Due Diligence in Germany – Legal Support for Corporate Acquisitions

Due diligence enables the buyer to scrutinise the target company or to analyse themselves as a company for sale in terms of their own strengths and weaknesses. Whether it is a buy-side or vendor due diligence in a specific case, full-scope due diligence always covers all legal, tax, financial and technical aspects to provide the most accurate picture possible of the opportunities and risks of the acquisition or sale. Once all elements have been examined, the buyer can make an informed decision as to whether they wish to proceed with their plans. If the risks are not identified in time, they can significantly reduce the target company’s value or lead to serious economic problems in the future. A careful full-scope due diligence is particularly important when considering a significant sale or merger.

Confidentiality agreements (NDAs) are another important aspect of the acquisition process. Careful examination of the target company allows the buyer to gain access to important information and documents. Unauthorised disclosure of such information by the buyer side can have enormous legal and financial consequences for the target company. Negotiating an NDA that is fair to both sides of the M&A transaction is, therefore, crucial to building the necessary trust between the parties.

Involving due diligence experts when acquiring a company ensures that the contractual agreements fully consider the circumstances of the target company and meet the requirements of German law and current market standards.

Whether you require full-scope due diligence or a more specific review—such as red flag, financial, commercial, or IP due diligence—our structured approach ensures a comprehensive audit. Our due diligence lawyers in Germany follow a three-step process to provide clear insights into the opportunities and risks associated with your transaction:

• Creation of a Due Diligence Checklist: The first step is to compile a detailed due diligence checklist, identifying all facts and documents that need to be examined. This structured approach helps highlight potential risk areas early in the process. It also enables the prospective buyer to request all relevant corporate, financial, and legal documents from the target company before proceeding with negotiations.
• Virtual Data Room for Secure Information Sharing: All key data relevant to the transaction is systematically collected and stored in a virtual data room. This ensures secure and efficient access to sensitive information for all involved parties. Our due diligence lawyers in Germany assist clients in organising and reviewing this data to ensure full compliance with German legal standards.
• Due Diligence Report with Legal Analysis: Following a thorough review, we compile our findings into a detailed due diligence report. This report provides:
  • A structured assessment of the legal, financial, and commercial risks.
  • Actionable recommendations for mitigating identified risks.
  • Insights into opportunities and challenges that may affect the transaction.

Our German due diligence experts work closely with clients to interpret the report and address any follow-up legal questions that arise during negotiations with the target company.

Multiple forms of due diligence should be carried out to minimise risk in mergers and acquisitions (M&A) transactions. At our law firm, we specialise in the following core areas:

• Legal Due Diligence – Ensuring compliance with German corporate law, contract obligations, and regulatory requirements.
• Financial Due Diligence – Evaluating financial stability, debts, and liabilities.
• Tax Due Diligence – Assessing tax risks, liabilities, and optimisation strategies.

As an international full-service law firm, we work with a network of industry-specific experts and assessors to provide high-quality due diligence in the following specialised areas:

• Commercial Due Diligence – Market position and business strategy evaluation.
• Technical Due Diligence – Assessing operational and production risks.
• Intellectual Property (IP) Due Diligence – Reviewing trademarks, patents, and licensing agreements.
• IT Due Diligence – Evaluating cybersecurity, software licensing, and digital infrastructure.
• Environmental Due Diligence – Ensuring compliance with German environmental regulations.
• Compliance Due Diligence – Identifying regulatory and corporate governance risks.

By partnering with experienced due diligence lawyers in Germany, international businesses can ensure a legally sound and commercially viable entry into the German market.

Legal due diligence involves a comprehensive review of the target company’s legal standing, ensuring that all contracts, licenses, and legal obligations are correctly examined. Our due diligence lawyers in Germany conduct a thorough assessment of:

• Corporate documents – Shareholder agreements, articles of association, and company bylaws.
• Commercial contracts – Supply agreements, customer contracts, and rental leases.
• Licenses and permits – Ensuring compliance with industry-specific regulations.
• Ongoing and potential legal disputes – Evaluating litigation risks.

Legal due diligence aims to provide businesses with a clear understanding of legal risks and potential liabilities associated with the transaction. These findings are compiled into a due diligence report, forming the basis for the following:

• The decision to proceed with the company acquisition.
• Contract drafting to mitigate identified risks.
• Ensuring the transaction is executed in compliance with German law.

