How does “due diligence” work? Forum

[DougEvans789]

I work in litigation, and basically everything about corporate practice is a mystery to me. I hear a lot about “due diligence.” What does that actually entail? Double-checking figures in a merger document or something?

[Ultramar vistas]

I work in litigation, and basically everything about corporate practice is a mystery to me. I hear a lot about “due diligence.” What does that actually entail? Double-checking figures in a merger document or something?

If you wanted to buy or merge with a company, you would want to make sure that the things in the nice slide deck that the bankers put together are accurate.

So you have your attorneys read all the contracts that the company is a party to, and review the org docs, read the publically filed docs, if any. If the business is an oil and gas company you’ll have an environmental team review for enviro issues, if it’s a tech company your tech and IP people will review for intellectual property red flags, and so on and so forth. You want to make sure the employment contracts and benefits plans all make sense.

Then your lawyers write it up into a memo highlighting any red flags and everyone makes sure they’re comfortable.

And that’s due diligence.

[2013]

And yes, it is as mind-numbingly boring as the above makes it sound.

[Ultramar vistas]

And yes, it is as mind-numbingly boring as the above makes it sound.

Yeah it’s pretty tedious stuff, but you really do learn a lot quite quickly about what is “normal”, and you’re exposed to a wide variety of commercial contracts. Depending on the level of diligence you’re being asked to do, you may be doing full summaries of certain material contracts, or you may just be doing a red flag review, or something in between.

Somewhere in your second year you’ll progress to supervising other people doing diligence and having a bigger hand in drafting the memo, and leading the diligence calls.

Then eventually as a 4th-ish year you basically leave the whole thing behind and won’t be reviewing contracts (unless in specific situations), just revising the initial draft of the memo your junior put together.

It’s weird - diligence seemed to dominate my life as a junior and it definitely was a bit miserable at times but that stage actually passes pretty quickly and it’s kind of a necessary learning experience.

[DougEvans789]

And yes, it is as mind-numbingly boring as the above makes it sound.

Yeah it’s pretty tedious stuff, but you really do learn a lot quite quickly about what is “normal”, and you’re exposed to a wide variety of commercial contracts. Depending on the level of diligence you’re being asked to do, you may be doing full summaries of certain material contracts, or you may just be doing a red flag review, or something in between.

Somewhere in your second year you’ll progress to supervising other people doing diligence and having a bigger hand in drafting the memo, and leading the diligence calls.

Then eventually as a 4th-ish year you basically leave the whole thing behind and won’t be reviewing contracts (unless in specific situations), just revising the initial draft of the memo your junior put together.

It’s weird - diligence seemed to dominate my life as a junior and it definitely was a bit miserable at times but that stage actually passes pretty quickly and it’s kind of a necessary learning experience.

This is interesting. And maybe it’s a grass-is-always-greener type of thing, but that doesn’t sound so bad to me.

So once you graduate from doing diligence, what comes next? Drafting the contracts that form the basis of the merger or acquisition?

[4LTsPointingNorth]

Oftentimes it's not the nature of diligence work itself that is the source of pain. It's the timing. Having 30-40 hours worth of diligence to do within a week can be a great source of billable hours and depending on the target company can also be somewhat interesting.

Doing 30-40 hours of diligence from Friday-Sunday is not great, but happens all the time with little to no advance notice in M&A deals.

It's especially not great when you do those 30-40 hours of diligence over the weekend only to hear that your client lost the bid and the deal ends up dying on Monday. This also happens all the time.

As you get more senior, you'll oversee diligence and start drafting ancillary documents that will range from straight clones of corporate organizational documents from precedent deals to more thought-intensive side agreements that require some level of client input to finalize. You might also start to get looped in to take the first cut at drafting specific sections of the definitive purchase agreement or at drafting issues lists when the other side sends their mark ups over.

[eastcoast_iub]

And yes, it is as mind-numbingly boring as the above makes it sound.

It is the single most awful thing in biglaw, and arguably worth avoiding M&A as a practice group by itself (although there are many other good reasons).

