[Music] so Roberts what's special about your due diligence output clients are not telepathic when you are doing a deal the lawyer is in it he knows what's happening or what's not happening from day to day the client doesn't he can get to the end of the week he's about to go home on a Friday evening and the lawyer hasn't rung him for all he knows the deal has gone off the agreement has been agreed or nothing has happened and so I always take the view that you have to keep the client informed because it's part of my own doctrine that this is not just a legal matter this is a commercial matter and what the clients are interested in is the commercial side what's been happening to move on to your question what I really like to see in the report where we've been asked to do um a full due diligence rather than a red flag operation which Christopher May comment on at the moment is that again the doc this document is not just a legal document it's a commercial document it's a handbook it's not to be put in the safe because the transaction has been closed good we can forget about that one all this legal stuff that the lawyers have been chucking at us our team is composed as we've already said of experienced lawyers when they look at a a series of agreements as I say the lights come on they don't come on for junior lawyers because they look at a document and they look at the legal effect of it and they write it down but for an experienced lawyer he looks at the document okay he understands the legal implications of it but more than that if he's been in the business for a few years he understands where it fits in to the company's business and the importance or non importance to the company's business so our report at the end of the day is intended to be a handbook whoever is responsible for administering the company and this is where things can go awfully wrong in administration because nobody knows what's been happening in the Target company before you go into it it's not a document you put in the safe it's a document it's a working document it may it'll have the legals in it but it will also have alongside the legal jargon it will have the comments of a lawyer the commercial reality or importance again some agreements will have no particular commercial importance to the company but most will have and an experienced lawyer looking at this will say yeah okay this is important uh it isn't just enough for me to write down what the document says I should write down what the implications are and Christopher alluded some time back to what is an absolutely classic case which are the contracts of the company right and I and I pointed out that the contracts on the table are in a in a pro forer and if you could just look at them and write and say they're in a performa the really important point is if they are customer contracts how much of the business does each of these documents represent because as I mentioned previously you've got if you've got a contract that's 50% of the company's business you better tell that your your client that it is because if he loses it um he's not going to be very IM used so that's where we go this is a Bible for running the company and that's what we intend it should be and I I rather suspect that we are unique in this because too often Junior lawyers are involved in doing this and they just don't have the experience it's not actually not fair on them you need to give these documents to someone who understands the commercial implications in a normal firm it's going to cost you a lot lot more with us it isn't our team are self-employed lawyers their charge out rate to use a phrase you all understand is pretty well equivalent to these grunts who are on 150,000 a year and whose charge out rate is really now quite considerable this knowledge transfer uh from the investigating lawyers to the buyers legal team for post transaction integration of the target it is part of um what we provide and and so we'll work out early on with the client at the beginning of the transaction how much integration are you going to do of this organization that you're buying afterwards are you going to leave it alone as a standalone organization in which case there might be limited integration there'll still be matters that need to be remediated but for instance all of the legal contracts might not need to be transferred over but if they are going to take it into their own organization then what we will do during the transaction is that we'll organize them according to the bias document management system structure and what they might be also interested during our exercise is providing the information that will enable them to then manage those contracts so when are they coming up for Renewal and that will also help them with any rationalization that they're going to be doing so for instance we're not going to need all of these suppliers but it may be that there's going to be a cost to terminating some of those Supply contracts so if they're relying on the fact they're going to save money from certain things that are contractually agreed with third parties they better know early on whether or not they can do that without cost so for instance uh if you're terminating an agent in Europe there will often be compensation if you're terminating them early and so on and so forth we've mentioned the knowledge transfer for uh documents both contract and for instance company secretarial records then there's going to be uh the integration or the rationalization that comes out quite typically of the governance so do we need all of these companies so there might be two companies now uh post transaction in the same country doing the same thing they both might hold for instance a license from a government uh for instance in the insurance sector these things cost money to maintain particularly for reporting purposes to Regulators they have to have their own insurances themselves and so on so there's going to be this rationalization exercise now of course if they then decide we're going to uh wind