M&A Due Diligence Overview

Due Diligence Factors to Consider

• The Party with the superior knowledge will be in the best position to:
  • Negotiate the shifting of risks and achieve the negotiation advantage
  • Quantify the probability of a particular risk
  • Determine risks that they might be willing to assume
  • Accept some risk, concede others
  • Shift the most costly risks to the other party
• Most bad information usually comes to light – absent fraud. Disclosure is a matter of timing.
• As a result, Sellers (with the superior information advantage) want to maintain that advantage – yet by doing so – it may adversely affect credibility or negotiating position with a Buyer.
• The Seller’s superior knowledge will inevitably diminish throughout the process.
• A good strategy is to put in your own diligence team before the transaction starts so as a Seller you can respond to the diligence requested and control the procedures and processes.
• The usual result – is a price reduction or an expanded indemnity.
• The timing of such disclosures can be very important.
• Buyers react badly to late disclosures – and the consequences can be great.
• Often disclosure is staggered to prevent disclosure of sensitive information.
  • You may see a “high or general” level of disclosure for solicitations (or expressions) of interests followed by more detailed disclosures after bidders or buyers are narrowed.
  • Sellers will be even more reluctant to disclose information to counter-parties who may be competitors (and will stage those disclosures as well) to guard against unwanted disclosures.

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