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2.  Overview
 It is a fact finding exercise. Due diligence refers to the
investigating effort made by an individual to gather all
relevant facts and information that can influence his decision
to enter into a transaction or not. Exercising due diligence is
not a privilege but an unsaid duty of every party to the
transaction
 It can be done by the Vendor or by the Seller
 Vendor – to fix problems; for several bidders
 Purchaser – evaluating and verifying information received
from the target and analyzing it; deal breakers
 Why “DD” - “Skeletons in the cupboard”
 Cavet Emptor or Uberrimae Fidei
 DD team – Specialists
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3.  Client’s needs
 Understanding Client’s instructions – its needs and
priorities
 Common complaint – focus on legal technicalities
 Client Conferences – why the acquisition? What is
your client buying? What information does the client
have?
 Flow of Information – Infiniteland v Artisan –
Information supplied to the Purchaser’s adviser was
imputed to have been given to the Purchaser.
(obiter)
 Risk appetite
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4.  Legal Due Diligence
 Venue – data room; vendors office, regulator
 Areas – Corporate – Incorporation, Regulatory
 Assets – Real Property and Intangibles
 Material Contracts
 Litigation – actual and potential
 Personnel – 4 associates
 Engagement Letter – clear responsibilities, communication,
scope of work, fees
 DD questionnaire – Target, filing requirements, statutory
registries, meeting, contracts, business assets, real property,
IT etc.
 Poison pills that my impact the other DD – litigation
 Gaps and effect on the Purchaser – tax
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 Legal Due Diligence Cont’d
 Obstacles to LDD
 Sensitive information – Farenttii
 Other Purchasers
 Access to information and documents
 DDR – summary, presentation, interim reports –
early warnings, negotiation, time, corporate
governance
 Corporate governance
 Impact on warranties and Indemnities
 Due Diligence and Disclosure
 Always keep your client informed on the
information you have.
 Your timelines should be realistic.
 Know your client.

6.  Financial Due Diligence
 Historical look into the company’s financials to determine the profitability
of the target.
 Aims to assess the extent to which historical performances may be a guide
in the future
 FDD is not an audit on the target and does not recommend whether or not
to do the deal.
 Focus
 Cash – Cash is King
 Projections and forecasts
 Assets and liabilities – Are there black holes? Liaise with the solicitors
to determine if there are existing litigations or not. Quality of assets
– is it sufficient for the future? Can it be security in a leveraged
transaction?
 Management, systems and control – capabilities and readiness of
senior management
 Management interview – key skills that can add value to Purchaser’s
business
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 Commercial Due Diligence
 This is a futuristic outlook obtained by investigating
the company and its market by obtaining
information from the company and other sources.
 Utilised for – acquisitions, MBO/MBI, Joint Venture,
Capital Investment, Investments in new products or
services, market entry in a new country.
 Why CDD?
 reduces risks in transactions
 impacts on valuation
 shows technological changes
 deteriorating trading conditions
 imminent changes to market
 gives the purchaser a better information on the target thereby increasing negotiating
power
 plan for integration
 Cadbury case study

8.  IP Due Diligence
 Value of IP in the current market
 Greater value in intangibles assets – brands – Google -
$111.5bn
 Brand may most dependable asset which can survive poor
trading years – Apple $153.3bn, M&S, Tommy Hilfiger
 Things to look out for – Patents, know-how/trade secrets
(breach is a crime in some countries), trademarks,
protection of unregistered marks, copyrights, designs,
domain name
 Why IPDD? Ensure target owns the IP, identify third part
rights, access how strongly protected the IP is, identify
problems associated with the IP, Is there a litigation on the
IP
 Where to find answers – Target, Own searches, Employment
Contracts, Consultancy Agreement, Distribution Agreement,
Franchise Agreement, Joint Venture Agreement, Settlement
Agreement
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