Tip of the Week: Don't Skimp on Due Diligence

Whether you are a company merging with a shell, or on the shell side, you can avoid many major potential problems by doing some simple things that, unfortunately, sometimes in the heat of deals are either ignored completely or not done thoroughly. A full, careful, thorough due diligence review of the company you are combining with is absolutely critical.

The unfortunate reality is that companies that ignore this in the expediency of completing a deal or saving money on legal fees do so at their peril. I can regale you with way too many horror stories of problems that arose after deals were completed that could have easily been discovered during a proper due diligence review. Make sure that your attorneys not only look at every contract and other legal obligation your adversary company has, but that any SEC disclosure document you prepare (such as a “super Form 8-K”) is vetted by the attorneys so they can confidently confirm that they know of a basis for every factual statement contained therein. That is the right way to do things.

Due diligence does not have to slow up a deal. By starting immediately when all other aspects of the transaction get going, at least in my shop we always complete due diligence long before documents are fully negotiated. Ask the question and make sure you and your counsel commit to this full review.

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