What lawyers don’t tell you about Due Diligence.

suited lawyer

You would think after negotiating and accepting an offer to purchase your company that the hard work is over. Far from it! In reality, the hard work is just beginning, in the form of Due Diligence, the most challenging phase of any company sale.

Not all lawyers can handle Due Diligence

Due Diligence is when commercial lawyers step into proceedings to formally and legally complete the sale – and without propersuited lawyer handling and facilitation, it can also be when even the best deals could be in danger of falling apart. So having an experienced commercial lawyer, with in-house M&A expertise and a good track record of company sales under their belt to work collaboratively with your chosen adviser is absolutely crucial.

Too often inexperienced sellers get burnt in this phase of the sale, simply by choosing an inexperienced solicitor (a nightmarish misstep that can potentially cost £ millions). In addition to the financial costs, having spent significant time only to have the sale fail at Due Diligence is a tremendous personal blow for all involved.

You can avoid being led up the garden path by a ‘shiny’ firm of solicitors by asking the right questions about their M&A experience, the volume of company sales have they helped to complete, and by taking up references as appropriate.

It’s also worth talking to your trusted M&A adviser to get their views regarding lawyers they’ve worked with previously and would be happy to recommend.

Due Diligence is a marathon, not a sprint

What most lawyers won’t tell is that Due Diligence proceedings tend to follow a tried and tested format, and there are never any shortcuts. There are legal, commercial, and financial aspects, each demanding its own esoteric requirements. In essence, there is no set time frame and proceedings can take anywhere from ten weeks to three months or more.

Part of the reason Due Diligence requires such a time commitment is the sheer volume of documentation that is demanded by both sides. Even before the Heads of Terms are in place a good solicitor should have advised you to start preparing for the information requirements you’re going to be faced with in the buyer’s Due Diligence proceedings. This means documenting everything and ensuring key data is available when required.

In essence, no aspect of your business is taken for granted, and as the saying goes Caveat Emptor – or ‘let the buyer beware’; the acquirer’s solicitors will pick through the detail of your company with a fine-tooth comb.

As an aside, some dealmakers boast about the volume of data they need to provide during a due diligence exercise, with a mere 300 data requests being viewed as paltry.

Cross-border transactions add complexity

The UK remains an attractive destination for multinational organisations, either with an established UK presence or a strong desire to enter its markets. Brexit has done little to stem the demand for British businesses.

As attractive as a sale to an international investor sounds, a cross-border deal comes with legal and cultural challenges, often only visible when Due Diligence is underway. For example, one astonished British deal team was questioned as to why the 50% shareholder who happened to be female was leading discussions, and not her male counterpart.

The seller’s team may need to fly out to the buyer’s location on several occasions, or travel to press the flesh with their parent company. This is easier said than done if the acquirer is located in a far-off destination like California, or Mumbai. Time zones can also feature heavily when trying to complete within a reasonable time frame, as can language barriers.

The devil is in the detail

Nowadays it is rare to have the simplicity of a sale where you are paid 100% of the cash on completion combined with a ‘day one’ exit for the sellers. More often than not there will be complex obligations on both sides of the table around the sale / transfer of ownership that will only be hammered out as Due Diligence unfolds.

For example, it may seem a simple matter to agree to a 10% shareholding in the Newco set up by the acquirer, however, that will then require you to enter into a new shareholder’s agreement, which you may want to exit at a later date, requiring a defined legal framework for you to do so, perhaps via ‘Put and Call Options’ or an equivalent future share sale mechanism.

If the seller takes a role within the acquirer’s organisation all aspects of the new employment contract or service agreement will also need consideration as a facet of the deal. These things can seem quite small in the overall scheme of things, yet can cause an impasse at a later date as you begin to work on the business with the buyer.

Most importantly, should the seller have to support the acquirer’s business case with their funders or institutional investors, the detail of the funding arrangements and any related agreements are thrown into sharp relief, with the solicitors absolutely wanting to scrutinize every clause.

Pragmatism wins the day

Please remember however that in the hands of experienced and professional advisers – on both sides – ultimately the Due Diligence exercise is not intended to be adversarial and it’s best for all parties to take a pragmatic and commercially sensible approach. Both sides will almost inevitably have to make concessions, but such is the case with acquisitions that are truly successful, and that create the conditions for robust future companies.

When all is said and done, a seller can do nothing better than secure the advice of an experienced commercial lawyer with in-house M&A expertise and a good track record of deals, to ensure they emerge from Due Diligence with the valuation they agreed and without conceding to too many post-deal obligations. ■


This article is intended for promotional purposes only and does not constitute legal advice.


Considering a sale of your business? Our free Business Owners Masterclass on 12th October will address these and other complexities of selling a business, including how companies are valued, as well as other fundamentals, such as earn-outs, handling negotiations, and due diligence.

About Us
As a long-established premium provider of business sale advisory services to UK businesses, EvolutionCBS offers business owners a complimentary and confidential discussion on how their specific objectives could be met and provide pragmatic, practical advice on how to begin preparing both themselves and their businesses for a future sale.

EvolutionCBS works with owners of UK businesses in any sector, finding buyers from around the world through highly targeted research and supporting clients with dedicated Director-led teams, at every stage of their journey to a successful sale.

If you are an owner or shareholder of a business and would like a no obligation consultation on the sale of your business, please email: info@evolutioncbs.co.uk or contact us on Tel: 0118 959 8224.


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