Pre-deal checks should involve not only the examination of
company accounts but also of the relevant programmes to comply with
national and international regulations.
As 2017 brings with it another wave of economic growth, an
increasing number of entrepreneurs are considering making the move
to purchase their competitors before their competitors decide to
purchase them.
If this sounds like you, then congratulations! You have the idea
and the courage to move forward. You have done your research and
you know what needs to be acquired. Now you need to put your plans
into action. The first step to a successful acquisition is carrying
out due diligence checks which calls for legal advice.
Pre-deal checks are often time-consuming, laborious and costly but
they are the only way to avoid nasty surprises. Buyers need to
carry out a thorough examination of the company accounts, legal
issues and any compliance procedures. Companies need to identify
what kinds of liabilities they are taking on before proceeding with
the deal.
The aim of due diligence is always the same: to avoid any
unexpected problems arising from the target company's
outstanding liability to pay environmental fines, labour
compensation agreements, late tax bills and other charges derived
from mistakes or illegal acts committed by the previous
owners.
Due diligence checks should be carried out by lawyers specialising
in the field of M&A. There is a saying: "if you think it
is expensive to hire a professional, wait until you hire an
amateur". Typically, the first problem lawyers face when they
start the due diligence examination is the lack of comprehensive
data from the seller. The sellers often do not want to disclose too
much information in order to avoid additional questions from
buyers. Sometimes it is a part of the sellers' tactics, and
other times it may be an attempt to hide problems. Lawyers must be
tough on this point because collecting all documents is of
paramount importance. Lawyers must be sure that they have
comprehensive information about the target company and so they can
fully analyse the situation from a legal and tax point of view.
Remember that there is no "one size fits all" answer and
lawyers must adopt a very flexible approach.
On a deeper level, buyers should also take a closer look at the
programmes put in place to deal with bribery, corruption, human
rights abuses and many other governance issues not directly linked
to the commercial side of the operation. Companies based in the
United States, for example, will always have in mind that they work
under the Foreign Corrupt Practices Act, which enables the
authorities to pursue alleged breaches of American law anywhere in
the world. UK companies at home and abroad, as well as overseas
businesses operating in the UK, face similar requirements and
stringent penalties under the 2010 Bribery Act.
But the preoccupation with checking everything is justified not
only from a legal point of view but is also necessary from the
point of view of reputation protection. Reputation must be
protected at all times so buyers need to be aware that undisclosed
information can be really harmful.
As our in-house legal and tax teams are busy assisting clients with
various acquisitions, I must confess that carrying out good and
effective due diligence is not an easy task, especially in Poland
where checking compliance programmes often requires going back to
the era before the fall of communism. There are also property
restitution claims which have not been fully resolved. Every
investment plan in Poland needs to take into account the risk of a
restitution claim concerning the immovable. Unfortunately there is
no other way to establish the legal status of the investment
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.