Due diligence and disclosure phase in share purchase transactions
Due diligence and disclosure phase in share purchase transactions

The following Corporate guidance note provides comprehensive and up to date legal information covering:

  • Due diligence and disclosure phase in share purchase transactions
  • Timing
  • What happens during this phase?
  • Key tasks for lawyers during this phase
  • Who does what?

This Practice Note is part of the Share purchase transaction toolkit.

Timing

Due diligence will normally be carried out after the parties have signed heads of terms and put confidentiality provisions in place. The due diligence process will then run concurrently with the negotiation of the principal sale documentation (share purchase agreement and related ancillary documents). The majority of the due diligence should be conducted during the early stages of the transaction so as to ensure that the parties can negotiate appropriate warranty and/or indemnity cover in the share purchase agreement, and also the seller's disclosures against such warranties.

The disclosure letter will be drafted and negotiated alongside the negotiation of the share purchase agreement and will be executed at the same time as the share purchase agreement. The first draft of the disclosure letter will generally not be prepared until after due diligence is substantially underway and an initial draft of the share purchase agreement has already been circulated.

What happens during this phase?

Due diligence

The buyer will conduct legal, financial and accounting due diligence into the seller and the target company in order to obtain information, inform its negotiations and plan for the integration of the target company into its existing group. This involves instructing advisers to review and report on different areas, as appropriate. The buyer's