What is due diligence and why is it crucial?

Due diligence is the process of detailed investigation and analysis that is carried out prior to finalising an M&A transaction. Its main objective is to identify and assess the risks and opportunities associated with the transaction, ensuring that the parties involved have a clear understanding of the legal, tax and financial aspects of the target company.
In legal terms, due diligence examines all legal aspects of the company, including contracts, pending litigation, intellectual property rights and regulatory compliance. On the tax side, tax obligations, audit risks and tax structure are reviewed to ensure that there are no unpleasant surprises after the transaction.

New trends and risks in due diligence in 2024

1. Evolving Regulatory Compliance: Data protection, tax and sustainability regulations are constantly changing. In 2024, companies must pay particular attention to new regulations and ensure that the target company complies with all applicable laws. Non-compliance can result in significant penalties and loss of transaction value.
2. Transparency and Corporate Governance: Investors and buyers are increasingly focused on transparency and corporate governance practices. Due diligence should assess the quality of management and internal processes to ensure that the target company operates with high ethical and governance standards.
3. Technology and Artificial Intelligence Risks: Technology integration and the use of artificial intelligence (AI) are transforming business. Due diligence should include a thorough review of technology systems and the legal implications of AI use, especially in relation to data protection and intellectual property rights.
4. Environmental and Social Risk Assessment: With the increasing focus on sustainability and corporate social responsibility, it is essential to assess the environmental and social risks associated with the target company. Due diligence should identify potential environmental liabilities and assess the impact of business practices on the community.

How can Christian Barbieux help you?

At Christian Barbieux, we have a team of corporate and tax law experts who provide comprehensive advice throughout the due diligence process. Our experience in managing mergers and acquisitions allows us to identify potential risks and opportunities, ensuring that each transaction is conducted efficiently and in compliance with applicable regulations.

Recommended steps for effective due diligence:

1. Preparation and Planning: Clearly define the objectives of the due diligence and prepare a detailed plan.
Thorough Review: Analyse all relevant documents and data, from legal to tax and technological aspects.
3. Risk Identification: Identify potential risks and develop strategies to mitigate them.
4. Reporting and Recommendations: Prepare detailed reports and provide recommendations based on the findings.