M&A due diligence: A primer on transactions involving private sellers

A merger or acquisition is often one of the most important decisions a company will ever make. M&A activity can completely change the trajectory of a company's future and has the capacity to spectacularly fail or succeed.

Consider some of the most profitable (e.g., Disney and Pixar, Disney and Marvel, Exxon and Mobil, and Google and Android) and some of the most unsuccessful deals ever (e.g., America Online and Time Warner, and Sprint and Nextel).

Despite a strong U.S. economy, there have been fewer global mergers and acquisitions in 2019 compared to prior years. 

With fewer (but often higher-priced) deals, the stakes are greater than ever to consummate the right deal at a proper valuation. Accordingly, due diligence has taken on increased importance in the M&A deal-making process.

This article focuses on the legal due diligence process, and certain best practices for the management thereof, in transactions involving private sellers. We will provide a high-level review of some of the pain points in the legal diligence process and identify several techniques for the management of information flows through a specialist-fueled legal deal team.

We will also briefly touch on the impact that the advent of representation and warranty insurance policies has had on the due diligence process and what an insurance company may expect to receive prior to underwriting a policy.