COMMERCIAL TRANSACTIONS

By Sammy Ndolo 14 Sep 2020

Basic Stages of an Acquisition
Legal Due Diligence
➢ In acquisition- it refers to search for information carried out by
purchaser as soon as possible after negotiations for the purchase.
➢ Caveat emptor/ ‘let the buyer beware’- generally, seller under no
duty to reveal any defect in the target company or business to the
purchaser.
➢ Key concerns: (A) expensive, (B) time consuming, (C)
involving/distracting
➢ Importance: (A) verify deal, (B) purchaser is made aware of
potential problems (in which case: (i) withdraw, (ii) reduce purchase
price, (iii) renegotiate e.g. indemnity), (C) limit seller’s potential
liability
Legal Due Diligence contd.
➢ Types of due diligence
▪ Business (market/financial position, business plans)
▪ Accountants (commercial activities (e.g. market analysis), management
and employees, tax, profitability, accounting systems and policies
▪ Legal
➢ Traditionally, purchaser’s advocates will draft questionnaire.
➢ Sale by tender or auction process- seller will initiate the DD
process.
Legal Due Diligence contd.
➢ Legal due diligence (scope determinants)
▪ Commercial aims
▪ Areas of risk
▪ Type of transaction
▪ Expected contractual protection from seller
▪ Time
▪ Financial resources
▪ Confidentiality
Legal Due Diligence contd.
➢ Legal due diligence questionnaire
Corporate structure Litigation and claims

Contracts Intellectual property

Property Information technology

Other assets Employees and pensions

Consents and licenses Insurance

Accounts and borrowings Environmental health and safety

Taxation
Legal Due Diligence contd.
➢ Legal due diligence report
➢ Disclosure letter

➢ Further reading:
▪ IBA Legal Due Diligence Guidelines
▪ Lexology- Warranties and Disclosure
▪ Pinsent Masons- Warranties Indemnities and Disclosure