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Due diligence requirements
What due diligence is necessary for buyers?
Due diligence is an important part of any transaction. Although the nature and scope of due diligence review may vary depending on the particular transaction, certain aspects of due diligence are considered standard and form part of virtually every M&A transaction, including a review of:
- the target's corporate structure and minute book;
- financial matters;
- litigation matters;
- employment matters;
- environmental matters (if applicable);
- IP matters (if applicable); and
- a review of any material agreements.
In addition, certain searches are conducted to verify real property ownership and liens on any personal property independently. It is also prudent to review any leases pertaining to land, buildings and equipment. Further, based on the nature of the transaction, it may be necessary to review other associated assets that may be acquired by the buyer.
What information is available to buyers?
Publicly available searches can be conducted to verify certain pieces of information and representations being made by the vendor or other parties to the transaction independently. Additionally, in Canada, an online database – the System for Electronic Document Analysis and Retrieval – contains information and documents for publicly traded companies and reporting issuers.
What information can and cannot be disclosed when dealing with a public company?
A public company should not disclose any material non-disclosed information unless doing so under the provisions of a non-disclosure agreement, to prevent any illegal or improper trading of its securities.
How is stakebuilding regulated?
Securities legislation in Canada governs the acquisition of shares in a corporation. Certain requirements apply to the percentage increase in ownership that can be acquired at a given time by an insider or control person of the corporation. An insider generally owns 10% or more of a corporation’s securities. A control person generally owns 20% or more of a corporation’s securities. Requirements pertaining to early warning reports and applicable filings on the System for Electronic Disclosure by Insiders are also governed by applicable securities laws.
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