What Does Contract Due Diligence in Mergers and Acquisitions Entail?

Contract Due Diligence  pic

Contract Due Diligence
Image: forbes.com

Corporate lawyer Claucio Mashimo possesses years of experience in consumer, contract, and mergers and acquisitions law. Previously the legal and government affairs manager at Fujifilm Do Brasil Ltda, Claucio Mashimo was in charge of legal due diligence during acquisitions.

Contract due diligence is one of the essential tasks performed during mergers and acquisitions. During due diligence, an investigative process is conducted by the purchaser’s legal team. The purchaser’s team evaluates the contracts of the target company so as to know the risks, if any, it will face on acquiring them.

In practice, contract due diligence is aimed at uncovering three types of risks. First, the purchaser’s team looks to identify legal risks such as change of control provisions that affect the consummation of the transaction. In addition, they attempt to ascertain transaction risks such as contracts that necessitate notice to be given to the other contracting party before they are transferred. Finally, they determine existence of business risks such as non-compete restrictions that may restrict the acquirer or reduce the value of the target company.

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