What is due diligence? Forum

[Anonymous User]

I've heard this term thrown around, but I don't understand exactly what it means. Surprisingly, a search of "what is due diligence" turned up only an old post that wasn't answered.

[ConfusedL1]

Doc review.

[dailygrind]

Doc review.

For transactional attorneys, it means different things in different contexts, but could mean, e.g. that you're reviewing documents and contracts to ensure that they match up to certain assertions, that you're reviewing a company's agreements to see if there's anything that conflicts with a deal you're working on, etc.

Basically, it involves a lot of reading through documents.

[BigZuck]

Look for red flags in documents

You want an answer more specific than that? Good luck buddy, it doesn't exist

[tfer2222]

Doc review.

For transactional attorneys. It means different things in different contexts, but could mean, e.g. that you're reviewing documents and contracts to ensure that they match up to certain assertions, that you're reviewing a company's agreements to see if there's anything that conflicts with a deal you're working on, etc.

Basically, it involves a lot of reading through documents.

Yeah, means a lot of different things. Couple examples of legal diligence:

In M&A, say you're representing a buyer, you're going to want to read through all of the target company's legal docs to make sure they'll vibe with your client, that they can be transferred at all (i.e., the target has customer contracts, you want to read those contracts to ensure there is no change of control provision or anti-assignment provision that will prevent your client from being able to acquire the contract - this is the same with the target's supplier contracts, real estate leases, etc.) and that they match up with the disclosure schedules the target has presumably drafted (which is typically a very big and important part of the main purchase agreement as it outlines exactly what is being purchased, what's not being purchased, things the target has to do before the deal closes, and everything in between - your diligence will help confirm this is accurate). Oh look here are board minutes discussing some big expensive litigation pending against the target, and they didn't include that in the disclosure schedules, that's a problem; oh look there are a ton of liens on this piece of land they're trying to sell us as part of this deal, we should make them rep somewhere to pay those off before we close. Big picture: you've gotta help your client fully understand what the hell they're buying and not buying (from a legal point of view, anyway).

Cap markets is a little different, say you're representing a company that is about to go public, you have to review the company's documents, board minutes, contracts, etc. to make sure there's nothing you're omitting or misrepresenting to potential investors. Or if you have a public company client doing a notes offering, the diligence is a little less rigorous, but you still have to ensure the prospectus, offering memorandum, etc. is accurate. Cap markets DD is a lot less meaningful than M&A diligence in my experience, especially for anything outside of an IPO.

Different variations of review/analysis for different deals (finance, real estate, etc.)

Oh, also: diligence is awful.

[iliketurtles123]

Look up due diligence legal checklist M&A on Google. Should give you a more concrete idea

[Anonymous User]

Bump, as a junior corporate associate, do people actually find shit?

I find myself looking through endless pages of documents in data rooms without actually ever discovering something on my own. Seems like a massive waste of time when there is no specific objective other than look for red flags in corp docs, board minutes, change of control in leases, blah blah...

[Abbie Doobie]

This should give you an idea:

[youtube]N_auFicUWK4[/youtube]

[Npret]

Bump, as a junior corporate associate, do people actually find shit?

I find myself looking through endless pages of documents in data rooms without actually ever discovering something on my own. Seems like a massive waste of time when there is no specific objective other than look for red flags in corp docs, board minutes, change of control in leases, blah blah...

Yes people find shit.

[zot1]

It means to drink your protein shake within 1-2 hours after you lift.

[rdawkins28]

Due diligence is dependent on context, but generally it's a euphemism for, "I did some shit. Seriously, Mr. Judge Man, I really did."

For example, in the Tex R Civ P, Rule 107 regarding due diligence of process of service, it means that the server did some shit but couldn't serve. So I can please do substitute service or something of the sort. Same kind of thing for R109.

Or 252, I did some shit to get testimony, but I couldn't, so can I have a continuance.

In Texas criminal law, in certain probation revocation related matters, the state has to show due diligence in locating the probationer if the defense raised the point; i.e. the state did some shit trying to locate the bad guy.

