WHAT IS A DUE DILIGENCE INVESTIGATION?
Reviewing legal, tax and other information
Due diligence in relation to mergers and acquisitions is an investigation of the business which is the subject of the transaction. Good faith requirements may trigger a duty to disclose certain information to the other party as well as a duty to investigate.
The purpose of a due diligence investigation is, a.o., to decide whether to proceed with the transaction as well as establishing areas of risk. More in general, the investigation aims at assessing the benefits and downside (liabilities) of a proposed acquisition, and comprises the past, the present and the predictable future of the company and its business.
Usually, a due diligence investigation starts with a long list of questions and issues to be addressed. In the event of a large(r) target-company, often all the (legal and tax) information is gathered in a so-called data-room (due diligence room). It goes without saying that prior to such an investigation, a confidentiality agreement is concluded, which helps to prevent the prospective buyer from using all this information if he decides to withdraw from the proposed transaction.
Karel Frielink
Curacao-based Attorney (lawyer) / Partner
