In a merger and acquisition transaction, the purchaser, the investor cannot ignore the “legal health” of the Target Company because this is one of important factors to determine whether or not the Investor should purchase, invest in the Target Company. The result of the legal due diligence will be a legal due diligence report that provides the Investor with the panorama on on the Target Company in order to make appropriate decisions.
When carrying out the legal due diligence in a target company, the Investor needs to pay attention to the following issues:
Determining legal due diligence scope:
The legal due diligence basically includes a comprehensive consideration on legal issues such as capital contribution, organizational structure, compliance of laws, assets, main contracts, agreements, labour, litigation dossier, etc.. in the Target Company.
In addition to above basic issues, subject to the purpose and demand of the Investor, the Investor may verify other additional issues or just concentrate on a or some key issues. For example, the legal due diligence of the Target Company which is a project company, in addition to basic issues as listed above, generally the Investor would like to focus on legal issues related to the project of the Target Company because the purpose of purchasing the Target Company of the Investor is to carry out the Target Company’s assigned project or to take transfer the project (not to take transfer the capital contribution/shares in the Target Company). In another case, the Investor purchases the Target Company being a retail company in order to inherit this company’s retail system, the scope of the legal due diligence will concentrate on legal issues in relation to the Target Company’s retail system.
In conclusion, for the effectiveness of a legal due diligence, the Investor needs to determine clearly the scope of the legal due diligence, key issues that need to be focus on based on the purpose of the Investor. With its experience, the law firm conducting legal due diligence shall has appropriate proposal and recommendations for the Investor’s consideration and decision.
The period that need legal due diligence
In addition to clearly determining the legal due diligence scope as mentioned in Section I above, determination of the legal due diligence period is also important in the legal due diligence of the Target Company because there are numerous target companies that have more than ten years of age, if the verified period is not determined, this will lead to the legal due diligence from the time of the Target Company’s establishment to the present, accordingly the legal due diligence period is up to more than ten years. In many cases, this is unnecessary and time-consuming, waste of costs and human resources of the Investor. Therefore, after determining the targets of the transaction, the Investor should make a clear plan on the scope and period of the legal due diligence in the Target Company.
Usage of the legal due diligence service
In recent years, the service of “legal due diligence” is rather popular and developed in Vietnam. Currently, many law firms provide this service. In addition to self – verification by internal staff, the Investor may contact and use external legal due diligence service (the law firms with deep experience and reputation) to obtain an independent, objective legal due diligence report as well as obtain a different perspective on legal issues related to the Target Company.