Overview
M&A transactions typically go through three main stages: an initial memorandum of understanding setting general terms, then due diligence revealing any hidden risks or obligations, then the final deal agreement reflecting the diligence findings.
Due diligence aims to uncover any financial or regulatory obligations or existing disputes that might transfer with the target entity, so the acquiring party enters the deal fully informed rather than facing surprises later.
Regulatory Basis
These transactions fall under the Companies Law regarding ownership transfer and commercial registration updates, alongside general contract provisions in structuring the deal agreement itself.
Where the deal involves a foreign party, MISA licensing considerations are added to deal structuring, particularly if the target entity's foreign ownership ratio changes as a result of the deal.
How a Deal Proceeds
The deal begins with a memorandum of understanding setting basic terms, exclusivity, and confidentiality, followed by a due diligence phase revealing the target entity's actual position.
Based on diligence findings, the final deal agreement is drafted, potentially including a price adjustment or additional guarantees if diligence reveals risks unknown at the memorandum stage.
After signing, ownership transfer procedures and commercial registration updates are completed with the Ministry of Commerce, with relevant regulators notified if the activity requires it.
Who Needs This Service
A company planning to acquire another entity that needs thorough due diligence before committing to the deal, to avoid inheriting unknown liabilities or risks.
A business owner planning to sell who needs the deal structured to protect their interest, including non-compete clauses after the sale if needed.
Two parties negotiating a merger between their companies who need legal structuring that accounts for both parties' interest in the resulting entity.
Common Mistakes
Skipping or shortening the due diligence phase to save time, when it's the stage that reveals most risks that might transfer with the target entity.
Signing a memorandum of understanding with a long exclusivity clause without adequately assessing deal seriousness, which deprives the seller of other opportunities during that period.
Cost and Fees
M&A transactions are typically priced as a fixed fee per stage, memorandum of understanding, due diligence, and final deal agreement, not as a percentage of deal value.
Due diligence scope and cost are determined after understanding the target entity's size and business complexity, and we clarify this in a separate quote before beginning that phase specifically.
Some smaller acquisitions need a simplified review rather than a complete due diligence exercise, particularly when the deal value is limited and doesn't justify the cost and time of a full review. We help determine the appropriate level of diligence based on the actual scale of the deal rather than assuming one standard level fits every transaction.
Additional Considerations
This process connects directly with our due diligence and business intelligence service, particularly for larger transactions needing a dedicated review team.
For deals involving a change in foreign ownership ratio, this connects with a parallel review of MISA licensing conditions before closing.
Common Questions
How long does due diligence typically take?
This depends on the target entity's size and business complexity, and we give a realistic timeline after understanding the deal's scope.
What if diligence reveals risks unknown at the memorandum stage?
This may call for a price adjustment or additional guarantees in the final deal agreement, and we negotiate this on the client's behalf.
Does the process differ if one party is foreign?
Yes, MISA licensing considerations are added when the target entity's foreign ownership ratio changes as a result of the deal.