Due Diligence Notes
This is a sample of our (approximately) 11 page long Due Diligence notes, which we sell as part of the Private Acquisitions Notes collection, a D package written at Cambridge And Oxilp And College Of Law in 2017 that contains (approximately) 339 pages of notes across 85 different documents.
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Due Diligence Revision
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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: o target's strengths and weaknesses o areas requiring contractual protection (this will inform the types and extent of warranties and indemnities in SPA) o identify consents needed (e.g. for the continuation of key contracts) o identify potential costs of integration and plan accordingly Areas to review (i) Business - Carried out by senior management of B and its business advisers
business plan and prospects?
will it fit in with B's business?
(ii) Financial - Undertaken by accountants who will produce a report outlining investigation
Review past accounts
Consider achievability of projections
Is further financing required?
(iii)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
the extent to which the target owns the assets used
Type of the DD report
Format of DD report
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. (ii) 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. (iii)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. (2) 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. (3) 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 o Companies House o Land Registry o Land Charges Registry o UK Intellectual Property Office
Commercial providers of information
Websites, trade press, etc.
Report from accountants
2. 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
4. 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 o Important to split areas of responsibility between them to avoid duplication of time/costs
Lawyer responsibilities = "Engagement Letter" which will set out: o terms of the appointment o areas of responsibility o set up lines of communication between various advisers o fees and limitations
The extent and focus of the DD required by the lawyer will depend on: o B's knowledge of the target o Type of transaction
private sale will have access to more information when compared with an auction sale. o 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 a) Investment?
i) potential for financial return?
ii)no barriers to realising investment?
iii) no hidden costs?
i) details and prospects of research and development?
ii) marketing arrangements?
i) economies of scale?
ii) marketing advantages?
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