M&A: How can a buyer address issues discovered during the due diligence

Due Diligence

In an M&A transaction, how can a buyer address issues discovered during the due diligence conducted on the target?

There are a few ways to address an issue:

1. Get an indemnity from the seller.

2. Reduce purchase consideration.

3. Carve-out or ring fence the risk and liability arising from the issue.

4. Make signing of the sale and purchase agreement (SPA) conditional upon the issue being remedied.

5. Make completion of the SPA conditional upon the issue being remedied.

6. Get an undertaking from the seller in the SPA to rectify the issue after completing the sale and purchase.

7. Include rectification of the issue in the buyer’s to do list for post-merger integration process, which may be done separately from the SPA.

As the last resort, the buyer has to consider aborting the transaction if the issue cannot be rectified and it is a deal breaker.

#mergersandacquisitions
#malaysiancorporatelawyer

This post was first posted on Linkedin on 26 December 2022.

Due Diligence
Legal Due Diligence on Public Listed Companies in Malaysia

When conducting legal due diligence on public listed companies (PLCs) in Malaysia, the scope of due diligence is limited by the laws of insider trading. Insider trading occurs when someone uses confidential, non-public information about a company to make a profit or avoid a loss in the stock market. Therefore, …

Linkedin Post
Don’t Rush the Disclosure Letter in M&A Transactions

In M&A transactions, a disclosure letter sets out the exceptions to seller’s representations and warranties in a sale and purchase agreement for an M&A transaction (“SPA”). Instead of negotiating heavily on sellers’ representations and warranties in SPAs, it is common to provide in SPAs that sellers’ representations and warranties are …

Lawyering
Is Corporate Practice Less Stressful Than Litigation?

I was asked whether being in corporate practice is less stressful and less hectic than being in litigation practice. I think this kind of generalisation is not particularly helpful. Different law firms have different cultures and expectations of their lawyers. Clients’ demand would also determine whether a particular project or …