Should a Seller Care About Due Diligence?
In our recent post we considered, to what extent, the seller in the context of an M&A transaction should care about legal due diligence, and suggested that there are a number of important reasons why a seller should concern itself with legal due diligence in the face of an acquisition.
In addition to our thoughts on the utility of seller due diligence for the purpose of uncovering potential barriers to the sale of the target business, the seller will also want to ensure that it can actually make the representations and warranties that it has been asked to make in the purchase agreement. At the same time, it will want to instil confidence in the buyer that such representations and warranties are accurate and complete.
Although a great deal of dialogue about the target’s business will likely take place orally at meetings with management, through site visits and formal and informal presentations and discussions among representatives of both parties, the seller will want to provide comfort to the buyer by demonstrating the legitimacy of the statements made in the context of those discussions. This in turn will have a direct impact on the underlying economic considerations of the transaction, including, in many cases, the buyer’s decision of whether to go through with the deal at all, and at what price.
Although when we think of legal due diligence we often envision the buyer and its counsel poring through paper or electronic documents in a data room, sellers should keep in mind that the due diligence process can be used to their advantage, not only to help ensure the completion of the sale, but also at the best possible price.