Whether a commercial transaction is related to real estate or to business acquisitions, sales, or mergers, once the transactional agreements and documents are executed, the due diligence process begins. Among other things, the due diligence process involves verifying all information, warranties and representations in the transactional agreements and satisfying any and all contingencies that must be met before the deal can be consummated. Generally, each major contingency will have a corresponding deadline that must be met and there will be a general deadline by which the commercial due diligence process must be completed.
As the due diligence process progresses, the attorneys working to complete the transaction may encounter a number of “red flags” that may: delay the anticipated closing date, call for intervention or renegotiation by the principals, or call into question the viability of the deal. Consequently, part of the due diligence process involves being aware of warning signs, having a careful watch for such signs, and taking appropriate action. Here are some important red flags you might encounter at the beginning of the commercial due diligence process:
Failure of to engage sufficient expertise and staffing
One early due diligence red flag is the appearance that one party or the other seems to have an overworked and understaffed team of lawyers. Due diligence is task-intensive and time-consumptive. Insufficient and/or inexperienced personnel will result in delays in providing documentation, initiating third-party approvals, ordering reports, reviewing information received, and in drafting documents necessary for the closing. These cumulative delays will endanger the satisfaction of contingencies and the various deadlines detailed in the transactional agreement. If this red flag is discerned, intervention may be warranted and it might be reasonable to suggest that some of the process be outsourced to an experienced and dedicated third-party due diligence team.
Failure to initiate early action to meet contingency deadlines
Another important due diligence red flag is the failure of one party or the other to initiate timely action necessary to meet various contingency deadlines. This is particularly important for complex and time-consuming contingencies. These must be initiated quickly. As an example, if lender financing is expected to be complex, actions must be taken to meet the relevant contingency deadlines immediately after the transactional agreement is executed. As another example, if UCC or other encumbrances must be released, then efforts to obtain those releases must begin long before the respective agreement-based contingency deadlines.
For more information on the commercial due diligence process, contact Baer Reed. To learn more about our services, contact us online or call us today at 888-433-1990.
Mr. Reyes graduated with honors from the Ateneo de Manila University, where he received the Procter and Gamble Student Excellence Award. He obtained his Juris Doctor degree from the Ateneo de Manila School of Law. During law school, Mr. Reyes was part of the Philippine delegation to the Willem C. Vis International Commercial Arbitration Moot held in Vienna, Austria. He was also a member of the Ateneo Society of International Law and the St. Thomas More Debate Society. He completed his internship at the Public Attorney’s Office. He wrote a thesis entitled: “To Kill A White Elephant: An Analysis of the Fiduciary Exception to the Corporate Attorney-Client Privilege”. Mr. Reyes is admitted to practice law in the Philippines and the State of New York.
Ms. Lardizabal-Manzano is a graduate of San Sebastian College-Recoletos, where she earned her B.A. in Political Science. In 2003, she received her law degree from Lyceum of the Philippines and was admitted to practice law in 2004.
Matthew Hersh earned a B.A. in Political Science from Columbia University in 1990 and graduated cum laude from Georgetown University Law Center in 1999. He also holds a master’s degree in international relations from the Georgetown University School of Foreign Service.
Cap. Avi Levak (Res. IDF) graduated from from Israel’s prestigious Ben-Gurion University of the Negev with a Bachelor of Science in Computer Science and Mathematics. He is also a Leadership and Communication coach trained in TuT coaching by Alon gal in Israel. Avi specializes in high-level, in-depth analysis of business and client needs, within systems and software strategy and architecture.
Ms. Tyler graduated cum laude from Georgetown University and received her law degree, cum laude, from Georgetown University Law Center. During law school, she interned at the United Nations Economic Commission for Europe. She also worked on The Tax Lawyer journal and was a member of the award-winning Barristers’ Council Mock Trial Team. Ms. Tyler is admitted to practice law in the State of California and the District of Columbia.
Ms. Cruz-Anonuevo graduated cum laude and top nine in her batch from Miriam College with a degree of Bachelor of Arts in InternationalStudies. She obtained her Juris Doctor degree from Ateneo de Manila University School of Law in Rockwell. During law school, she interned in Rivera, Santos, Maranan & Associates. She was also part of Ateneo’s Labor Law Bar Operations. She wrote her thesis on, “Stealing Privacy: Limitations on Media’s Photographic Invasion.,” Ms. Cruz-Anonuevo is admitted to practice law in the Philippines.
Ms. Aquino-Batallones obtained a Bachelor of Arts degree in Development Studies (with Minors in Global Politics and Hispanic Studies) from the Ateneo de Manila University. In 2011, she received her Juris Doctor degree from Ateneo de Manila University School of Law. During law school, she interned at Romulo Mabanta Buenaventura Sayoc & de los Angeles then became an intern of Ateneo Legal Services Center’s Clinical Legal Education Program.
Mr. De Guzman graduated from San Beda College with a degree of Bachelor of Arts Major in Economics and received his law degree from San Beda College of Law. He is multilingual and is fluent in three languages: Chinese, Filipino, and English. He was admitted to the Philippine Bar in 2003.