Due diligence can be a daunting and burdensome process for a seller, particularly where tight timeframes are involved.
Here are our top tips for a seller responding to legal due diligence enquiries, to make the process as focused, cost-effective and efficient as possible. With foresight and preparation successful due diligence is certainly achievable.
- Understanding and scope: although rudimentary, it is essential that time is taken to ensure that the seller's internal team understand the process, purpose and scope of due diligence
- Choose the right team: choose who will form part of your wider due diligence team. A seller's lawyers and accountants will work closely with the seller's internal team to respond to enquiries and collate the supporting documents. The internal team should be large enough that it is properly resourced but not so large that it is difficult to manage. Have a clear reporting structure and appoint a project manager who will oversee the internal team and liaise with external parties
- Early preparation: invest the time to collate all of the business's key contracts. Check they are signed, in date, and contain all relevant appendices and attachments. Liaise with counterparties to obtain copies of any missing information. It is also important to flag any key issues with your advisers at this early stage
- Sensitive information: earmark documents that contain sensitive information and discuss this with your advisers. Personal details will usually need to be anonymised to comply with data protection laws and commercially sensitive information will also need to be managed carefully, particularly if there are third party confidentiality agreements
- Communicate: set out clear objectives and ensure everyone involved understands their specific role in the process. Maintain open lines of communication with your advisers and ask questions along the way. This will keep the momentum going, help avoid mistakes and ensure a smoother process
- Openness and accuracy: if there is any doubt about whether something should be disclosed, speak to your advisers. It is usually better to be open from the beginning rather than raising an issue at a later stage
- Using a data room: all documents can be stored in one location so that they are organised and easily accessible. It is important to give careful thought to access rights and permission levels to manage risk. The internal team are likely to upload documents to the data room directly. They should familiarise themselves with all of its features and adhere to a clear structure and numbering system according to the due diligence questionnaire
- Taking stock: once caught up in the whirlwind of due diligence, it is easy to lose sight of the objectives. To avoid this, take stock of the objectives and regain focus at regular intervals
As the #2 law firm by deal volume nationally in Experian's 2014 UK Deal Review and Advisor League Table, our corporate team are perfectly equipped to advise you on every element of your transaction.
Please contact the author for more information, or to discuss how we can assist you with your transaction.