Legal Ops Play Critical Role in Due Diligence for M&A

Legal ops play a critical role in due diligence for M&A (mergers and acquisitions) to ensure any deal’s success. Due diligence involves a comprehensive review of a target company’s legal, financial, operational, and other relevant details. Thomson Reuters’ Chris O’Leary reports that this process, though costly and time-consuming, is essential to identifying potential risks and ensuring the deal delivers its promised value.

The process begins by organizing the due diligence, analyzing the type of deal, and determining the involved parties, deadlines, and expected deliverables. Assembling a capable due diligence team including legal, business, accounting, and tax specialists is essential. Legal ops needs to be part of this team on day one to help streamline the process and facilitate cross-departmental communication.

The first step is submitting a due diligence request, which focuses the team on relevant information, such as the target’s management structure and potential deal impediments like anti-takeover defenses. Key documents include the target’s governing documents, market status, subsidiary information, and significant contracts.

Organizing and distributing materials efficiently is crucial, with virtual data rooms and AI tools often used to classify and index documents. Reviewing Securities and Exchange Commission (SEC) filings and Sarbanes-Oxley compliance is especially important for public mergers and acquisitions, ensuring there are no risks from restatements or non-compliance penalties.

If a third party will rely on the due diligence report, it’s vital to discuss the implications for attorney-client privilege and confidentiality. Analyzing anti-assignment and change of control clauses is also necessary to understand their impact on the deal.

For private M&A deals, defining the due diligence scope, budget, and communication process is key. Accessing private financials and ownership documents, sometimes under strict confidentiality, is critical. Delegating reviews to specialists for complex issues like intellectual property is common.

Summarizing findings in an ongoing record helps create a comprehensive due diligence report tailored to the client’s needs. A detailed checklist functions as a roadmap and ensures no step is missed in due diligence for M&A. It also maintains organization and efficiency throughout the process. Modern technology, especially properly-trained artificial intelligence (AI), significantly enhances due diligence by automating document identification and organization.