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M&A - LPC > Unit 2 - Due Diligence > Flashcards

Unit 2 - Due Diligence Flashcards

1
Q

What are the 3 key areas to review?

A

Commercial
Financial
Legal

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2
Q

What’s the purpose of due diligence?

A

Understand your client’s objectives,

Ensure that the legal due diligence exercise concentrates on the issues that are important

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3
Q

What are the 2 levels of protection for the buyer?

A

Caveat emptor
Allows the buyer to obtain as much information as possible and protect the buyer with warranties or indemnities in the SPA.

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4
Q

Who does the due diligence in the commercial aspect and what do they investigate?

A

Buyer

they investigate the target’s company and their market position, business plan, etc.

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5
Q

Who does the due diligence in the financial aspect and what do they investigate?

A

Buyer’s accountants

Investigate on the commercial activities, taxation, premises, profitability, balance sheet strength.

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6
Q

Who does the due diligence in the legal aspect?

A

Solicitors

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7
Q

What’s the aim of the DD?

A

identify any potential legal issues that might affect the value or prospects of the target assets/ company

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8
Q

What’s the purpose of the legal DD?

A

Find out terms on which target does business
Discover extent of its liability
Confirm extent to which target owns assets it uses in business

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9
Q

What is the focus of the Legal DD?

A

Constitutional framework of the target company
Terms on which the target does business
Ownership of its assets
Any restrictions on the free use of the assets
Extent of any potential liabilities

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10
Q

what are the factors that influence legal DD?

A 
Commercial aims 
Identified areas of risk
Extent of the contractual protection
Time constraints
Financial Resources and Manpower
Confidentiality
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11
Q

How can you limit the scope of the due diligence?

A
  1. Obtain warranties and indemnities from the seller
  2. Obtain a price adjustment
  3. Time limit on how far back you want to look in the analysis - document research e.g. 3 years back
  4. Limit research to contracts that have a value to it.
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12
Q

Why is DD important in a share acquisition?

A

Buyer gets all the assets and liabilities of the company

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13
Q

Why is DD important in an asset acquisition?

A

Although buyer DOES NOT assume liabilities, they will sometimes agree to accept the responsibility for some liabilities by providing an indemnity in the SPA to the seller. These liabilities will only be specific to certain assets. BUT goodwill might get affect on this.

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14
Q

What are the key areas for a legal due diligence in a transaction?

A 
Corporate Information
Financial Information
Key contracts - trading agreements, commitments and material agreements
Intellectual Property Rights
Employees
Property
Regulation
Assets
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15
Q

what’s the commercial aim that the legal DD will depend on?

A

allow expansion into a new market - buyer focuses on existing trading contracts
Buyer aim for investment purposes - for financial stability

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16
Q

what are the identified areas of risk that the legal DD will depend on?

A

determine if target company is in financial difficulty

17
Q

what’s the extent of the contractual protection that the legal DD will depend on?

A

Buyer would want contractual protection but sellers may not provide this, which is why DD is required.

18
Q

What are the time constraints on Buyer’s legal DD?

A

Buyer may not have sufficient financial resources to do a full examination on target company
Seller may want to keep the transaction confidential

19
Q

What are the common risk on obtaining information through the use of Corporate Information?

A

Information given to the CH was from the seller and information may still be out of date.

20
Q

What does the buyer need to find out in terms of constitutional documents (like company’s constitution or articles)?

A

whether the seller has the power to dispose their shares and whether the articles allow the D to use this power.
Check minutes to check validity of company’s actions
Whether the seller has any power to carry on the business
whether the article has a restriction on transfer of shares.

21
Q

What’s the risk of the information that can be obtained in Annual Returns for LDD?

A

Information could be out of date.
Seller’s solicitor should provide the latest details of all the changes since the return date.
AR shows whether D’s have any D rights in other companies.

22
Q

What risks or information would the buyer obtain on Internal Registers and Minutes of the Target Company

A

Whether the allotment and transfer of shares has been conducted in compliance with s550 and 561.
Copies of the charges or D’s SC - should be available for inspection
Minutes - to check the company’s validity of action and whether they have applied the correct company procedure.

23
Q

What does the buyer need to do with loans information?

A

Check if any ssets are subject to charge - they would need to be removed on completion
Share acquisition - buyer should request copies of loan documentation, check whether the loans are payable on demand or entitle the lender to demand immediate repayment on change of control of a target

24
Q

What does the buyer do with charges on results against the company getting rid of a business?

A

Information may not be up to date. They should get removed on completion.

25
Q

What does the buyer do for bankruptcy search and company search?

A

Search Company Register against a corporate seller

Make a phone enquiry

26
Q

What is the 2 test on Legal Merger?

A 
Article 1(2)
a - worldwide turnover exceeding 5,000 million euros
b - union wide turnover of at least 2 turnover of 250 million euros

Article 1(3)
a - worldwide turnover exceeding 2500 million
b - unionwide turnover at least 2 undertaking 100 million euros
c & d : At least 3 MS of over 100 million euros and 2 undertaking of more than 25 million euros

M&A - LPC (6 decks)

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