Another example, from the Tex Civ Prac & Rem Code, "the person filing the petition shall proceed with due diligence to discover the identity of the defendant and amend the petition by substituting the real name of the defendant..." within 30 days (for certain John Doe cases). So if he substitutes the name after 60 days, he has to show that he did some shit in trying to find out the real name of the defendant but couldn't do it within 30 days.

Of course I should do some due diligence before making this post, but the due diligence standards on here are pretty low, so the only due diligence I have to do is to type shit in, read it, then claim I read the shit somewhere.

[rpupkin]

Edit: scooped.

[BigZuck]

I actually laughed a couple times at that episode. I'd never heard of that before, is it worth watching the rest?

[Monochromatic Oeuvre]

Diligence usually gives you fairly broad latitude (relatively speaking ) to decide how many hours you want to spend reviewing docs, and often comes with zero requirement of scrutiny or actual work product.

The only people who would complain about this are the people who (a) work at firms that make the process unnecessarily and excessively difficult for bullshit reasons, (b) are already hitting 2000+ without an ounce of it, or (c) the type who wants something "more engaging" and thinks arguing with S&C about page 87 of the SPA is gonna be like molly at the Playboy Mansion.

[Anonymous User]

It's more like I feel guilty, because I'm billing but have no actual work product except someone asking me if I found anything, which is usually just "nah"

[BigZuck]

Diligence usually gives you fairly broad latitude (relatively speaking ) to decide how many hours you want to spend reviewing docs, and often comes with zero requirement of scrutiny or actual work product.

The only people who would complain about this are the people who (a) work at firms that make the process unnecessarily and excessively difficult for bullshit reasons, (b) are already hitting 2000+ without an ounce of it, or (c) the type who wants something "more engaging" and thinks arguing with S&C about page 87 of the SPA is gonna be like molly at the Playboy Mansion.

Your firm really just says "Go!" and doesn't expect you to meet a deadline or ask you to come up with any work product? You just come back a week and a half later and say "Nope, no read flags!" while billing "Review commercial contracts- 63.9"? That's nuts, I wonder if that's just a New York thing?

And the hell is an SPA?

[Monochromatic Oeuvre]

Diligence usually gives you fairly broad latitude (relatively speaking ) to decide how many hours you want to spend reviewing docs, and often comes with zero requirement of scrutiny or actual work product.

The only people who would complain about this are the people who (a) work at firms that make the process unnecessarily and excessively difficult for bullshit reasons, (b) are already hitting 2000+ without an ounce of it, or (c) the type who wants something "more engaging" and thinks arguing with S&C about page 87 of the SPA is gonna be like molly at the Playboy Mansion.

Your firm really just says "Go!" and doesn't expect you to meet a deadline or ask you to come up with any work product? You just come back a week and a half later and say "Nope, no read flags!" while billing "Review commercial contracts- 63.9"? That's nuts, I wonder if that's just a New York thing?

And the hell is an SPA?

For us, full-on M&A diligence usually requires a memo, but in a lot of situations we're just looking for high-level stuff and it really is just a short meeting or email where we note seven or eight things we found and the partner tells us he doesn't care or, at most, bylaws will get amended.

Even when there's written stuff that needs to go to the client or something that requires follow-up, it's still the easiest hours I have.

[favabeansoup]

Bump, as a junior corporate associate, do people actually find shit?

I find myself looking through endless pages of documents in data rooms without actually ever discovering something on my own. Seems like a massive waste of time when there is no specific objective other than look for red flags in corp docs, board minutes, change of control in leases, blah blah...

Yes people find shit.

I think it depends on the client somewhat. I've had some clients that have been a breeze. I've had other clients that it felt like pulling teeth to get them to put any of the million things missing in the data room.

[Pokemon]

Due diligence, particularly in capital markets, is usually most stress free way of billable. Juniors who complain about it deserve hell. Second least stressful way of billable is circle ups.

People do not generally find issues in dd for sophisticated parties in capital markets transactions, however once you are dealing with lower level companies, there could be stuff of some importance there.