Due Diligence – Part 2 – In search of a contract killer

In the first part of this series, we looked at why acquirers conduct due diligence. Now, we are going to look in more detail at the specific areas of due diligence you will go through and what acquirers will want to find.

 

Acquirers conduct legal due diligence to look for contract killers.

There are three main kinds of legal deal assassins that might be found lurking in a target business:

 

The ‘Pig in a Poke’ killer

Acquirers want to ensure they know what they are buying. They will ask questions like:

 

  • What – exactly – is for sale?
  • What do the existing employee, supplier and customer contracts say? Do any of these affect the strategic rationale for the purchase?
  • Are all employees, suppliers and customers on the same contract? If not, what is the impact?
  • Is any intellectual property protected?
  • Are there any potential legal issues that could arise?
     

The ‘Missing in Action’ killer

Acquirers want to ensure that all necessary contracts exist. They will ask questions like:

 

  • Does the business have adequate contracts in place in all key areas?
  • Are the contracts available?
  • Will the contract endure after the sale?
     

The ‘Tied up in Knots’ killer

Acquirers want to ensure that they will be able to do want they want to do following the sale. They will ask questions like:

 

  • Can I terminate contracts as I wish?
  • How difficult will it be to resolve any contractual issues?
     

To find out more about how acquirers see businesses, join our panel of experts at an Evolution CBS Masterclass.

 

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