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  Legal Implications of Due Diligence in Corporate Merger Transactions

Legal Implications of Due Diligence in Corporate Merger Transactions

Due Diligence in External Restructuring

Due diligence involves investigation of the target company and its business, by the bidder and its professional advisers, before consummation of the merger. It reveals the actual status of the target company. The target company also conducts due diligence on the bidder.

This covers analysis of several issues such as:

1)        Ownership of the Business: this will involve verification of the authenticity of the certificate of incorporation and any other applicable business permits as well as any changes to these.

2)       Business Profile: the legal due diligence should reveal the following;

a)       Key customers and contractual terms entered into by the company.
b)       Any disputes arising from contracts or other transactions.
c)       Description of the nature of operations carried on by the company.
d)       Where the company is affiliated to other companies, a legal structural relationship of the companies in the group which carries on the business or own assets being used by the company in carrying on its business; and details of contracts relating to the affiliated companies.

3)       Employees: it is necessary to examine the updated list of the employees and review it in line with contracts of employment and other significant agreements, such as Collective Bargaining Agreements and Employee Share Option Schemes, which may affect the finances of the companies.

4)       Intellectual Property and Technology Issues: the due diligence exercise should reveal the existence and nature of intellectual property assets and trade secrets of the company. There should also be confirmation of compliance with regulatory regimes, such as those on technology transfer.

5)       Litigation Analysis: there is need to determine the validity of an estimated liability arising from existing law suits and claims. There is also a need to review insurance policies of the company for the purpose of ascertaining in cases to be covered by liability insurance indemnities; as well as evaluation of applicable company law and tort rules concerning successor liability for contractual and tortuous liability of the target.

6)       Corporate Searches: it is also necessary to conduct searches at public offices such as the Lands Registry, Corporate Affairs Commission, Securities and Exchange Commission, Standards Organisation of Nigeria, Federal Board of Inland Revenue and the Nigerian Stock Exchange.

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12:55:00  Corporate Governance, Corporate Law Practice, Corporate Restructuring, Due Diligence, Mergers, Practice

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