M&A: Legal Due Diligence

Before officially executing an M&A transaction, the parties may conduct a due diligence to assess the overall business operations, financial situation, assets, capacity, and operating efficiency of the target company. Legal due diligence is one of the indispensable due diligence processes in M&A transactions.

The Seller (Target Company in a M&A transaction) should conduct legal due diligence for the following reasons:

• From the perspective of the Target Company, due diligence in general and legal due diligence in particular are important activities that need to be carried out regularly, whether the Target Company intends to sell its business or not. Regularly and periodically assessing all legal issues of the business, comparing them with compliance with current legal regulations, the results of the legal due diligence process force owners to have a more serious view of their business and its operations, even considering options to improve or completely change some aspects of the business's operations.
• In the event that the Target Company intends to sell its business, legal due diligence is an action that must be carried out as soon as possible. By understanding the values, strengths of the business, addressing the weaknesses of the business and preparing for the questions of potential buyers, the Target Company can present the business in the best possible light and achieve the highest possible negotiation result. Being able to identify and overcome the risks associated with the business will make the negotiation process easier and the deal will be concluded faster.

The issues need to be considered when conducting legal due diligence as a Seller (overview):

• Clearly state the legal due diligence objectives and legal due diligence results that the Target Company is aiming for.
• Ensure that full and accurate information is provided to the Consulting Lawyer.
• Do not ignore recommendations for adjusting and completing the shortcomings of the enterprise as stated in the legal due diligence report.

In addition to legal due diligence, due diligence on other aspects of the enterprise should also be performed to get the most comprehensive view.

For the Seller, legal due diligence is the process of determining and evaluating the value of a company. Due diligence can reveal the strengths and weaknesses that investors need to know before acquiring a company. It also allows the Seller to address weaknesses and prepare for questions from potential Buyers. Conducting due diligence helps the Seller ensure that its business is ready for sale.