of the responses when making a decision to invest. And the information collected will help stricture the nature. And extent of the warranties and compensation in the share purchase agreement.
The advisor(s) would examine the responses and report to the acquirer/investor on the findings as providing a summary of key recommendations within the scope of their brief.
In many acquisitions or investments the time stresses are often limited. The earlier the target can prepare documentation. And replies in advance of receiving the due diligence questionnaire, the better.
Normally, a target would be expected to supply copies of the key documents as follows:
- Articles and Memorandum of Association;
- Statutory books including minutes of board meetings, and shareholders and resolutions' meetings;
- Recent financial statements and taxation returns;
- Business plans;
- Employment contracts;
- Supplier contracts, material sales contracts, and distribution agreements;
- Licensing agreements;
- Intellectual property matters such as trade-marks and patents
- Property lease agreements;
- Pension scheme details and actuarial valuation reports.
- Insurance schedules;
- Environmental reports; and
- Details of any litigious or contentious matters.
Our team of corporate solicitors and lawyers are experts in reporting on. And managing the legal due diligence process and dealing with the project management of complex acquisition and investment scenarios. Such as Employment Law and Property Law in order to provide the potential acquirer or investor with practical, added-value commercial advice, delivered within agreed timetables.
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