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LPC Law Notes Private Acquisitions Notes

Due Diligence Notes

Updated Due Diligence Notes

Private Acquisitions Notes

Private Acquisitions

Approximately 339 pages

A collection of the best Mergers and Acquisitions* notes the director of Oxbridge Notes (an Oxford law graduate) could find after combing through dozens of LPC samples from outstanding students with the highest results in England and carefully evaluating each on accuracy, formatting, logical structure, spelling/grammar, conciseness and "wow-factor".

In short, these are what we believe to be the strongest set of Mergers and Acquisitions notes available in the UK this year. This collection is f...

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The following is a more accessible plain text extract of the PDF sample above, taken from our Private Acquisitions Notes. Due to the challenges of extracting text from PDFs, it will have odd formatting:

DUE DILIGENCE

Purpose of DD?

  • Obtain as much information as possible about the target

  • Allows B to decide whether or not to proceed with the acq, and if so, on what terms.

  • B will look to obtain information on:

    • target's strengths and weaknesses

    • areas requiring contractual protection (this will inform the types and extent of warranties and indemnities in SPA)

    • identify consents needed (e.g. for the continuation of key contracts)

    • identify potential costs of integration and plan accordingly

Areas to review

  1. Business - Carried out by senior management of B and its business advisers

  • market position?

  • business plan and prospects?

  • will it fit in with B's business?

  1. Financial - Undertaken by accountants who will produce a report outlining investigation

  • Review past accounts

  • Consider achievability of projections

  • Is further financing required?

  1. Legal - Undertaken by legal advisers who will produce a report outlining investigation.

  • Any potential legal issues which may affect the value/prospects of target

  • Terms on which target does business

  • Extent of liabilities of target

  • Confirm the extent to which the target owns the assets used

Type of the DD report Format of DD report

  1. interim

  • DD may be length and B may require interim reports summarising any issues of key importance.

  • this will act as an early warning mechanism in relation to matters which may be so serious that B will consider withdrawing from the deal or renegotiating the main contract terms.

  1. full audit

  • complete audit of the target business, including an in-depth summary of all the target's legal obligations.

  • Very rare because of the expense and will only be required there B is concerned with the risks associated with the acquisition.

  1. by exception (for most transactions)

  • focuses only on matters that are material to the proposed acquisition, or on matters that are unusual or unexpected.

Standard format:

  1. Executive summary

  • sets out the key findings of the report.

  • may also include key proposals (e.g. consents or conditions) which must be fulfilled before the acquisition can proceed, or terms which should be included on B's behalf in the acquisition documentation.

  1. Statement on Scope of investigation and liability

  • B of shares or assets may have relied on the opinions of parties other than S (e.g. lawyers).

  • If these turn out to be false or misleading, B may have a remedy against the third party.

  • In the report there is, therefore, typically a statement as to the agreed scope of the investigation and any limitations on the liability of the advisors who have prepared it.

  1. Main report

  • The main report will normally be divided into sections covering each area of the target business.

  • Each issue will be identified, together with the results of that investigation and

  • Explanation of risks involved and appropriate solutions.

Procedure for DD:

  1. Public searches

  • Review all public records of the target business or company

    • Companies House

    • Land Registry

    • Land Charges Registry

    • UK Intellectual Property Office

  • Commercial providers of information

  • Websites, trade press, etc.

  • Report from accountants

  1. DD questionnaire

  • Forward detailed questionnaire to S's lawyers

  • Replies will be B's main source of information on the target business

  • Tailor the questions to the particular business

  1. Interviews

  • Management questions

  • Site visits

  1. Secure data room

  • Where information about the target is highly sensitive

  • Where sale is by way of auction

  • Provides access to data by way of a secured data room - S will make limited information available to B.

Scope of DD?

  • DD carried out by a number of different advisers

    • Important to split areas of responsibility between them to avoid duplication of time/costs

  • Lawyer responsibilities = "Engagement Letter" which will set out:

    • terms of the appointment

    • areas of responsibility

    • set up lines of communication between various advisers

    • fees and limitations

  • The extent and focus of the DD required by the lawyer will depend on:

    • B's knowledge of the target

    • Type of transaction

      • private sale will have access to more information when compared with an auction sale.

    • Structure of the transaction

      • share or asset sale? DD on all assets and liabilities, or focused on particular assets/liabilities

Focus of DD

Will depend on the following facts:

  1. Purpose of the acquisition

    1. Investment?

      1. potential for financial return?

      2. no barriers to realising investment?

      3. no hidden costs?

    2. Growth?

      1. details and prospects of research and development?

      2. marketing arrangements?

    3. Synergy?

      1. economies of scale?

      2. marketing advantages?

    4. Risk assessment of target business

      1. industry risks

      • matters of concern will vary from industry to industry

      • a fruit beverages company, for example, will be more concerned with intellectual property rights, supplier contracts, and factory machinery and premises, than it will be with title to properties and planning restrictions.

    5. Target specific risks

  • Past financial difficulties?

  • Previous litigation?

  • Reputation?

  • How it has been ran?

***Don't investigate areas which are of no importance to the acquisition***

Limitations of DD
Time constraints Financial resources and manpower Confidentiality Third party confidentiality B's own knowledge of Business

  • This is the most significant factor in determining Scope of B's enquiries.

  • Short timescales or a S in a strong bargaining position may dictate limited DD.

  • B may be unable to commit sufficient financial resources or manpower to a full-scale examination of the target.

  • S may wish to keep the sale secret from outsiders (competitors and suppliers) and from its own workforce.

  • S may also be reluctant to pass on commercially sensitive information.

  • Grading of confidential info will mean that some info will not be passed on until very late (e.g. to protect info from workforce).

  • Some of the documents which B may wish to review (e.g. joint venture agreements) may themselves be subject to confidentiality agreements.

  • B...

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