More... about Due Diligence

The diligence period and process should be timed and defined in the Offer to Purchase, in as much as ‘subject to diligence’ clauses should contain an expiration date, after which, if not first satisfied and removed by the beneficial party, the offer agreement may be withdrawn by the other without penalty.  Similarly, the ‘subject to diligence’ clauses should contain scheduling with respect the more sensitive diligence areas, such as employee confirmation perhaps, and other areas. Diligence pertaining to areas of particular sensitivity should be scheduled to the end of the diligence process, after all less sensitive diligence have been completed and accepted.

In the recommended seven steps process, the buyer will not have had access all such information prior to the Offer to Purchase, but will have instead relied on representations of such information made by the seller or surrogates. Similarly, the seller will have based Acceptance solely on the representations of the buyer.  Now, other than cautions relative to highly sensitive areas, diligence should have access to everything material.

The subject in the Offer to Purchase should provide that if not proven to the buyer’s satisfaction, the Offer may be withdrawn by the buyer without penalty. Thus, it will be highly important that the pre-diligence work conducted during in preparation of the valuation and business profile be thorough and factual. Big surprises or too many surprises during diligence are generally fatal to the deal.

Similarly, the Offer to Purchase should be written with a ‘subject to diligence’ clause written to the benefit to the seller, whereby the seller will be granted full access to such buyer information as required to confirm to the seller’s satisfaction, the buyer’s credit worthiness, abilities and probability the buyer will complete on the terms of the agreement.