In her first article, new member to the Corporate & Commercial Team Hem Gujadhur outlines some of the most important questions that should be asked during due diligence.
What is due diligence?
Due diligence is the process of examining all aspects of a company or business (often referred to as the ‘target’), before potentially purchasing it.
A specialist usually covers each area to be investigated, be it legal, financial or tax, and prepares a report on its findings.
This article will focus primarily on legal due diligence.
Why is legal due diligence important?
There is no duty on the seller to disclose all liabilities and issues in relation to the target, unless they are required to give a warranty in relation to such liabilities or issues.
Therefore, it is particularly important for the buyer to undertake legal due diligence to understand what they are buying and whether there is ‘value for money’.
When should due diligence be carried out?
Once heads of terms and confidentiality agreements have been signed, legal due diligence should be conducted.
Legal due diligence can sometimes be quite an intense process where a large amount of information is provided by the seller and subsequently reviewed by the buyer.
Quite often, data rooms will be used to make the sharing of information more efficient.
The due diligence process usually runs concurrently whilst negotiations of the sale are ongoing.
What if the due diligence raises concerns?
If the legal due diligence report highlights certain areas of concern, the buyer may choose to renegotiate with the seller on key elements of the deal, such as the purchase price.
The buyer may also seek specific indemnities from the seller in respect of any areas which could expose the buyer to potential future risk.
Click here to read the full article, where Hem goes into detail on what questions should be asked during due diligence.