M&A Bytes: Legal Due Diligence 101 – What Buyers Really Look For
Every M&A deal has a story. Legal due diligence (“LDD”) is how you read it.
LDD helps buyers identify risks that may affect valuation, deal structure, and in some cases, the decision to proceed with the transaction.
Here’s what buyers typically prioritise – and why it matters for both sides.
1. Ownership & Corporate Records
- Whether the seller truly owns the shares/assets being sold?
- Are corporate secretarial records complete, updated, and accurate?
- Any missing paperwork that may attract a penalty from any relevant authorities?
- Buyers often rely on clean and consistent records to assess risk.
2. Contractual & Commercial Obligations
- Buyers typically look into key customer and supplier contracts.
- Any contracts requiring approval for a change of control?
- Vague termination provisions and unfavourable terms in contracts may be seen as red flags.
- Contracts with revenue concentration are especially scrutinised.
3. Compliance & Regulatory Issues
- Whether the target company possesses valid licences, permits, and sector-specific approvals.
- Any past or ongoing breaches of law, enforcement actions or investigations by relevant authorities?
- Buyers are concerned as compliance gaps can impact business operations post-completion.
4. Liabilities
- Does the target company take out any loans or provide guarantees?
- Any past or ongoing disputes (e.g. litigation cases, employment / industrial disputes)?
- Buyers want visibility into the potential liabilities and exposures so they do not inherit “unknown” surprises.
🔑 Key Takeaway:
Smooth and organised LDD equates to a smoother negotiation process.
The more prepared the seller/target company is, the shorter the journey to signing and completion of the transaction.
In Essence:
Disclaimer: The content of this article is intended for general informational purposes only and does not constitute formal legal advice.
Our Corporate team regularly advises local and international corporations on mergers and acquisitions (M&A), cross-border transactions, joint ventures, and corporate restructuring. We also provide comprehensive support for shareholders’ agreements and general commercial advisory to help businesses navigate the Malaysian regulatory landscape.
For legal assistance or further inquiries regarding your corporate matters, please feel free to contact us.
