| May 19
Due Diligence for private M&A transactions in India
Due Diligence in an M&A
transaction is referred to the process of collection, examination, verification
or auditing of a potential deal to get an assurance of whatever is involved in
the deal. There is absolutely no straight-jacket formula for Due-Diligence or
questions that are to be followed in a deal. Every deal is different from the
other, and thus every process of Due Diligence differs in terms of nature and
size of the transaction.
Usually, in a corporate M&A
transaction, there are a few basic questions, which find a place in almost
every Due Diligence process. The scope extends to the following,
- The record of the filings with the Registrar
of Companies (RoC) regarding all the filings made in compliance with the
provisions of Companies Act of 2013 and the Rules.
- The record of the filings made with the
Reserve Bank of India (RBI) to make sure any foreign exchange filings or
any relevant filings are in accordance with the corresponding provisions
of the laws.
- Verification of licenses, registrations and
permits the company holds for the functioning of the office and its
operations to make sure they comply with all the regulatory and legal
- Examination of contracts and agreements with
customers, suppliers and other stakeholders in the business. Analyzing the
nature and terms of those contracts keeping in mind profit maximization
and new offers/incentives.
- Investigation of the Intellectual Property of
the company, in terms of the pending and approved applications, to make
sure the IP applications are proper and duly registered, and all the
pending litigations are carefully assessed.
- Assessment of all the pending litigations with
- Analysis of all the employment contracts to
ensure appointments, promotions, bonuses, and salary payment and working
conditions are proper. Full compliances with labour laws and regulations.
(Both Local & National )
- All the related party transactions of the
company, to assist the legal, financial and Tax Due Diligence of the company.
Be that as it may, the extent of due
Diligence relies upon the area where the company works. For example, if a
company is occupied with the field of manufacturing, the licenses and approvals
acquired by the company, alongside their operational and ecological (if
appropriate) compliances, are critical to the due Diligence. Then again, if the
company is occupied with the administrations part, the material understanding
went into it, would be significant. Further, numerous speculators additionally
connect with counsels to lead hostile to tax evasion, pay off and degenerate
practices-related due Diligence.
Other businesses don''''t typically give
due diligence reports to potential purchasers. In any case, on account of an
obtaining through a sale or offer procedure that includes different bidders,
the vendor may give a seller due diligence report to the bidders. Indeed, even
in such cases, dependence by the bidders on the due diligence report given by
the vender is profoundly arranged. Notwithstanding, regarding critical issues
recognized in the report, territories in which the data is deficient or regions
that are imperative to the bidder, the bidder may lead a corroborative due
diligence exercise of its own, or may demand additional data from the merchant.
Furthermore, to acquire a huge
preferred position in a serious offer situation, numerous purchasers assess the
advantages, depending upon representations and warranties protection at the
time. In any case, it ought to be noticed that such protection items are
genuinely costly and don''''t give cover insurance.
Similarly, there is another aspect of
the seller''''s liability for pre-contractual or misleading statements. The fact
that whether such liabilities be excluded by agreement between the parties is
something that is usually worked upon. As a component of the agreements
executed by the parties, vendors ordinarily furnish representations and
warranties for the company as on the date of the exchange and for the direction
of the business by the company before such date. An indemnity from the vendors
normally sponsors such representations and warranties. In this manner, for a
break of such representations and warranties, or to the degree that such
representations and warranties are seen as deceiving, a merchant might be
obligated for an indemnity guarantee by the purchaser. Independently, the
merchant may likewise be at risk for harm in an official courtroom for a
penetrate of representation or guarantee.
It isn''''t extraordinary for gatherings
to prohibit or restrain the risk of the vendor (both regarding time and sum) to
penetrate such representations and warranties. Notwithstanding, such impediment
is the subject of broad dealings between the gatherings. Any M&A
transaction has a significant impact on the acquiring company, having a strong
due diligence team and full technical support would make any transaction prone
to less risk and would insulate both the management and the board of the