If you are entering into a merger, you will face merger due diligence. For many people, this is the stage that feels the most uncomfortable. It involves opening up your business, answering awkward questions, and digging through paperwork you may not have looked at in years.
That discomfort is normal unless you understand the process well. With that in mind, this article explains what you need to know about merger due diligence.
What Merger Due Diligence Is Really About
Merger due diligence is the point at which both sides decide whether the deal still makes sense once everything is out in the open. But it’s not about one side trying to trip the other up. Think of it more like this – both sides need to understand exactly what they are combining and what comes with it.
In a merger, both businesses continue, and that means both sides take on risk. Each party needs confidence that the other business is what it claims to be and that there are no surprises waiting after completion.
This does mean you should expect detailed questions and follow-up requests. That is not a sign that the deal is going wrong; it’s simply part of the process.
Why It Matters More in A Merger
In an acquisition, a buyer can sometimes walk away and move on. In a merger, you are tying your future to another business.
That makes merger due diligence especially important. Any issues you ignore before completion do not disappear. They become shared problems once the businesses combine. And this is also why due diligence can sometimes change deals significantly. It affects control, price, structure, and sometimes whether the merger proceeds at all.
The Legal Areas That Get the Most Attention
Legal due diligence focuses on how the business actually operates day to day and what it is legally committed to.
You can expect the review to cover areas such as ownership, contracts, employees, property, intellectual property, and disputes. These are not abstract points. They all affect how the merged business will run.
Where documents do not reflect reality, you should expect that advisers are going to ask questions. If you have arrangements that don’t have any formal paperwork backing them up, the other side will naturally want clarity. It’s a period of time when you need to get your house in order, if you’ve not already done so.
Corporate Structure and Ownership
Usually, the starting point is ownership. Who owns what? How have shares been issued? Are there any unusual rights or side arrangements? Problems here often catch people off guard, especially where businesses have grown quickly or informally. But ownership issues matter a lot because they affect control. They also affect who has a say once the merger completes.
Contracts and Commercial Relationships
Contracts play a big role in merger due diligence. Key customer and supplier agreements are reviewed to check terms, length, termination rights, and restrictions on change of control. If important contracts cannot continue after the merger, that raises obvious concerns. The party with the contract often assume contracts will roll on without issue, but the other party and its advisers rarely make that assumption.
Employees and Key People
The people who make up the business itself are often the reason a merger makes sense in the first place. But they are also a common source of risk.
This is why due diligence will look at employment contracts, incentive arrangements, notice periods, and any disputes. Advisers will want to understand who the business depends on and whether those people are likely to stay.
Imagine if the success of the merged business rests on one or two individuals who can leave on short notice or have no obligation to stay. That kind of dependency often makes the other side pause and question whether the deal is just too risky. It may also open the conversation to further discussion around protection and retention.
Intellectual Property and Systems
Intellectual property issues pop up often during a merger, especially in software businesses where development has involved multiple founders, contractors or third-party platforms. In some digital and content-led businesses, ownership has evolved informally over time, which may raise some questions and doubts.
Advisers will want to check ownership of brands, software, databases, websites, and other IP. They will also look at licences and third-party rights. If IP lies with founders, contractors, or related businesses rather than the company itself, that usually needs fixing before completion.
Property and Premises
If there are any physical premises involved, due diligence will review leases, licences, and ownership. This includes checking length of term, break rights, restrictions, and ongoing obligations. Property issues can affect cost and flexibility after the merger. You might think that premises are a secondary consideration, but can often affect future plans.
Disputes and Compliance
Merger due diligence also covers disputes and compliance issues. This includes current litigation, potential claims, regulatory matters, and historic problems that could resurface. You should expect questions about how issues were handled and whether they could return. We always advise our clients not to try to gloss over these points, since they tend to come out eventually.
How Due Diligence Shapes the Deal
The findings from merger due diligence feed directly into the legal documents. If there are any issues uncovered, it can result in specific warranties, disclosures, conditions, or changes to the structure of the deal. In some cases, they also affect price or control, which is why advisers ask such detailed questions. Due diligence can affect the entire deal, and nobody wants to end up locked into a deal that was agreed on the wrong assumptions.
Where Things Often Go Wrong
One of the most common problems we see is poor preparation. If your business has missing documents, or if they’re inconsistent, or scattered across different places.… This can pose problems. If you have a mindset that treats merger due diligence as just a formality, it can lead to frustration when advisers push back or ask follow-up questions. But good organisation, preparation and honest answers usually make the process far smoother, and working with a specialist solicitor can help with that.
How JPP Law Can Help
JPP Law advises businesses across England and Wales on mergers and acquisitions, including managing merger due diligence on both sides of a transaction.
We help clients prepare for due diligence, respond to questions, and understand how findings affect the wider deal. We’re client-focused and dedicated to keeping transactions moving. So, if you’re considering a merger and want clear advice on merger due diligence book a call with a JPP Law commercial solicitor.
