The Importance of Due Diligence in M&A
Due diligence allows a company to carefully examine a targeted company or analyse itself, depending on the situation. Due diligence ensures that companies looking to grow and expand due diligence are fully aware of the risks and opportunities involved with purchasing the target company. Once the required legal, tax, financial and technical due diligence are completed, the purchasing company can make an informed decision concerning whether to proceed with the arrangement. Working with experienced due diligence lawyers is the surest means of achieving this goal.
Alternatively, a company can consult with us about performing due diligence on itself. This process will allow our lawyers to carefully analyse your business and provide guidance on its strengths and weaknesses, potential opportunities and risks. Such risks, unless combated in good time, can greatly reduce the value of your company and can lead to serious issues arising in the future. Such due diligence is valuable when considering a major sale or merger as it will provide a clearer understanding of the business’s true worth.
Non-disclosure agreements (NDAs) are an important aspect of the due diligence process. Careful examination of a business means that the other company will have access to important information and documents. The unauthorised disclosure of such information by the purchasing party can have huge legal and financial consequences for the targeted business. Negotiating an NDA that is fair to both sides of the M&A transaction is important for establishing trust between the parties. For this reason, it is recommended to consult with experienced legal counsel.
At Schlun & Elseven, our team drafts agreements considering the market standards, clauses within specific contracts and set requirements under German law. Our tailored service will ensure that you receive advice based on the type of due diligence sought, the nature of the companies involved and the goals your company has going into the arrangement. Our service is not limited to the drafting of NDAs as we also negotiate agreements, advise on current NDAs and generally aim to ensure that our clients are fully aware of their rights under German law.
Types of Due Diligence
There are several manners of due diligence that need to be carried out during an M&A process. At Schlun & Elseven Rechtsanwälte, our lawyers, oversee the listed forms of due diligence. Please feel free to contact our law firm directly if you would like further advice concerning the services of our German due diligence lawyers.
Legal Due Diligence
The legal due diligence process involves assessing the legal documents and information of the target company. Such documents and information include supply contracts, customer contracts, licenses, leases and organisational documents,, including shareholder agreements and company by-laws. Furthermore, it assesses current, pending and potential lawsuits involving the target company. Legal due diligence aims to provide the companies involved with a comprehensive overview of the target company to assess the legal risks and potential liabilities involved with the deal.
Our due diligence lawyers have experience in all areas of legal due diligence. Our detailed review assesses companies based on employment law, environmental law, real estate and construction law, insurance law, tax law and more. Once our team acquires the information needed, they will break down the risks and opportunities inherent in the transaction.
Legal due diligence should be considered regardless of what side of the transaction you are on. As a seller, legal due diligence will ensure that you are aware of the true value of the business.
Financial Due Diligence
Financial due diligence will assess the potential size of the company’s target market’s potential size and current financial situation. Within the company, the balance sheet and full profit and loss accounts need to be analyzed in detail, but it can also involve assessing the market, the competition within the market and the industry itself. Thorough financial due diligence allows the purchasing company to make forecasts concerning the target company’s growth going into the future. It allows them to determine whether any risks exist that may not have been easily observable. Another interesting angle arising from financial due diligence is assessing whether any unexpected synergies exist between the purchasing company and the target companies. These synergies may concern future projects of the respective companies.
The extent of the financial due diligence is, of course, based on the individual case. It is a balance between the planned cost outlay, the amount of information required and time limits. Contacting a lawyer directly will provide clearer insight on this matter.
Intellectual Property Due Diligence
Intellectual Property due diligence is one of the most important services carried out by our due diligence lawyers. IP due diligence is an audit that assesses the company’s quality and quantity of IP assets owned by the company. Assessing the IP assets of the target company is a vital aspect of purchasing a business as it will provide an overview of the true value of the company. It should also be a priority for those involved with the sale of a company to reveal the true price of the business. However, IP due diligence should also be considered during corporate restructuring, during a licensing deal, and ensure that your company’s IP assets are sufficiently protected.
Proper IP due diligence will inform your company of the protection in place around assets. Such a step is crucial for companies looking to innovate further on existing models and trademarks while knowing whether third parties are in breach or are capable of breaching what you consider to be protected. Understanding the scope of such protection ensures that your company is fully aware of its legal rights under German law.
Our legal team will assess the patents, trademarks, copyrights, utility models and more of the target company and will advise you on the documents needed to carry out the required due diligence.
Red Flag Due Diligence
For large-scale M&A transactions, full-scope due diligence is recommended; however, red flag due diligence may be more suitable for smaller-scale transactions. Whereas full-scope due diligence provides thorough analysis and is time-consuming, red flag due diligence provides a quicker response that identifies the most important risks. Such risks may be dealbreakers, and the purchasing company can decide whether to commit time and resources to pursue that target company. Once they decide to engage with that target company, they can seek further legal guidance on more extensive support from our due diligence lawyers.
our legal team also provides selective-focus due diligence services. This form of due diligence is advisable where the purchasing company has specific areas they want to examine with due diligence. This allows for detailed analysis of these particular areas such as reviewing particular contracts or examining particular contracts.
Why Work with the Due Diligence Lawyers at Schlun & Elseven?
At Schlun & Elseven Rechtsanwälte, our full-service approach allows our due diligence lawyers to assess the situation from every angle. We utilise our skills and know-how to provide our clients with comprehensive support. Our law firm consists of certified experts in corporate and employment law and dedicated legal teams in contract law, intellectual property law and commercial law. Our level of expertise ensures that powerful synergies can be created and tailored solutions can be found. As well as legal knowledge, our lawyers provide corporate clients with industry-specific insights in multiple industries. Such insight is particularly beneficial for companies and entrepreneurs based outside of Germany.
As experts in contract law, our team is highly experienced in complex negotiations and can be relied upon to represent your interests throughout the process. Our law firm prioritises excellent customer service, full availability and clear communication.