Roman Sokolov, a Senior Associate in the Corporate Practice at Pepeliaev Group’s St Petersburg office, took part in the forum “Meanings, Deals, Responsibility”, organised by Delovoy Peterburg.
Roman’s presentation focused on the topic “Due Diligence 2.0: What Should Be Considered in M&A Transactions Today?” He discussed current trends in due diligence and the key risks that parties to transactions need to take into account.
According to Roman, due diligence has traditionally been viewed as a buyer’s tool for obtaining an objective assessment of the target asset. Today, however, sellers are increasingly conducting such reviews themselves in order to identify business risks in advance and to make the company more attractive to potential investors, particularly where the sellers are not involved in the company’s day-to-day management.
“We are seeing positive developments which indicate that due diligence is becoming an essential stage of any reasonably significant transaction,” commented the firm’s Senior Associate. “This is also supported by court practice, as claims seeking to have the purchase price reduced under an agreement for the sale of an interest in the issued capital of a limited liability company may, among other things, be dismissed where the buyer has not carried out a timely legal review.”
During his presentation, Roman singled out two principal categories of risk that a thorough legal review allows to be uncovered: the risk of losing the asset and the risk of adverse financial consequences arising after the transaction has been completed. He also outlined the core elements of due diligence, including corporate, tax and financial reviews, stressing that each M&A project requires an individual approach that takes into account the specific features of the business in question.
By way of an example, Roman referred to a transaction involving a cosmetics and perfume distribution business. The review identified contractual restrictions relating to a change of beneficial owner and requirements for retail outlets to be authorised by suppliers. Such provisions could materially have affected whether the new owner was able to develop the business following the acquisition.
Roman also focused on new factors affecting the scope and duration of due diligence. In particular, he noted that longer periods of a company’s operations need to be reviewed in the light of evolving court practice in certain categories of claims brought by prosecutors. In addition, he highlighted the increasing importance of assessing risks relating to strategic enterprises and the broader interpretation of the concept of a foreign investor.
