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M&A Due Diligence

What is the difference between legal and financial due diligence?

Legal DD focuses on contracts, litigation, and regulatory compliance, while Financial DD analyzes historical financial performance, cash flows, and balance sheets.

Can I skip due diligence for a small deal?

It is highly risky. Even small companies can have significant liabilities (e.g., hidden debts, IP lawsuits) that exceed the purchase price.

What is a Virtual Data Room (VDR)?

A secure online repository where the seller uploads confidential documents for the buyer's lawyers to review during the due diligence process.

How does DD affect the Share Purchase Agreement (SPA)?

Risks identified in DD are addressed in the SPA through specific representations, warranties, and indemnities to protect the buyer from future losses.

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M&A Due Diligence: Comprehensive Legal Audit for Transactions

The success of Mergers and Acquisitions (M&A) transactions depends directly on a high-quality preliminary investigation, known internationally as "Due Diligence." This is a process where a potential buyer or investor thoroughly examines the legal, financial, and commercial status of the target company. M&A Due Diligence is not a mere formality; it is a critical tool for uncovering hidden risks that could turn into serious problems in the future — be it unregistered assets, ongoing litigation, or tax liabilities. In Georgia, where corporate legislation and business practices are rapidly evolving, a qualified legal audit is the basis for adjusting the transaction price and correctly drafting Warranties.

Legal.ge offers access to lawyers experienced in M&A who specialize in full-scale legal audits. Specialists on our platform will help you make an informed decision and avoid the risk of buying a "pig in a poke."

What Does M&A Due Diligence Service Cover?

A legal audit covers all legal aspects of a company's operations:

  • Corporate Documentation Audit: Checking the Charter, meeting minutes, shareholder registry, and governance structure for compliance with legislation.
  • Contractual Risk Analysis: Reviewing key contracts (suppliers, clients, banks), especially to identify "Change of Control" clauses.
  • Employment Relations Check: Analyzing employment contracts, bonus systems, and potential labor disputes.
  • Intellectual Property (IP) Audit: Verifying the registration correctness of trademarks, patents, and copyrights.
  • Litigation Review: Assessing current and potential court proceedings and forecasting expected financial losses.
  • Regulatory Compliance: Checking the validity terms and conditions of licenses and permits.

Common Scenarios When Due Diligence is Necessary

A legal audit is critical in the following cases:

  • Acquisition: When a strategic investor buys a competitor or a new business to increase market share.
  • Investment: When a venture fund or private investor injects capital into a startup and wants to verify the reality of assets.
  • Merger: When two companies combine, and both parties need to check the "cleanliness" of the partner.
  • Vendor Due Diligence: When a company owner commissions an audit before selling to correct flaws in advance and increase the sale price.

Georgian Legal Framework

The Due Diligence process relies on the Law of Georgia on Entrepreneurs, the Civil Code, the Labor Code, and the Tax Code. During the audit, compliance with these laws is verified. For example, if a company does not have properly executed employment contracts, the buyer may be liable for fines from the Labor Inspection. Also, it is important to consider the Law on Competition to ensure the transaction does not violate antitrust regulations.

Service Process Stages

The process typically involves:

  1. Information Request (Checklist): The lawyer sends a list of documents to the target company.
  2. Opening the Data Room: Uploading and reviewing documents in an electronic space.
  3. Q&A Session: Receiving additional clarifications from the company's management.
  4. Red Flag Report Preparation: Identifying key risks and providing recommendations (e.g., price reduction, requesting warranties).
  5. Reflection in Agreement: Incorporating audit results into the Share Purchase Agreement (SPA).

Why Legal.ge?

M&A Due Diligence requires coordinated work of lawyers from various fields (corporate, tax, IP, labor). Legal.ge gives you access to multidisciplinary teams capable of conducting checks quickly and efficiently. Our experts will help you see risks that are not visible at first glance and protect your investment.

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