From: Jamie Nelson <firstname.lastname@example.org>
Subject: Re: Investigation of the target (You.fm)
Date: 11 December 20–
To: Rawdon Pearce <email@example.com>
Thanks for your email. I’d be very pleased to undertake the due diligence for you. From what you tell me, and from following the history of You.fm in the financial press, there shouldn’t be too many problems. I’ll be in touch shortly.
PS – FYI I’m pasting in a summary of the issues involved below as this will be the first time that Tuniverse! have undertaken such an acquisition – hope it’s useful.
Investigation of the Target
During the initial negotiations on the terms of a proposed acquisition, the buyer and seller may draft a non-binding term sheet1 to record the results of their preliminary discussions and to provide a basis on which to proceed to the signing of the sale and purchase agreement (SPA). The buyer may also wish to enter into an exclusivity agreement that prevents the seller from actively seeking other prospective buyers for a specified period, thereby giving the buyer a period of exclusivity in which to negotiate the SPA. On an auction sale, where the seller seeks competing bids for the target, the seller will generally issue an information memorandum summarizing key investment considerations and an initial draft of the SPA to prospective buyers.
The buyer will also wish to conduct a due diligence investigation, which is the information-gathering process carried out by the buyer to find out as much as possible about the financial, legal and commercial status of the target company. As part of the due diligence process on a share sale, the seller may put together a physical or virtual (on the Internet or CD Rom) data room where information about the target business is collected together for the prospective buyers and their professional advisors to review.
During the due diligence process, the seller may require the buyer to enter into a confidentiality agreement in order to keep the proposed sale a secret from third parties and to limit the disclosure of sensitive information about the target to authorised persons such as certain employees and professional advisors of the buyer prior to the signing of the SPA.
Rawdon – Re the confidentiality agreement, I’m now drafting this and will forward a copy this afternoon for your approval. Jamie.
1also letter of intent; memorandum of understanding; heads of terms; heads of agreement