Preparing for the due diligence process in share purchase transactions
Preparing for the due diligence process in share purchase transactions

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

  • Preparing for the due diligence process in share purchase transactions
  • Buyer: due diligence preparations
  • Seller: due diligence preparations
  • Buyer: drafting the due diligence questionnaire
  • Seller: setting up and running the data room

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

Both the buyer and seller will need to make preparations for the conduct of due diligence, to ensure that the process runs smoothly and does not unnecessarily hinder the progress of the transaction.

Buyer: due diligence preparations

Type and extent of due diligence

The buyer must first decide which types of due diligence it wants to conduct (legal, commercial, financial, tax or other specialist due diligence such as actuarial). This will depend on the nature of the business and the circumstances of the transaction (including the outline deal terms set out in the heads of terms). The scope of due diligence might be narrowed, for instance, by time constraints (especially in a competitive bidding process) or by the fact that the buyer is able to avert transactional risk because it will seek to put warranty and indemnity insurance in place (see Practice Note: Warranty and indemnity insurance in M&A transactions) or because it has been agreed that the seller will provide an indemnity for a specified risk (eg a known environmental issue or pension fund deficit).

The buyer should enter into an engagement letter with each of its advisers so as to set out the parameters of the due diligence work. This includes addressing:

  1. fee arrangements

  2. timing and other practical constraints