The Importance of a Point Person in Coordinating Due Diligence
In the complex world of mergers and acquisitions, having a point person to organize and coordinate the due diligence process is essential. This individual may be the buyer, but often delegates this responsibility to its lawyers.
The Role of Lawyers in Due Diligence
A team of corporate lawyers and specialists, including environmental, employee benefits, real estate, and intellectual property experts, typically conducts due diligence investigations. To ensure a thorough and focused investigation, it’s crucial that these lawyers are fully briefed on the acquisition’s purpose, the depth of investigation required, and key areas of importance for the client.
Avoiding Unfocused Investigations
If this information is not provided, lawyers conducting due diligence must rely on publicly available data and ask relevant questions to avoid an unfocused investigation.
Kick-Off Meeting: Setting the Tone for Due Diligence
Before commencing legal due diligence, representatives from both parties typically hold a kick-off meeting to discuss the process. This includes outlining the timetable, materials to be disclosed, and method of disclosure. The parties also share their understanding of what will be involved in the due diligence exercise.
Preparing a Due Diligence Checklist
One of the most important preliminary activities is preparing a due diligence checklist, which outlines documents and information to be requested from the seller and target company. This list should be uploaded to a data room, where it can be easily accessed by all parties involved.
- The checklist must consider the scope of the due diligence exercise agreed upon with the client.
- It should be tailored to the specific transaction.
Data Room: A Hub for Due Diligence
The bulk of the due diligence review involves reviewing documents related to the target business, including contracts, financial reports, and corporate records. Sellers typically set up a data room, where relevant information is made available. In some cases, electronic or hard copies may be sent to the buyer.
- Virtual data rooms have become increasingly popular, allowing for secure online access to confidential materials.
- Due diligence inquiries and answers can also be submitted through these platforms.
Vendor Due Diligence Reports: A Time-Saving Tool
In auction sales, sellers may conduct a formal due diligence process, culminating in the preparation of vendor due diligence reports (VDDRs). These reports cover various aspects, including financial, legal, tax, commercial, and property matters.
- Initially provided to prospective buyers on a non-reliance basis, VDDRs can accelerate the bidders’ due diligence process.
- Once finalized, they can be relied upon by the successful bidder, subject to the report provider’s terms of business.
Conclusion
In conclusion, having a point person to coordinate the due diligence process is essential in ensuring a thorough and focused investigation. A well-organized checklist, data room, and vendor due diligence reports are also critical tools in streamlining the process and accelerating the acquisition timeline.