Start due diligence with the intended outcome. Acquiring control, investing in a minority stake and buying out an existing owner raise different questions. Before requesting documents, identify what the buyer expects to gain: influence over management, access to returns, control of an asset or participation in a new venture.
Four areas to review
Title to the interest
Review the ownership history, the seller’s documents and any encumbrances. Check the approvals and formalities required for the proposed transaction structure.
Company obligations
Gather loan and security documents, material contracts and information on disputes. Look beyond the balance sheet to terms that could trigger additional costs.
Key assets
Review the records for real estate, equipment, developments and trade marks. Establish whether assets essential to the business belong personally to the seller or to another group company.
Governance after completion
Agree management arrangements, information rights, voting and funding. Discuss in advance how disagreements and a shareholder’s exit will be handled.
Turning findings into transaction terms
Divide risks into three groups: obstacles to the deal, matters to resolve before closing and issues the parties are willing to reflect in the price or contract. This turns a legal report into decisions for the negotiating table. Each issue should have an owner, a discussion deadline and a document evidencing its resolution.
For example, an unclear chain of title to essential software needs a separate solution before investment. A founder’s verbal assurance that everything belongs to the company cannot replace a review of developer agreements. Similarly, a personal understanding about access to reports should be reflected in the formal governance arrangements.
Preparing for an initial meeting
Bring an ownership chart, a brief business description, the proposed stake, key terms and a list of documents already received. Explain the timetable and which issues have not yet been discussed with the seller. This helps define the review and avoids spending time on information that will not affect the investment decision.
Due diligence and transaction support — our corporate practice.
Useful due diligence explains what needs to change in the deal terms. Its outcome is a clear set of decisions on governance, assets, obligations and closing.