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Partner Content: The direct deal boom highlights the need for due diligence more than ever

The family office direct deal boom is one of the biggest phenomena of global capital markets in the last ten years. Despite this, most acquisitions fail to meet expectations and inadequate due diligence is often a big reason why. 

The spectre of a failed, or below par, deal haunts the investment practices of every family office. Due diligence – perceived by many as the dull part of the deal – is consequently often given undue attention. 

But good due diligence can make the difference between making millions, or losing millions. Better therefore to minimise or where possible eliminate the risk from the outset of a deal. 

Legio XX is a strategic legal due diligence adviser designed to give family offices the most professional due diligence possible to ensure the best outcomes from the deal process. 

Our aim, by using the services of our senior commercial lawyers and the application of Artificial Intelligence, is to identify the risk inherent in all deals. 

Complication

The world of due diligence in mergers and acquisitions is more complicated than ever. 

Today, the orderly buyer’s preliminary questionnaire to commence the usual due diligence investigation has been replaced often by the seller’s disorderly data room. It functions mostly on a take it or leave it basis, where documentation and information are collected digitally in a haphazard fashion for the buyer’s due diligence team to ponder.

With the advent of AI for lawyers, much of the early work in finding and collating documents, and information and identifying red flags for examination can be taken over by the buyer’s due diligence team’s AI systems. 

Thus those two most precious commodities in any transaction – time and money – are saved. 

LegioXX works with a leading AI house and uses its current state of the art AI  investigating systems to ensure the smooth running of the due diligence process. 

Revolutionised the process

But since our purpose is to provide discrete, bespoke due diligence of the highest order we have invested in more sophisticated systems which will take due diligence to a much higher level. 

In fact, our aim is not just to do good due diligence but to revolutionise the process. 

Effectively, we generate insights that focus on the main value assets that a transaction can bring, plus the liabilities that can destroy that value. 

And as a solution provider, we deploy AI technology to become your multi-disciplinary due diligence team in order to enhance the review of data, shorten review time, and reduce the cost of specialists’ time. By having greater command of the data, the purchaser has a negotiation advantage.

We ensure our processes integrate the due diligence activities of the various due diligence teams including finance, commercial, human resources, and legal.  

We believe, the purchaser needs to understand the acquisition’s affairs better than they do themselves.  To achieve information superiority, the purchaser has to have an effective due diligence process, manage the data better, and manage people better.  LegioXX can do all of this. 

Recommendations

As senior lawyers, we negotiate the due diligence process from the beginning, with the intention to broaden access to quality data and agree the parameters of what data will be warranted. 

We provide specific recommendations to the commercial/ legal negotiation team. This includes recommended warranties and representations/ indemnities in the sale documentation, disclosure letter content, and agreed data room disclosure. We also have broad experience of due diligence from an international perspective, giving us the ability to work on cross-border deals as well as any deals in our local market, the UK.   

As a solution provider, we integrate our legal due diligence with the financial,  commercial and operational due diligence exercises to ensure that risks are covered and duplication is minimized. These improvements in the due diligence process result in bottom-line benefits. Typically, in a UK transaction involving a purchase price of £50 million, LegioXX’s due diligence should result in a reduction of £4 million from the purchase price.

Expertise

Our team has more than 200 years of combined experience. Robert Windmill is an international corporate lawyer specialising in M&A. Christopher Davis is a lawyer with a wide breadth of due diligence experience and was formerly in charge of due diligence at the London law firm, McKenna & Co, now part of the international law group, CMS. Windmill and Davis set up the Due Diligence Group for McKenna & Co. 

“Grunts on £150,000 a year” is a recent comment in the UK media that confirms what we say on our website namely that running verification exercises ie due diligence is routinely given to junior lawyers/paralegals. “It’s important work and it’s got to be done right but it’s long and arduous”.

We agree that’s why we have recruited senior, partner ranking, lawyers with specialist skills in their field of law to carry out  LegioXX’s due diligence work and to give their take on important commercial issues arising from this.

But now there’s another problem these junior lawyers are being hotly competed for by the major City law firms with salaries up to £150,000 together in some cases with large “signing on bonuses”.All of which feeds through to seriously high hourly rates passed on to clients and likely well above the rates of our consultants.

Inexperience in the law and in commerce generally with sky-high legal fees for the d/d work is not a great combination for the client.

Get in touch at www.legioxx.co.uk “improving mergers and acquisitions”  And: Robert Windmill at robert@legioxx.com

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2 responses to “Partner Content: The direct deal boom highlights the need for due diligence more than ever

  1. good resource to have !!
    I agree that the lack of deep and detailed due diligence is often the cause of poor execution and disappointing performance of direct investments by family offices .
    The other reason is the lack of focus/ resources to monitor and create value post-closing . Many family offices underestimate the challenge to grow the value of direct investments after the investment is made .
    One answer may be to co-invested as a minority partner with a leading family office , who has the resources to monitor the investments . The other answer is to engage a direct investment outsourcing firm such as FODIS ( http://www.fodis.com ) , which can help source , execute and monitor / create value in Direct Investments.
    Francois de Visscher

  2. Thanks for the endorsement
    We are clearing singing from the same songsheet
    Absolutely with you on integration post acquisition and the importance of this in putting the target into a position where it can be managed operationally.
    A buyer should ideally identify those elements of the value chain where there is opportunity to create value, once integrated, to achieve its business objectives.
    Those valuation creation levers would add additional value to the target above and beyond the seller’s projections on which the sale price is set.
    Chris Davis and Robert Windmill

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