Transactional Due Diligence
English-speaking German Attorneys and Lawyers in Berlin, Hamburg, Munich and Frankfurt
The acquisition of a company or participation in a company requires a careful due diligence on the target company. In practice, a due diligence process generally consists of a legal due diligence, tax due diligence and potentially a technical due diligence. Such due diligence process is generally conducted right after the signing of Non Disclosure Agreements (NDA)between the potential buyer and the potential seller of a company. The required scope of a transactional due diligence may vary depending on industry, exposure to risks and size of the target company. In the current German M&A market, which is a rather seller-friendly market, most bidders in an auction process or potential buyers chose to conduct a red flag due diligence instead of going all-in and conducting a full-fledged due diligence regarding any and all aspects of the target company.
Typically, even a red flag due diligence covers legal, financial and tax matters and is conducted by experts in the respective fields, i.e. lawyers, tax advisers, financial advisers and potentially other specialised consultants such as technical consultants for a technical due diligence or environmental consultants conducting a specific environmental due diligence. Our attorneys and tax advisers have extensive experience with all scopes of due diligence processes, particularly regarding the acquisition of German limited liability companies (GmbH) by foreign investors in the context of a cross-border transaction. Most of our specialized German M&A lawyers and tax advisers have previously been working with major international law firms or as M&A in-house counsel for multi-jurisdictional corporations. With offices located in Germany’s major economic and financial centers, Hamburg, Berlin, Frankfurt and Munich, we routinely advise domestic and foreign clients on all aspects of corporate and transactional law. We both act as lead counsel and local German counsel and have conducted various legal and tax due diligence processes in the past.
For a non-binding enquiry, please contact one of our senior attorneys directly via telephone or e-mail or use the contact form at the bottom of this page.
Our Expertise Regarding Legal Due Diligence and Tax Due Diligence
Our team of attorneys, certified specialist attorneys in corporate law, and tax advisers at ROSE & PARTNER competently advises on all transaction-related matters. Our services regarding legal due diligence and tax due diligence particularly cover the following:
- Planning, structuring, and coordination of legal due diligence and tax due diligence
- Drafting of due diligence information request lists for our clients who are potential purchasers
- Preparation and set-up of data rooms and documents required for our clients who are sellers (including exit-preparation for start-up companies)
- Preparation and drafting of documents required for legal due diligence, financial due diligence, tax due diligence and special aspects due diligence (e.g. environmental, real estate)
- Competent due diligence assessments according to our client’s preferred scope and schedule
- Preparation of red flag due diligence reports as well as extensive due diligence reports
- Preparation of legal fact books or vendor due diligence reports for sell-side clients
- Identification and coordination of external experts (e.g. environmental experts, technical experts) where required – we are a one-stop-shop with an extensive network
- Identification of potential and residual risks regarding the target company and drafting of a reliable due diligence report according to tour client’s specifications
- Advise regarding adjustments of the transactional structure and documentation to avoid or eliminate identified risks
- Conducting of post-M&A due diligence in order to assess potential claims against sellers as well as litigation relating to M&A transactions
Purchaser-Due Diligence in Preparation of an Acquisition of Shares or Assets
Most frequently, a due diligence is conducted by a potential buyer or purchaser or shares or interests in a target company prior to such acquisition. The purchaser would like to assess any and all potential risks in connection with the acquisition of the target company. Such risks typically relate to the establishment of the company under German law, title to shares, financial matters of the company, potential tax-related issues and the operative business of the target. If the buyer identifies any risks during such due diligence process, they might either be show-stoppers or be considered when determining the final purchase price. Generally, representations and warranties given by the seller in the share purchase agreement, the due diligence process, and the purchase price are closely tied together.
The second major reason for conducting a buyer-due diligence is for the management of the potential purchaser to limit its own potential liability in connection with the transaction. The management has to conduct the business of the company with the due care of a prudent businessman and therefore has to ensure a competent assessment of potential targets for acquisition before signing any company purchase agreement.
In certain situations, the seller may want to prepare a so called vendor due diligence report or legal fact book in order to (1) provide extensive information to potential purchasers and/or (2) speed up an intended auction process, or (3) gain more in-depth information on residual risks within his own company. It can be useful, for example, to involve specialized attorney before starting the process of offering a company for sale in order to polish the presentation of the company. In such a situation, a (red flag) due diligence is conducted and a legal fact book or vendor due diligence report is prepared along with the respective set-up of a data room or virtual data room containing all relevant information for potential buyers. This gives a more professional impression and makes it easier for prospective purchasers and interested investors to assess whether they would like to acquire the target or make an investment. It can often be advisable to start-up companies planning an exit to conduct a limited due diligence and prepare a professional data room in anticipation of an exit. Also, a vendor due diligence can be useful to identify issues potentially resulting in a reduced possible purchase price for the company and eliminate such issues before going to market.
Additionally, a vendor due diligence may be advisable before drafting the initial seller’s draft of the share purchase agreement (SPA). This is especially the case due to the fact that most representations and warranties to be given by the seller in the purchase agreement can only be given after an in-depth assessment of the actual situation of the company if the risk of a liability of the sellers or the management is to be avoided.
Establishing a Virtual Data Room
As a prerequisite for a professional due diligence to be conducted during an auction process or even during negotiations between a potential buyer and a seller, a data room containing all relevant documents and information has to be established. Such data rooms regularly contain documents pertaining to corporate, tax, financial, compliance, operational, ongoing and threatened litigation, environmental, commercial, contractual and several other matters.
The documents are usually prepare by employees and management of the target, best assisted by competent lawyers experienced with due diligence processes. It is state of the art to employ virtual data rooms instead of physical data rooms which have been used in the past. Today, only very sensitive documents such as documents relevant under competition law or actual business secrets are restricted and either put into a so called red data room or only provided to a clean team under a separate clean team agreement. Our experts regularly assist our clients with the identification of a good virtual data room provider, the set-up of the virtual data room and potentially a red data room including clean team agreements and required annex documents.
The so called Q&A-process regarding questions and answers pertaining to the contents of the documents provided in the (virtual) data room takes place once the purchaser has conducted its initial phase one due diligence. Generally, some documents or information which may be of interest to a potential purchaser might not be readily available in the data room. The purchaser or its advisers therefore will regularly want to ask questions and get answers to such questions. This is called the Q&A-process in the context of the due diligence process. Most of the time, the number of questions that may be asked is rather strictly limited.
Due Diligence Report
The work-product at the end of a due diligence process is the due diligence report. It either summarizes the full legal status quo of the target company or group of companies (full due diligence report) or just raises awareness to certain risks identified during the due diligence process (red flag due diligence report). Scope and presentation of due diligence reports may vary according to the instructions given by the client and the respective situation at hand. A legal fact book which generally is a full due diligence report pertaining to legal aspects may well consist of hundreds of pages or summary, depending on the size of the target corporation. On the other hand, a red flag due diligence report pertaining to legal aspects of the due diligence regarding a small or medium-sized company may only consist of ten pages. Generally, an executive summary will be included in any due diligence report to ensure that key risks can be identified at a glimpse.
Our team of 11 corporate and M&A attorneys and tax advisors throughout our offices in Hamburg, Berlin, Frankfurt and Munich is available to advise on all M&A matters in Germany. We are frequently employed both as lead counsel as well as local German counsel in connection with small to large-cap corporate transactions or parts thereof relating to German law matters. We offer hourly billing but are also open to alternative fee arrangements, such as caps of flat fees, depending on the particularities of the deal.
For a non-binding enquiry, please contact one of our senior attorneys directly via phone or e-mail or use the contact form at the bottom of this page