When acquiring a business, the seller isn’t under a duty to disclose all relevant information to the buyer. The law does not (other than for fraud, misrepresentation or breach of warranty) provide protection to a buyer who later discovers that the business they acquired is not what they understood it to be. The purpose of due diligence is to gain an understanding of exactly what you are proposing to buy, before committing legally to the purchase.
Part of the due diligence exercise will be based around the accounts and financial information of the company. This will give a good indication of how the business has performed financially over recent times, and will give your accountant an opportunity to determine the value of the business.
The other aspects of the due diligence is called legal due diligence. The purpose of this side of the due diligence is to understand all other aspects of the business, including details of:
- any key contracts which the company is a party to;
- its assets;
- its employees;
- any property it owns / leases, and the terms of such occupation;
- what intellectual property rights it has;
- whether there is any ongoing or possible disputes / investigations.
Not only will you gain an understanding of exactly what you are buying, but any problems that arise as part of the due diligence process (for example, an ongoing dispute with a third party) can be dealt with accordingly in the sale and purchase agreement. It may be that a material issue arises which forces you to walk away from the deal, or to negotiate a reduction in the purchase price.
To discuss the due diligence process in more detail, get in touch with one of our Corporate solicitors who will be happy to assist. Call 0845 287 0939 or contact us by email.