From findings to contract terms
Each issue uncovered during mergers and acquisitions due diligence has to go somewhere. Some issues are priced, some are covered by a special indemnity or escrow, some are fixed before closing, and some lead the buyer to reshape the deal, for example by buying assets instead of stock. The seller's disclosure schedules list exceptions to its representations, so a problem disclosed there is usually one the buyer accepts rather than one it can claim for later. Whether a buyer who learned of a problem during diligence can still sue over a related representation depends on the contract language and the governing law, which is why many agreements address the question expressly. Diligence that never reaches the drafting table tends to be wasted effort.
Getting ready on the sell side
Sellers who prepare before going to market usually face fewer surprises. Cleaning up corporate records, confirming who owns the company's equity and intellectual property, locating signed copies of key contracts, and resolving known compliance issues ahead of time shortens the process. A seller can also identify contracts that will need third-party consent and think about how to approach those counterparties. Sharing competitively sensitive information with a buyer who is also a competitor calls for care, and clean-team arrangements are sometimes used for that purpose. It also helps to have one person coordinating answers to diligence requests, so the answers stay consistent and are recorded.
Sizing the review to the deal
A small acquisition does not need the same review as a large one, but some subjects carry risk at any size, including tax exposure, how workers are classified, data privacy, the environmental history of real property, and pending litigation or government inquiries. Specialized areas such as export controls, government contracts, or healthcare billing may call for focused reviewers. When we scope diligence with a client, we start with what the buyer is really paying for, whether customers, technology, a license, or a team, and concentrate effort on whatever would destroy that value if it turned out to be wrong. We also agree in advance on how findings will be reported, so the business side can act on them quickly.
