Corporate and legal due diligence for company acquisitions

What it is actually for

Warranties are for claiming afterwards; due diligence is for knowing what you are buying now and negotiating with that information in hand. Nobody can ask for specific protection against a risk they do not know about, and a general indemnity rarely covers what was already visible. That is why the report does not stop at describing the company: it ends in a list of decisions the buyer has to take before signing.

What we review

• Corporate. Chain of title to the shares, validity of shareholder and board decisions, encumbrances over the shares, shareholders agreements in force and transfer restrictions in the bylaws.
• Contractual. Material customer and supplier contracts, exclusivity, guarantees granted and, above all, change of control clauses capable of ending a key contract on the day of closing.
• Employment. Forms of engagement, outsourcing, pension and payroll liabilities, arrangements with management or the sales force, and pending claims.
• Regulatory. Sector permits, licences and registrations, personal data processing under Law 1581 of 2012 and compliance programmes the company is required to have.
• Litigation and contingencies. Court and administrative proceedings, requests from authorities and unformalised claims, whether or not they appear in the financial statements.
• Intellectual property and assets. Ownership of trademarks, of the software and of developments produced by third parties; title to and encumbrances over the real estate and equipment the operation depends on.
• Competition. Whether the transaction must be reported to the Superintendence of Industry and Commerce as a business integration, and what the parties may do between signing and closing.
• Tax. In coordination with our tax practice, for the review of returns and tax contingencies.

How a finding turns into contract language

A finding that changes nothing in the deal is worth nothing. Each one is classified and connected to a concrete outcome.

• Specific representations and warranties from the seller on that particular risk, rather than a general formula.
• Conditions to be satisfied before closing: obtaining a consent, clearing a registry entry, terminating a contract.
• A holdback of part of the price or an escrow, for a period tied to the contingency identified.
• A price adjustment where the finding has an estimable value.
• A special indemnity, with its cap and its time limit, for what cannot be fixed before signing.
• A recommendation not to proceed, where the risk cannot be covered by any of the above.

Sell-side due diligence

A seller who reviews its own company before opening the process arrives at the table in a different position. Problems get fixed with time to spare, explanations are prepared for what cannot be fixed, and the discount that almost always follows a surprise appearing in the final stretch is avoided. It is particularly useful where there are several interested buyers and the process is competitive.

How we work

1. Scope and materiality. We agree what is reviewed, in what depth, and from what threshold a finding counts as relevant to the deal.
2. Information request. We prepare the document request list and manage it with the seller, tracking what has been delivered and what is outstanding.
3. Review and interviews. We read the documents and speak with the people who run the business, because what the contract says and what is done do not always coincide.
4. Early red flags. Anything capable of breaking the deal is reported as soon as it appears, not in the final report.
5. Report. Findings ranked by severity, with their documentary source and the contractual recommendation for each.

What the client receives

• The due diligence report with findings by area and risk level, and an executive summary usable in the negotiation.
• The list of closing conditions and specific warranties worth demanding, drafted so they can go straight into the contract.
• An inventory of the consents and registrations the transaction requires, with their timelines.
• An organised file of the information reviewed, which is the starting point for post-closing integration.