Due diligence—share and asset purchases
Due diligence—share and asset purchases

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

  • Due diligence—share and asset purchases
  • Purpose and initial considerations for the buyer
  • Types of due diligence
  • Advisers
  • Factors limiting the scope of due diligence enquiries
  • Conducting due diligence: enquiries, data rooms and searches
  • Review of information: key issues to focus on
  • How due diligence affects the transaction

This Practice Note provides an overview of the purpose, nature and scope of the due diligence process that is carried out by a potential buyer prior to the acquisition of shares in a private limited company or the acquisition of a business and its assets (the target).

Purpose and initial considerations for the buyer

Purpose of due diligence

The starting point for a buyer in any share or asset purchase transaction is the maxim caveat emptor (let the buyer beware). Since the seller is under no duty to disclose to the buyer any defects in, and liabilities of, the target, the buyer will always need to conduct its own investigations. It will therefore instruct advisers to conduct due diligence (whether commercial, legal, tax, financial or otherwise) and prepare due diligence reports to highlight material issues arising from their review exercise.

From the buyer’s perspective, the purpose of due diligence is risk management. With the information obtained about the target as a result of due diligence investigations, the buyer can:

  1. make an informed decision as to whether to enter into the proposed transaction (ie, identify early on whether there are any potential deal breakers)

  2. carry out a proper valuation of the target

  3. be provided with comfort that it has a full picture of the material assets and liabilities of the target

  4. establish