Due diligence is the process by which a prospective buyer of a company or business (the target) investigates the target to support its value and find out whether there are matters on which it requires further information or which it should use as a platform to renegotiate the price. The areas of the target which may be investigated include its assets, liabilities, accounts, management accounts, IPR, IT, data protection, real property, commercial contracts, employees, pensions, and tax.

On any significant acquisition, the prospective buyer will want to be sure that the sellers and (in the case of a share purchase) the target company have good title to the assets being bought and to know the full extent of any liabilities it will assume.

In English law, the principle of caveat emptor, or buyer beware, applies. It is therefore essential that the buyer carries out its own investigation of the target at the negotiating stage through a due diligence review.

There are typically the following types of due diligence:

• Legal due diligence - as part of a sales and purchase contract, lawyers to the buyer will verify through due diligence that the business has legal title to sell, ownership of all the assets and that regulatory and litigation issues are fully addressed;
• Financial due diligence - checking the numbers and making sure there is nothing extraordinary or any hidden financial issues; and
• Commercial due diligence - finding out about the business' status in the marketplace, checking competitors and the regulatory environment.

If you or your business require information regarding anything in this blog or generally about your business or any other corporate matter, please call Sarah Ward, head of our corporate team, on 07889 589596 or e-mail Sarah at sward@georgegreen.co.uk for advice and assistance.