M&A ' Detailed Legal Due Diligence Is Both A Benefit To The Seller And Buyer?

• Published date: 10 June 2021
• Subject Matter: Corporate/Commercial Law, Litigation, Mediation & Arbitration, M&A/Private Equity, Corporate and Company Law, Arbitration & Dispute Resolution
• Law Firm: Vilgerts
• Author: Gints Vilgerts

Latvian law leaves all responsibility for the risks related to selling or buying a company in the hands of the respective parties to the transaction. In turn, sellers and buyers are mostly characterized by recklessness, time constraints, and a lack of bad experience. It is rarely the case the sellers or buyers of a company are willing to devote significant time and resources to conduct a detailed legal due diligence or achieve a proper systematic disclosure of information. A detailed legal due diligence is just one of several ways of valuable fact-finding. Depending on the context of the transaction and the business model in question, the following categories within a legal due diligence could be part of a transaction: financial, tax, merger control, technical, AML/KYC, environmental, IT, HR, etc. Normally, the buyer chooses the most important legal issue only and devotes resources in this direction.

One of the basic principles of the sale of a business is the following - the seller is not responsible for any of the risks that have been adequately disclosed to the buyer. From this premise, follows the findings of this article on the various aspects of a legal due diligence and its methodology.

The purchase price is always connected with the relevant information about the company disclosed to the buyer, or the buyer's assumptions about the possible or most probable situation with the company. Except for real estate transactions, it is often the case the buyer has limited opportunities to conduct a legal due diligence exercise in M&A transactions, without the seller's involvement.

Thanks to publicly available information (www.kadastrs.lv, www.zemegramata.lv, etc.) and the opportunity to examine the asset in real life, the buyer can independently identify the possible legal risks within the real estate transaction quite accurately. As Blackstone's Schwarzman said that it is good that buildings don't talk. However, this is not objectively possible in other cases, unless the company's annual reports with detailed notes prepared by a recognized audit company are indeed available.

If the seller has signed an NDA (non-disclosure agreement), then the seller limits its liability to only the information adequately disclosed. The seller must be able to prove in court or arbitration what information and to whom it has been disclosed to.

The seller can accelerate the pace of the transaction if it has carried out a detailed legal due diligence independently, i.e., the...