[NoLongerALurker]

I bailed on M&A because I was like "I'm probably going to leave biglaw as a third year anyway, and get fucked if you think I'm going to spend my entire biglaw tenure doing this diligence bullshit." I have since remained in biglaw well past third year, and I still have zero regrets about my decisionmaking there. God damn I can't believe clients end up having to pay $800 an hour for that slop just to end up outbid anyway.

[Ultramar vistas]

And yes, it is as mind-numbingly boring as the above makes it sound.

It is the single most awful thing in biglaw, and arguably worth avoiding M&A as a practice group by itself (although there are many other good reasons).

These opinions are clearly subjective, but I don’t even think this would be true for most people. Diligence in itself is pretty fascinating at times - you get to look under the hood at a business and learn about the way different industries do things. That aspect is great.

I personally don’t enjoy summarizing much, and am glad to have that in the rear view mirror - but every practice group has its gruesome tasks. By the end of my debt finance rotation I was about ready to quit if I saw another credit agreement, and I assume doc review in litigation is similar to diligence in many ways.

The thing that makes these tasks suck is not the task, it’s the timing and the urgency - but everyone in biglaw is subject to those demands, so I’m not really buying that diligence is dramatically worse. And if you’re any good at all, they get you off it in 18 months anyway.

[attorney589753]

These opinions are clearly subjective, but I don’t even think this would be true for most people. Diligence in itself is pretty fascinating at times - you get to look under the hood at a business and learn about the way different industries do things. That aspect is great.

I personally don’t enjoy summarizing much, and am glad to have that in the rear view mirror - but every practice group has its gruesome tasks. By the end of my debt finance rotation I was about ready to quit if I saw another credit agreement, and I assume doc review in litigation is similar to diligence in many ways.

The thing that makes these tasks suck is not the task, it’s the timing and the urgency - but everyone in biglaw is subject to those demands, so I’m not really buying that diligence is dramatically worse. And if you’re any good at all, they get you off it in 18 months anyway.

I agree with this. When I was a junior and had appropriate amount of time to do diligence projects, I kind of enjoyed it: You get exposure to the key commercial agreements that are foundational to the company, and each industry has different flavor / key terms. I thought it was kind of weird that people were paying me to learn about their business and industry.

Other peer associates hated doing diligence, while I personally found it much more interesting than junior-level tasks that I got in debt finance group and litigation. So I think it's totally a YMMV thing.

[UnfrozenCaveman]

It's the corporate attorney's form of doc review.

[notinbiglaw]

The descriptions in thread make DD sound more interesting and less demanding than it really is.

[showusyourtorts]

The descriptions in thread make DD sound more interesting and less demanding than it really is.

Would you say that it's more that DD is challenging (as in, requires quick thinking and strong comprehension skills) or more simply demanding (long, unpredictable hours of detail-oriented mundanity)?

[notinbiglaw]

Demanding and opposite of intellectually challenging.

[2013]

Demanding and opposite of intellectually challenging.

This.

Going through documents and checking off that they include xyz is not fun. Yes, it helps you learn what documents are supposed to look like and what clauses are important. But that doesn’t mean it is mostly boring.

Also, most groups handle small portions of the write up. IP, tax, comp, benefits, L&E, etc., all write their portions of the diligence memo. The corporate associates add their part and compile everything together and make it look presentable.

[ksm6969]

The descriptions in thread make DD sound more interesting and less demanding than it really is.

Would you say that it's more that DD is challenging (as in, requires quick thinking and strong comprehension skills) or more simply demanding (long, unpredictable hours of detail-oriented mundanity)?

Mostly mundane. Example: Company #1 is going to buy another company #2. You need to check all the patents for company #2 and make sure they have been properly assigned and that renewal fees have been paid. Mostly horrid stuff. Occasionally it will be more interesting, but in general by the time a company is buying another company, the deal is well negotiated and near final and the due diligence is mainly for show and you just need to raise red flags in a memo so that you dont get sued for malpractice later.