Legal Due Diligence

Legal due diligence is the structured review of all legal aspects of a target company conducted by the acquirer's lawyers prior to signing a purchase agreement. Its objective is to identify legal risks, contingent liabilities and contractual constraints that could affect the value of the acquisition, the post-closing freedom of operation of the acquirer, or the representations and warranties to be included in the SPA.

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Key areas of legal due diligence include: corporate (shareholding structure, articles of association, shareholder agreements, board resolutions), commercial contracts (key client and supplier agreements, change of control clauses, exclusivity provisions), intellectual property (trademark registrations, patent portfolio, software licences), employment law (key executive agreements, collective bargaining agreements, litigation), real estate (lease agreements, ownership titles), regulatory compliance (licences, permits, sanctions), and litigation (pending or threatened proceedings).

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In Franco-Swiss transactions, legal due diligence must address both French and Swiss law specificities: Swiss corporate law (CO), cantonal regulations, French commercial code, French employment law and GDPR compliance. Cross-border groups often require coordinated legal due diligence teams in both jurisdictions.

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The legal due diligence findings directly feed the representations and warranties section of the SPA, the specific indemnities (for identified risks above a threshold) and the escrow arrangements designed to protect the acquirer post-closing.

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Example: legal due diligence on a French target identifies a change-of-control clause in the company's three largest client contracts (representing 45% of revenue) requiring client consent before closing. This finding leads to a pre-closing waiver process and a deferred payment mechanism in the SPA pending receipt of consents.

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At Hectelion, we coordinate legal due diligence with our financial due diligence mandates, ensuring integrated risk assessment across all dimensions for Franco-Swiss transactions.

Legal due diligence is usually conducted alongside the review of the accounts, entrusted to an independent financial due diligence firm.