In a harsh economy, purchasers are becoming even more cautious in their acquisition strategy. The due diligence review is therefore more important than ever. At the same time, however, purchasers are driving a hard bargain on fees, and it is often impossible to devote the level of fee earner hours required to produce a full form, 100-page legal due diligence report whilst delivering the transaction within a fee estimate which a purchaser will consider reasonable for the size of transaction.

The question is therefore how to produce a report which covers off the key issues without racking up excessive fee earner time, but does not expose the advisor to potential negligence claims.

Where the size of transaction and the purchaser's budget for legal spend necessitate a more focused due diligence, we tend to adopt the following approach:-

- unless specific areas, such as property, require a more standardised approach, we often find that the client will welcome an "exceptions only" style where the report merely highlights those matters which are unusual or have a material bearing on the transaction. Of course, there is an element of judgment here, therefore it is important where possible to define what "exceptions only" means - for example where only specific clauses of documents (such as restrictive covenants in service contracts) have been reviewed, rather than the document as a whole, it is preferable to make this clear in the report.

- it is important for the corporate team who are usually closest to the commercial negotiations, to have a proper understanding of the underlying commercial objectives of, and pressures on, the target business. The corporate team should guide and review the work of those other departments who are inputting into the due diligence process in order to ensure that they are alert to key issues.

- We have often found it useful to set out, at the beginning of the report, a summary of the lawyer's understanding of how the business works, particularly if it is particularly technical. This summary should also contain where relevant references to specific commercial concerns which might have a bearing on the legal review. For example, where the core business develops technology which is then licensed to manufacturers, it helps to make this clear at the outset. Key concerns will be ownership and protection of the intellectual property, both in the licence agreements, and in any agreements with third parties who might contribute to the development of the technology. Much of the underlying detail can be found in an information memorandum. If it is not clear, the legal advisors should make it their business to find out exactly how the business operates. Getting under the skin of the business in this way adds untold value to any due diligence exercise.

- All advisors who contribute to the report should continually consider whether their observations impact on any commercial concerns listed in the business summary - if so, this should be brought out explicitly in their respective sections.

Focusing on the underlying business imperatives in this way gives the client an opportunity to review and correct the legal advisors' understanding of the genuinely material concerns in the context of a transaction. If this exercise is not undertaken, underlying assumptions risk going unquestioned. Once the key issues become clear, resources can be deployed accordingly which will often result in a much leaner and more useful report which clients are able to review and act upon.