We know how easy it is to get caught up in the excitement of your merger and acquisition (M&A) deal.
However, you cannot lose focus on the necessary legal and financial due diligence checks.
The success of your deal relies heavily on a thorough legal due diligence process and failing to spot the potential red flags can quickly turn a promising deal sour.
Why is legal due diligence important?
Legal due diligence is the process of fully understanding the legal position of a business before any commitment to acquire or merge with it is made.
It allows buyers and investors to know exactly what they are acquiring and any risks or onerous obligations that come with the deal.
It also offers business owners who are selling the chance to prove their company is operating compliantly and is worth the agreed value.
Without due diligence, hidden legal and financial liabilities may go under the radar and result in damage to your existing business.
Equally, if due diligence forces the buyer to unveil them later on in the process, it could put your deal at risk of renegotiation or them walking away entirely.
Unclear or missing records
A company’s documentation is the first thing a buyer will look at.
Any missing or inconsistent records, such as shareholder agreements, articles of association or Companies House filings, can quickly raise concerns.
Even small discrepancies can hint at a bigger governance issue and invite room for disputes.
Weak intellectual property protection
Intellectual Property (IP) can be a business’s most valuable asset and buyers will want to be sure that any copyrights, trademarks and patents are secure.
IP that has not been properly registered or protected will create risks and any uncertainty over ownership can affect valuation or even halt a deal entirely.
Contractual gaps and risks
Buyers will have a magnifying glass on a company’s commercial contracts and will be checking that agreements with customers and suppliers are robust and enforceable.
Alarm bells will be ringing if you have poorly drafted contracts or missing liability protections and buyers may be worried that further risks could creep up.
Disputes and regulatory issues
Perhaps some of the most serious concerns for buyers are ongoing litigation or regulatory breaches, as they can have immediate financial and reputational consequences.
This is where buyers may look to add additional conditions to the deal or withdraw altogether to protect their interests.
How can you prepare for these risks?
You don’t want to put your deal at risk because of something that could have been prepared for.
That is why you need to put the time aside to review your legal documentation, contracts, internal processes and resolve any issues before negotiations occur.
We know that not all of these risks are visible to the naked eye and that is where early legal support can help.
How can we help keep your deal on track?
We are here to support businesses through every stage of legal due diligence and help them spot any issues before they become obstacles.
From review contracts to advising on compliance and risk, our team works closely with you and your advisers to keep your transaction on track.
If you need further advice or support on your business contracts, get in touch with our team.
