In my previous post, I proposed alternatives for buyers facing budget constraints in conducting legal due diligence, including obtaining robust representations and warranties from sellers in sale and purchase agreements. However, buyers should note that contractual protection is not a substitute for legal due diligence for the following reasons:

• The representations and warranties given by sellers may be subject to extensive limitations and disclosures negotiated between the parties.
• It may not be practicable to sue sellers for breach of representations or warranties or to enforce indemnity provisions in sale and purchase agreements in certain circumstances.

For instance, pursuing legal action against the seller might be impractical in cases where the seller will continue to be a key senior management of the target company after the acquisition, or where the target company relies on the transitional services provided by the seller group following the completion of the deal.

Furthermore, if the seller is not financially viable when the buyer intends to bring legal action against the seller, the contractual protection may not be of much use to the buyer.

Buyers who intend to proceed with an acquisition without proper legal due diligence should consider the limitations of relying solely on sale and purchase agreements.

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#legalduediligence

This post first posted on LinkedIn on 19 September 2024.