M&A/Legal Due Diligence Germany

There is no single standard approach for legal due diligences. Whereas big transactions typically require an in-depth analysis of the target´s legal situation, medium-sized M&A deals oftentimes, not only for costs reasons, require a quick and cursorily due diligence approach which identifies the most important risks. Such a due diligence is called a red flag legal due diligence. Mostly, a red flag due diligence makes sense at the beginning of a transaction at a time when it is still uncertain whether the interested buyer will indeed buy the target or whether he decides to stop negotiating with the vendor. Such a red flag legal due diligence usually identifies the most risky issues (dealbreakers) which have a strong impact on the purchase price.

In contrast, a full scope legal due diligence goes much deeper into details. It intends to identify and to comment on all relevant tax risks. Typically, a full scope legal due diligence ends in a comprehensive full scope legal due diligence report, whereas the results of a red flag legal due diligence are written in a more concisely manner most often.

In any case, a useful legal due diligence report should not only identify risks but also propose practicable solutions on how to minimize the risks for the buyer.  Such a report will also enable the buyer to conclude the deal regardless the remaining risks identified.