The first step prior to the due diligence process is to set the due diligence documentation/query list. This will be drawn up by your advisers, usually using a standard model that has been adapted to the particular reality of the current deal. This will be handed over to the target company that will set up a data room that includes all the information requested by the acquirer’s advisers and any other documentation that may be relevant. Keep in mind that this is usually a lengthy process for the target company and may take time, depending on the size and the level of organisation within the target company. A variety of virtual data room software solutions are available and most of them offer a clear audit trail, collaboration tools, security and data storage management.


This article will set out a broad understanding of the due diligence process but the financial and tax due diligence will be covered in a separate article within this series.

History, overview, strategy and management

The due diligence will usually start out by asking for an overview of the company – historical data and figures, a description of the origins of the company and a statement that explains the company’s strategies and objectives. One may ask for a competitive analysis of the sector in which the company is operating as well as for a broad risk analysis. We also look at significant relationships with third parties as well as compliance with all applicable legislation. 

As advisers to the acquirer we carry out a detailed overview of the management of the target  –  we look at corporate governance, potential conflicts of interest, remuneration, and related party transactions. It is crucial to assess dependence on key persons as this can totally undermine the success of the target company following the deal unless adequately addressed. The acquirer may include a condition whereby key persons remain in their position for a defined period following the acquisition – we always recommend that this is tied in with financial incentives based on performance.

Employment relations

A detailed due diligence on employment relations usually includes a list of employee numbers and positions for each division of the company, an overview and breakdown of all payroll costs, trade union issues, the existence or threat of industrial action as well as on job safety and injury experience.


The legal due diligence will assess the legal background of the company including a review of all corporate documentation and a verification of good standing of the entire company structure. We also look into any current or threatened litigation or arbitration as well as any activity that may be illegal or questionable or subject to adverse public comment. This requires conversations with the target’s internal and external legal advisers.

A legal due diligence will also involve a detailed review of all material contracts that bind the company.

This is a laborious process and usually involves a team of lawyers working to review each contract and draw up a table with each contract broken down into separate components so that the entire framework of contracts can be easily assessed by the acquiring company. 

Are all key contracts valid and binding, and when do they expire? Is there a mechanism for renewal or extension? This is a crucial element for any business yet is surprisingly often overlooked even at the highest levels. We also look for clauses whereby the transfer of the business or of the company is subject to the approval or consent of third parties. 

We advised against the acquisition of a company with a presence in over 20 countries when during the due diligence we reviewed the main two contracts upon which the vast majority of the group’s income depended and found out that one was expired and had never been renewed and the other included a clause whereby a third party could block any sale of the target. 

Intellectual property

Another crucial element is intellectual property rights – does the company own trademark/patent rights itself or are these rights licensed from a third party? On the other hand, we ask whether the company has licensed intellectual property rights to third parties and if so, we review the level of risk associated with this licensing.

We ask whether these rights are well protected, in particular in regard to current and former employees with inside knowledge. We look into any existing or potential intellectual property rights infringements by the company.

The use of software is related to an intellectual property due diligence – our operations/IT teams looks into all essential software used by the company and draws up a detailed report on the current state of all licences required. Within the framework of a legal due diligence we also review all applicable or required permits – this depends on the particular industry or industries within which the company is operating.


James Muscat Azzopardi is a Director at Credence.
You can get in touch with James via email, or through his LinkedIn page.