In a share transaction where a purchaser acquires the entire issued share capital of a target company from the seller, the due diligence exercise is carried out to allow the purchaser to find out information about the target company and its business prior to completing the purchase. Completion of a due diligence exercise can reduce the risk of acquiring a company and business of which the purchaser has limited knowledge and which may hide some surprises.
Traditionally, the purchaser and his advisers will request information and documents concerning the target company and its business from the seller or the target’s management team. This information will then be reviewed by the purchaser’s team. In the case of an auction sale however, it will be the seller who manages the process, often setting up an electronic data room to allow all the bidders access to the information.
The due diligence exercise will vary in size depending on the transaction in question. The process can be lengthy and extremely detailed with many documents requiring review by the purchaser, his internal team, and a myriad of advisers. However, in smaller transactions, the due diligence process may be quite simple with just a few key areas to be considered. This may be the case where the purchaser has been involved with the target company and its business in the past, or where the business is fairly straightforward and not of high value.
In summary, the due diligence is a critical phase of any acquisition which, if not properly conducted, could easily derail the transaction.
At Mergex we have an experienced team ready to lead the process in all its phases facilitating a smooth transaction and a successful closing.