Economically and especially regarding M&A, Germany is one of the leading countries in Europe. The acquisition of an external company offers an attractive opportunity for companies to expand. Such a step requires careful planning.
One important aspect to consider when planning an acquisition is the potential synergies that can be realized between the two companies. Additionally, companies must also carefully evaluate the financial and legal risks associated with an M&A transaction.
In order to detect unforeseeable risks in advance and to determine the acquisition price, it is indispensable to comprehensively analyze the target company regarding its legal, economic and tax situation.
This process is called M&A due diligence or legal due diligence. Especially the decision-makers of the acquiring company, such as
- the managing director,
- the management board members and
- the supervisory board members
must, in order to exclude their personal liability, display the care of a diligent merchant in such a far-reaching business decision as the acquisition of another company. Comprehensive due diligence in mergers and acquisitions also serves this purpose.
A M&A due diligence review entails a comprehensive analysis of the acquisition target. Such an analysis includes the monitoring of the target company and essential certifications. It is divided into several sub-areas, such as
- Financial due diligence
Financial due diligence reviews the financial condition of the target company.
- Commercial due diligence
Its market position and business model are analyzed in the course of the commercial due diligence (also market due diligence).
- Legal due diligence
Especially in legal due diligence reviews, external attorneys are always commissioned in order to ensure the complete identification of all emerging legal risks by objective and professional review of the company's circumstances.
- Tax due diligence
- IP due diligence
In the course of IP due diligence, attorneys analyze and evaluate the intellectual property (IP) of the company to be acquired for industrial property protection.
- WINHELLER advised Mesa Laboratories, Inc., based in Colorado, USA, on the acquisition of the peptide purification business of Berlin-based Belyntic GmbH. Learn more
- WINHELLER has successfully advised cybersecurity expert Kape Technologies plc at the purchase of ZenGuard GmbH in Berlin. Learn more
- WINHELLER advised Mesa Laboratories, Inc., based in Colorado, USA, on the acquisition of BAG Health Care GmbH’s Hygiene Monitoring Business in Lich, Germany. Learn more
There is no single standard approach for an M&A due diligence. 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.
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