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Legal Due Diligence
In any potential acquisition of a business or a company, or even a part investment in one, an investigation or audit of the target is usually carried out. This investigative process is referred to as due diligence and its purpose is to provide the acquirer/investor with confirmation of material facts regarding the target and/or to identify risk areas which might require further attention.
The scope of the due diligence task often covers all aspects of the business including: legal, financial, taxation, commercial, technical, management, employment, pensions, environmental, tangible property and intellectual property.
The acquirer/investor may carry out the due diligence himself if he has the technical capacity to do so, but invariably engages the services of an advisor to assist him with the process. Where more than one team of advisors are acting for the acquirer/investor regarding different aspects of the due diligence (for example, financial due diligence as opposed to legal due diligence), the process needs to be carefully project managed. For example, questions raised in respect of the target by one of the advisors should not be replicated in a different set of questions sent by another advisor.
The acquirer/investor, typically after having signed a non-disclosure agreement (also known as a confidentiality agreement), would brief his advisors as to the nature of the deal and of the target’s business and characteristics. Having gained a good understanding of the potential investment, the advisors would prepare a questionnaire for the target to complete, requesting that responses are returned by a specified date in accordance with the agreed timetable for the transaction. Alternatively, the seller may prepare a “data room” whereby information on the target company is collated by the seller often to enable potential purchasers to formalise the terms of an offer. With the advances in electronic communication, a ‘virtual’ data room could be created with scanned copies of the documents uploaded to a secure server and made available for viewing via a secure web interface.
It is important 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 received will help stricture the nature and extent of the warranties and indemnities in the share purchase agreement.
The advisor(s) would examine the responses and report to the acquirer/investor on the findings, providing a summary of key recommendations within the scope of their brief.
In many acquisitions or investments the time pressures are often acute. The earlier the target can prepare documentation and responses in advance of receiving the due diligence questionnaire, the better.
Typically, a target would be expected to supply copies of the following key documents:
- Memorandum & Articles of Association;
- Statutory books including minutes of board meetings, resolutions and shareholders’ meetings;
- Recent financial statements and taxation returns;
- Business plans;
- Employment contracts;
- Material sales contracts, supplier contracts and distribution agreements;
- Licensing agreements;
- Intellectual property matters such as patents and trade-marks;
- Property lease agreements;
- Pension scheme details and actuarial valuation reports.
- Insurance schedules;
- Environmental reports; and
- Details of any litigious or contentious matters.
JMW’s 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. The Corporate team at JMW is further able to draw upon the combined skills of the firm’s partners in other fields 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.
For further information please contact us on 0345 872 6666 or use our enquiry form - we will get back to you promptly.