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February 12, 2007

Legal due diligence: What PE firms need to watch out for

In an article in The Economic Times, Nitin Potdar, partner atcorporate law firm J Sagar Associates, points out areas that Private Equity firms need to watch out for when dealing with Indian companies.
In order to avoid any surprises after the closing, it is critical that following broad process is followed while conducting due diligence. Firstly, the PE firms should hold discussions with the members of the financial, legal and technical team and set clear objectives and deliverables. Do not rely on the standard check list for documents; ask the team to modify the same to case specific needs. Share industry specific issues or special areas of concern right in the beginning with the team of lawyers.

Take stock, at regular intervals, from the team so that they remain focused all throughout. Importance should be given to a short executive summary of issues rather than a bulky dd-report. Most critically, make technical, financial and legal teams interact with each other so that they all are on same page.

A lot of business dealings may not have been documented (for example customers, supply from vendors) and hence it’s critical that discussions are organised between the advisors and the key management team and the conduct of business is understood correctly. Fortunately, because of internet a lot of information about the target company, its products, management, industry, competition, etc., is largely available and hence efforts should be made to collect all that is available and share across the teams.

Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of information and networking services to the private equity and venture capital ecosystem in India. View free samples of Venture Intelligence newsletters and reports.