In any arm’s length investment or business sale process, an incoming investor or purchaser will want to conduct a thorough review of the target business’ legal affairs. In the case of an large equity investment or a share sale this legal due diligence process will be more comprehensive than a small equity investment or the sale of the business and assets out of the company but any legal due diligence exercise is going to involve the disclosure of commercially sensitive information to a third party (who can often be an existing competitor).
It is therefore crucial for the party disclosing that information to ensure that the right protections are in place to minimise the risk of that information being used for any unintended purposes. These protections should include asking the receiving party to sign a legally binding confidentiality agreement (otherwise known as an NDA or non-disclosure agreement) and using a secure facility for transferring the confidential information electronically. At Murrell Associates we offer our clients the use of our secure online data room facility Collaborate designed by High Q (click here for more information) that provides our clients with piece of mind that all the information they disclose (whether arising from a commercial, financial and/or legal due diligence request) is being held securely and that they retain the necessary controls over who can view that information and what they can do with it (e.g. certain users can be limited to view only access). Collaborate also records data on usage of the site so our clients can see the progress of any due diligence review which is very useful in a number of circumstances. The site also has a Q&A facility so that all users are aware of the latest position on any particular points raised by advisers.
If the parties progress beyond the due diligence stage, the investor/purchaser will ask for warranties in the relevant investment or sale and purchase agreement and the information supplied in the due diligence stage will need to be disclosed against those warranties to ensure the investor/purchaser is put on notice of that information for the purposes of the warranties. The use of the data room facility for storing due diligence information simplifies that process for all concerned saving time and costs which would otherwise be incurred in gathering together information from various sources.
Please contact Henry Maples if you would like to discuss any of the issues raised in this article. The information provided in this article is for general information purposes only and does not constitute legal or other professional advice and cannot be relied upon as such. Any law quoted in this article is correct as at 3 October 2014. Appropriate legal advice should be sought for specific circumstances before any action is taken. Copyright © Murrell Associates Limited, October 2014.