Here’s how I conduct legal due diligence.

Before diving into drafting the sale and purchase agreement for an M&A transaction, it makes sense to first understand the business of the target company and the regulatory framework in which it operates.

Consider the following:

1. Business Activities

What are the principal business activities of the target company?

What products or services does it offer?

2. Regulatory Framework

Which laws, guidelines and governmental policies govern the business and operation of the target company?

3. Licences and Permits

What licences, registrations with authorities and permits are required for the target company to operate legally?

Understanding the above will facilitate the following:

• Tailor representations and warranties

For example, a manufacturing company may require extensive representations and warranties related to machinery, while a fintech company may require representations and warranties relating to intellectual property and data security.

• Structure the transaction in a manner that complies with regulatory requirements.

For example, there are restrictions on certain industry sectors that mandate a minimum percentage of Malaysian shareholding, such as the logistic, insurance, and oil and gas industries. Any acquisitions in these sectors must comply with the shareholding requirement.

• Include conditions precedent in the transaction agreements to procure necessary consents from relevant regulators to ensure a smooth transfer of shareholding or ownership.
• Plan for post-completion steps, such as notifying relevant authorities of the change of shareholders, if required.

#MalaysianCorporateLawyer

#LegalDueDiligence

This post first posted on LinkedIn on 8 July 2024.