I usually get a bit concerned when potential buyers say they do not require legal due diligence on the target company or business. This is usually because they believe they already know the business or due to budget constraints.

Unless the buyers are already involved in the management of the target, legal due diligence should not be omitted.

Legal due diligence is required to:

• Uncover any deal breaker
• Assess the value of the target acquisition and the purchase price
• Facilitate negotiation with the seller
• Determine the most efficient acquisition terms and structure
• Decide if the seller or the target company should address any issues identified during legal due diligence before or after the transaction, taking into account the nature of the issues, the urgency of the deal, and the associated risks
• Identify any consents or notifications required for the proposed acquisition
• Assess the need for ancillary agreements such as agreement for shared services or transitional services or employment agreement for key management.
• Plan the integration of the target company or business with the buyers’ existing business post-acquisition.

If you are not sure whether legal due diligence is required for your target, consider the points above.

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This post first posted on LinkedIn on 4 October 2024.