Complete notes covering Workshop 2 of the University of Law's M&A Elective.
- Types of Due Diligence
- Risks/Solutions to Due Diligence Investigations.
The art of due diligence is to understand your client’s objectives and to ensure that the legal due diligence
exercise concentrates on the issues that are important.
Two levels of protection for the buyer
Due diligence is the first of two steps that a buyer will take to protect itself against the principle of caveat emptor.
1) It is the buyer obtaining as much information as possible on the target to reveal areas where the buyer is at risk
2) Once the buyer’s risks have been identified, we need to protect the buyer contractually with extensive warranties and
indemnities in the sale and purchase agreement
TYPES: 3 key areas of review
Commercial Done by
Þ Buyer itself, or
Þ If buyer is a company, senior management, or
Þ If buyer does not have sufficient expertise in relevant market, professional advisors (instructed by
letter of engagement – see below)
Þ If buyer wants to raise finance to fund acquisition, business review may also be done by its
financial advisors
Investigation into target’s
Þ Market position
Þ Business plan and prospects
Financial Done by
Þ Buyer’s accountants
Þ Instructed by letter of engagement, which will
Set out terms of appointment and lines of communication
Agreement on fees and limitations on liability
Set out confidentiality concerns
Þ Accountants normally produce an Accountant’s Report
Investigation into
Þ Commercial activities
Þ Management structure and employees
Þ Taxation
Þ Profitability
Þ Balance sheet strength
Þ Accounting systems and policies
Þ Premises
Legal Done by
Þ Lawyers (see detail on legal DD below)
Aims to identify any potential legal issues that might affect the value or prospects of the target
assets/ company
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