LEGAL DUE DILIGENCE
Before an acquisition, the buyer should investigate the financial situation, contracts, liabilities, governance and other key matters of the target company or the business to be purchased as buyer will be responsible for these matters after the acquisition. This inspection, known as Due Diligence, is recommended in reasonable depth regardless the size of the acquisition, business field or the manner the deal is executed. Usually the investigation consists of going through the financial and taxation status of the target company and contracts, IP rights, employee related matters and other liabilities of the target company.
The purpose of the Due Diligence is to make the buyer aware of the risks and opportunities related to the target of the acquisition. Outcomes of the investigation may have an effect to the buyer’s will to conclude the acquisition at the purchase price or on the warranty terms of the share purchase agreement. Due diligence observations are also useful to do - lists for the integration period following the acquisition. When all the risks and development areas are acknowledged in advance, taking over of the company is smoother and the buyer can start developing the business right after the sale.