Legal Due Diligence is an important step in the Mergers and Acquisitions process, that should not be overlooked. It gives a crucial insight in the strengths and weaknesses and ultimately in the real value of a company.

What is a Legal Due Diligence?

A Legal Due Diligence of the target company will be made by the potential purchasers and their lawyers, with the aim of getting insight into the most important legal matters concerning the target company.

How is a Legal Due Diligence conducted?

The legal due diligence review is conducted based on a data room put together by the target company with his lawyers. This data room may be completed with documents requested from time to time by the purchaser’s lawyers.

Data rooms can be composed of physical documents, but are more often digital data rooms.

It is important for transparency and efficiency that the data room is made available in a most optimal format.

What are the weaknesses or risks identified ?

Weaknesses or risks identified in the Legal Due Diligence can be show stoppers or if risks can be mitigated, will be included in provisions in the sale and purchase agreement (e.g. specific indemnities or reduction of the purchase price).

As such, the Legal Due Diligence being well conducted is in the interest of both buyer and seller, as it brings all strengths and weaknesses immediately on the table and avoids that parties loose time in a negotiation that will not lead to a sale and purchase agreement.

How long does the Legal Due Diligence take?

In general and depending on the situation, the complete Due Diligence takes around 1-2 months. This is usually how long it takes for the buyer to complete a thorough evaluation of the business, including all the legal aspects.

However, the process can be extremely time-consuming and drag on if the seller goes into the deal unprepared. Therefore, it is important to be well prepared.

Do you want to learn more ?

If you are interested in learning more about the pre-contractual phase of Mergers and Acquisitions and the Legal Due Diligence and more specifically how to conduct an efficient Legal Due Diligence, then check out our online training on Legal M & A.