Contractual liability clauses can be included to protect the buyer from risks uncovered during the audit.

As a multidisciplinary law firm, we have expertise in all relevant areas of legal due diligence, including:

• Employment law – Employee contracts, collective agreements, and termination risks.
• Environmental law – Regulatory compliance and liability for environmental damages.
• Real estate and construction law – Property ownership, lease agreements, and land use restrictions.
• Insurance law – Policy coverage, claims history, and risk mitigation.
• Tax law – Identifying tax-related risks and liabilities.

Financial due diligence is usually the centrepiece of any corporate acquisition. The aim is to gather information and identify opportunities and risks, so-called upside/downside potentials, regardless of whether the due diligence is carried out on behalf of a potential buyer (so-called buy-side due diligence) or a seller (so-called vendor due diligence). Financial due diligence assesses the potential size of the target market and the company’s current financial position.

Within the company, the balance sheet and the complete profit and loss statement must be analysed in detail, but the market, the competition within the market and the industry itself can also be evaluated. A thorough financial due diligence audit enables the acquiring company to make forecasts about the future growth of the target company. It also allows the acquiring company to determine whether there are any risks that may not be immediately apparent.

Another interesting aspect of financial due diligence is assessing whether there are any unexpected synergies between the acquiring company and the target companies. These synergies may affect the respective companies’ future projects.

A comprehensive tax due diligence review is essential to identify tax risks and optimisation potential in corporate transactions at an early stage. We rely on close cooperation with experienced tax advisors, who are involved as early as the planning phase of the transaction. Together, we analyse all tax aspects and evaluate their legal implications. This cooperation ensures that complex tax issues, such as the use of loss carryforwards or the valuation of tax liabilities, are clarified comprehensively and in a timely manner.

This interdisciplinary cooperation enables us to develop customised solutions that meet legal and tax requirements. This minimises potential risks and enables optimal transaction structuring that best serves the interests of our clients.

IP due diligence is a crucial component of corporate acquisitions, particularly for companies whose value is heavily tied to intellectual property. Our lawyers thoroughly review patents, trademarks, and designs to assess the quality and scope of these assets. Key considerations include the existence and strength of proprietary rights, the level of protection for core technologies, any ongoing legal disputes, and the effectiveness of measures safeguarding trade secrets and know-how.

Beyond acquisitions, an IP due diligence review is also essential in corporate restructurings and licensing transactions. It helps identify potential risks within the IP portfolio and ensures that intellectual property assets are adequately protected. This is particularly valuable for companies with extensive IP portfolios, where intellectual property is central to valuation and strategic planning.

The primary objective of Red Flag Due Diligence is to quickly identify significant risks that could impact the success of a transaction. Critical issues that may negatively influence the purchase price include:

• Risky off-balance-sheet financing arrangements and unrecognised liabilities
• Inadequate financial provisions
• Liquidity challenges
• Unrealistic financial projections
• Misvaluation of assets
• Expiring contracts or product life cycles leading to revenue loss

Unlike full-scope due diligence, Red Flag Due Diligence does not provide an in-depth structural analysis of the company but focuses on the most pressing concerns. This approach is advantageous when time constraints make a full assessment impractical. However, for large-scale M&A transactions, a comprehensive due diligence review remains the preferred strategy to minimise risk exposure.

While full-scope due diligence is more time-intensive, Red Flag Due Diligence delivers faster insights, allowing the acquiring party to determine whether further investigation and resource allocation are justified. Additionally, we offer selective due diligence, allowing buyers to concentrate on specific areas of interest—such as contractual obligations—within the due diligence process.

As an interdisciplinary law firm specialising in commercial law, we provide expert guidance in conducting due diligence for corporate transactions in Germany. Our legal team brings together leading corporate and commercial law professionals supported by specialised practice groups in contract, employment, and intellectual property law. With extensive expertise and the latest analytical tools, we ensure that all legal aspects are meticulously examined.

To provide our clients with efficient and reliable assessments, we offer both full-scope and Red Flag Due Diligence. Where necessary, we leverage our network of experts to conduct in-depth reviews in specialised areas such as IT, environmental, and real estate law.

Additionally, we recommend reviewing and correcting any inaccurate data in databases such as World Check before initiating due diligence. Incorrect information in such databases can deter potential buyers. Our firm has extensive experience in reputation management and can provide targeted support to ensure that data-related issues do not hinder the transaction.