up one of those companies all of the rights that that company has need to be assigned out to the company they're going to keep these sorts of exercises take a lot of analysis and a lot of legal work that's which put a lot of burden on the uh acquirers legal team so quite often they'll say to the third party lawyers whether it's the negotiating lawyers or us yes we'd like you to support support us in the integration and because we have the knowledge of the uh Target um that's something that that we can certainly assist with an important aspect is compliance so with any due diligence there are going to be issues contractual Regulatory and otherwise and in some of these areas this can be posing quite a high liability potentially such as data protection in Europe where um the fines can amount up to 10% of uh the groups the acquiring groups Global turnover such things as data protection uh require a lot of very very careful analysis from from Specialists and if you've bought a company that hasn't done things properly you'll need to remediate that pretty quickly during the due diligence you're assessing what sort of risk that poses and whether or not it can be remediated U without there having to be any um issues in the meantime particularly dealing with any Regulators other areas of compliance um might include um health and safety employment reviewing the real estate for instance there now might be two branches of the operation in the same town or manufacturing operations that can be rationalized that's quite often the case you move all of the production out of the one of the factories into another Factory that might have been one of the reasons bought that company in order to use their manufacturing or other operational capacity product liability compliance intellectual property now here's a big area of review so are you going to be continuing with the trading names of the uh Equity entity that you've purchased are they adequately protected in the case of it uh if there were uh contractors or third parties otherwise who had worked on that it to produce it do you now need to make sure that there's documentation in place that assigns all the rights to to you these things might not have been able to be uh done by the vendor before the transaction you've identified them through your information superiority it may be that you've had you've negotiated a reduction in the purchase price assessed the risk and said we'll deal with us afterwards inter company arrangements so if you've bought a group of companies they will have their own Intergroup Arrangements but now they're forming part of your group so they need to fall under your interc company arrangements and this is all part of the typical rationalization that um there might be one company in the group that provides the it system that the rest of the group use and charges for it so all of these Arrangements need to be Unwound in the old operation and red documented in the new operations there a sort of tedious uh documentation and Analysis that people like us can provide human resources which could have been one of the first that I mentioned the Personnel in the Target have come into the group they're employed by the same company that they came over they came over with the acquiring group has its own uh contractual Arrangements that it likes to um have in place so it's going to need to consider whether it negotiates with those employees that they will move onto new arrangements and this can be a particularly sensitive area of course often we've found that the the the company that's been purchased the employees are on better terms it might be they have more holiday this can pretty quickly lead to dissatisfaction somewhere so these things need to be considered early on and addressed early on in a very very sensitive way the insurances of the the um acquired group uh there's no point having insurance is doubled up uh so typically the acquiring company will have its Group insurance covering all of its subsidiaries so the new uh companies um can fall under that but that needs to be done the group's um taxation arrangements are going to need to move over the policies and procedures that are operated by the uh acquiring group and need to be instituted into the the companies that they've bought but also people need to be trained on they need to understand it it may be that as part of that governance the boards of directors will change it may be that the Personnel that have come over were on the boards of directors but that may no longer be appropriate so you get a lot of restructuring work going on and this is the sort of thing that lawyers with our in-house experience can bring this sort of uh thing can be agreed in summary with with um between us and the client who's buying a company at the setup stage of the original due diligence because if we know that they are looking to move in this way then the preparation and the analysis that's been done during the due diligence process doesn't start aresh after the acquisition should it go ahead at least the prep work can be done where it's not costing a lot extra during the due diligence process so that you're working as efficiently as possible yeah I just want to emphasize what Christopher just said because actually this is has a bearing on cost you you do need to mention this to the to the client at the beginning of the transaction effectively to give him an option because the client will not thank you if you do a lot of this work and present him with with the kind of report that Christopher is talking about he says I don't really need that um you're not going to build me for it are you and and and we have to say well of course we are if you know and then of course you you've damaged a relationship with the clan this is a lot of work and it has to be done on the basis that the client knows from the outset that this is what you're doing it's a useful process but you need to tell him what it is it all goes with my um my my previous thoughts about the client is not telepathic indeed