Financing secured and moving into DD

February 26, 2024

by a searcher in Toronto, ON, Canada

I have secured terms for a deal that I have under LOI, and planning to move into formal due diligence this week. Any tips or recommendations for first timers entering this phase?

I already have my legal and financial team set

Thanks!

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Reply by a professional
from American University in Irvine, CA, USA

Due diligence is all about the process. It is important to make sure that it is organized and comprehensive enough to find all actual and potential liabilities, so that you are able to make an informed calculation as to risk of the transaction. We have clients work with a detailed Due Diligence checklist, and typically have all items that are identified from the list are placed in folders in a shared storage platform, with each file numbered to match the item on the DD list. In that way, all people who need to review the due diligence (parties, lawyers, accountants, bankers, investors, etc.) There are a few areas that I always look for: make sure that all material agreements are fully-executed by all parties to them; if any sweat equity was issued by the company, make sure they properly accounted for and paid any related tax liabilities; if the company raised equity from investors, make sure that nobody received compensation for helping sell any securities except for licensed securities brokers or dealers. I wish you the best of luck with your transaction..

Reply by a professional
from Villanova University in West Chester, PA, USA

Congrats, ^redacted‌! Be very proactive in working with your legal team to make sure you understand all of the components of the transaction prior to closing. For example, when we're working with a client, we immediately provide the due diligence request list, the transaction timeline and closing checklist, and a list of material deal terms that if they have not been negotiated in the LOI they need to address ASAP. When you address those material deal terms during the due diligence phase, and prior to drafting the purchase agreement, it will help to minimize broken deal costs. Also, be sure to share as much information about the transaction as you can with your attorney. The more they know, the better they can represent you.

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