Mergers and Acquisitions (M&A) can be as critical as it seems

exciting for any entity's growth and development. If successful, it can

assist both the companies to gain a significant share in the market and

earn profits. If not successful, it can lead to a different story

altogether. 

We can list numerous corporations who

rushed into professional marriages without performing legal due

diligence or reviewing the corporate structure and relevant documents of

the company. An acquisition transaction is one of the most appropriate

decisions taken by a company which frames the future of any

organization. Thus, careful due diligence into the financial reports of

the target company holds utmost importance.

Legal due diligence of a corporate entity is often a lengthy and a

cumbersome task, which can significantly impact the timeline of the

project. In any merger or acquisition, parties are usually concerned

about the time frame and desire to finish the transaction at the

earliest. The Corporate Lawyers of UAE will highlight certain important

aspects of due diligence in any merger or acquisition transaction under

UAE laws.

Epitome of Due-Diligence

In any Merger or Acquisition transaction, it is advised to evaluate

the strengths and weaknesses of the project as well as the target

company and its sister companies prior to finalising the deal. The

objective of the concerned exercise to obtain all relevant and

up-to-date information of the target entity and to understand the

significant shortcomings of the company which were earlier not apparent.

It can further assist in understanding the financial or legal

consequences that might hinder the future growth of the company or can

impact the return on investment.

Legal due diligence mostly conducted by Corporate Lawyers of Dubai

will comprise of financial and legal review of the targeted company.

Wherein, the financial analysis is usually performed by financial

experts, and qualified Corporate Lawyers undertake the legal review. In

any legal due diligence, lawyers tend to review structure of the

company, corporate documents, trade licenses, management structure,

power of attorneys, corporate agreements, financial liabilities,

employment contracts, outstanding debts, internal policies, insurance

agreements or policies, movable and immovable assets, mortgages, loans,

corporate and commercial litigation and list goes on. As mentioned

above, the ultimate objective of this exercise to prevent the acquiring

company from any future casualties post taking over the target company.

The scope of due diligence exercise vary in each transaction, and it

will rarely be general and covers all aspects of the company related to

the sale. It is less likely that the due diligence review will be

limited in scope as it involves review of all significant issues

pertaining to the company which might impact the merger or acquisition

transaction. It further depends upon the organization structure and the

business of the target company that can either be retail, construction,

telecommunication or any other activity. In each of the companies, the

lawyers have to review the business structure, assets in order to

determine the shortcomings of the company and how to improvise such

deficiencies. There is a direct nexus between the size of the company

and the extent of due diligence review as for a small acquisition

transaction does not require extensive due diligence review. However, in

a significant acquisition transaction, a thorough investigation of

documents is required for in-depth knowledge of target-company.

For instance, in an acquisition transaction between companies

providing professional services, the due diligence review will entail

reviewing the competence of employees and their contract, determining

the licenses obtained by the company, goodwill in the market,

intellectual property registration, contracts entered by the company.

Whereas, if the target company is sale oriented then it is likely to

review the goods purchased and sold, outstanding debt in the market,

movable and immovable assets of the company, machinery, factories,

additional permits and licenses.

The Procedure

The target company in an acquisition transaction is obliged to

provide every relevant document of the company which can affect the

acquisition transaction or which is necessary for acquiring the company

to review before finalising the deal. The seller will create a data room

either online or physical through which they can offer all the relevant

documents to the company or their legal representatives. It is

essential for the target company to provide all documents otherwise the

process and timeline will unduly increase delaying the transaction

unnecessarily.

Timeline for Review

The schedule for finishing any due-diligence review is directly

correlated to the size of the transaction and the number of documents

made accessible for the survey. The seller will either required to

provide copies of all documentation or create an information room and

give adequate access to it to the legal advisors, bookkeepers and

different experts surveying the literature for the buyer. The seller

ought to likewise provide answers to inquiries raised by the buyer's

consultants amid the survey that emerges out of the documents submitted.

In such circumstances, the process can be completed within a standard

time frame. The course of events will undoubtedly be expanded where a

seller isn't adequately helpful and is hesitant to give materials, and

data asked for or neglects to do as such quickly. For giant acquisition

transaction, parties split up the review into several stages where each

stage entails an analysis of specific documentation. Accordingly, the

parties can fix a timeline for each step and all the stages can be

either co-dependent on each other and can be separated at the same time.

Advantages

Legal due diligence offers an opportunity to the party to determine

the assets, liabilities, market standing, internal structure, management

of the target company before finalizing the deal in order to understand

the future legal and financial repercussions. It is most beneficial for

the purchasing company to determine the current status of the target

company and the amount of further investment required in the company. On

the basis of the due diligence report, the buyer will be able to

analyze the transaction completely and will be able to understand the

advantages and disadvantages of acquiring the company. It also opens an

opportunity for the buyer to check whether the price offered for the

acquisition is up to the standards of the company or will there be a

room for negotiations.

It further allows the seller to provide an opportunity for the buyer

to remedy if there is any deficiency prior to the transaction. It is

always prudent to conduct the due diligence review before the

transaction to have complete information prior to signing the deal.

Concluding Remarks

Legal Due diligence in an acquisition transaction is a pivotal step

which evaluates the risks involved in the transaction by reviewing the

relevant corporate documents of the target company. The exercise will

aim to inform the buyer about the true features of the company targeted

which subsequently guarantees that necessary precautions are taken while

arranging and finalizing the acquisition transaction. As of late, there

has been a pattern increasingly more towards gatherings acquiring

guarantee insurance to alleviate the dangers related to M&A

transactions. Subject to specific prohibitions, this protection will

safeguard the parties against costs related to defaults in the due

diligence procedure by either party failing to provide relevant

documentation. Nevertheless, due diligence review is of the most

important part of an acquisition transaction, if carefully undertaken by

best Corporate Lawyers in UAE.