Legal Due Diligence Checklist for Successful M&A

Decision-making whether a particular M&A is worth investing is based on the quality of the papers presented by the sell side. A big role in the arrangement belongs to the legal due diligence process. This crucial step aims at reviewing the target company’s documentation in order to determine and analyze legal risks, as well as find mitigating measures. Any unsolved showstoppers will lead to breaking the deal.

Legal due diligence reports will contribute to understanding the acquired organization and potential liabilities that may influence the details and value of the cooperation between these two parties.

The benefits due diligence, and legal due diligence checklists in particular, brings are precious for both participants of the negotiations. As the seller, this test allows brands to identify their worth on the market and prepare an approach for the further merger or acquisition. The more qualitative form is selected for data representation and proof-reading of provided details, the higher the chances are to increase the value of your offer.

For the buy side, such a check turns out to be less frustrating and time-consuming (especially if there is remote access to documentation though a virtual data room). Besides, it helps build a solid and more trust- and respect-based partnership between the M&A companies.

In the majority of cases, files from legal due diligence check list occupy the largest section of the data room. The following documents are usually taking into account:

  • corporate records;
  • the list of company’s partnership agencies/organizations, joint ventures, subsidiaries and affiliates, and any related data to describe the legal structure of the target brand;
  • along with schedule and plan of shareholder meetings, identification of stock owners and types of shares involved into enterprise’s activities, including outstanding, issues, and authorized sub-kinds;
  • all the information connected with shareholder and employment agreements;
  • analysis of legal rights to purchase and sell shares;
  • data about incorporation and bylaws;
  • a complete overview of resources and properties owned, such as real estate and equipment;
  • all the contracts or agreements with any authorities, regardless of their level — either local regulatory, or state, or federal;
  • stock records of the target company like stock transfer ledgers and books;
  • revealing legal cases and issues with partners or customers.

The results of the affair depend on the acquisition size greatly. In this case, the sell side has to critically and realistically evaluate their offer, while the investor has to set clear expectations from the deliverables legal due diligence may bring. Anyway, issues or ambiguous statements are better to discover during negotiations, rather than when the deal is finalized.

The Bottom Line

Complying with legal requirements and standards is a must task for the target company. The more essential data is offered on check during due diligence procedures, the more beneficial mergers and acquisitions will be possible to achieve. The list of obligations to include files and documents will simplify the challenge for both startup and experienced players on the market. There are several reliable providers who offer legal due diligence checklist templates. Along with consultations with suitable investment bankers and lawyers will help find the best approach to the documentation presentation.