Legal, taxation, and financial due diligence services (Due Diligence)

The data and documents required for company due diligence proceedings are uploaded by our partners digitally to a traceable virtual data room . In case of transactions related to company sales, quota purchase or assets procurement, the period affected by tax, financial and legal due diligence is typically 3 to 5 years. The same way as the transaction itself, due diligence may be approached from two sides. On the side of the seller, it requires a data summary, the appropriate compilation of contracts, and data disclosure, on the basis of which the buyer will conduct the corporate due diligence procedure. Nevertheless, it may occur that the seller itself prepares for selling the company by itself having a due diligence procedure carried out (vendor due diligence),the result of which are only to be reviewed and validated by the buyer’s specialists. 

Financial due diligence 

The purpose of a financial due diligence procedure is to reduce the risks of investors preparing for the transaction – acquisition, fusion, sales – by identifying and ranking potential financial risk areas. 

• As a result of financial due diligence, the risky financial points of the target company are revealed; any hidden liabilities and risks are quantified. The financial due diligence procedure can be comprehensive or partial, depending on the client’s intention and the phase of the transaction. 
• Financial due diligence covers the following partial areas and information: 

1. short analysis of revenues and major cost components; 
2. survey of the general financial status; 
3. examination of accruals and prepayments; 
4. analysis of transactions, receivables and liabilities between past and present affiliated undertakings and intra-group transactions, as well as of inter-company loans and interest;
5. analysis of liabilities as well as contingent liabilities; 
6. general overview of the accounting treatment of major items, checking compliance with Hungarian Accounting standards; 
7. analysis of the degree of returns. 

Legal due diligence 

The purpose of legal due diligence is to survey the legal status of the target company, to assess the incurring risks of legal, contractual, and regulatory compliance, to reveal the company’s contractual systems, to understand labour law conditions, and to work up proposals for the required contractual collaterals. Thereby legal due diligence contributes to the revision of business processes and risks, as well as to the preparation of a transfer agreement with appropriate collaterals. In addition, legal due diligence also provides effective assistance in the efficient integration of the company acquired. 

A legal due diligence procedure can be comprehensive or it can refer to a specifically limited scope. The spectrum of due diligence depends on the target company as well; at the same time, it typically covers the following areas: 

• compliance with corporate law, ownership structure and management 
• substantial contractual relationships, litigations and authority affairs 
• ownership right of material assets, ownership right of real properties, agreements of use 
• finances (financing and support agreements, collaterals) 
• employment relationships 
• licences, intellectual property 
• compliance with environmental regulations 
• approvals required for the transaction 

The product of a legal due diligence procedure is the due diligence report, which contains the findings and legal risks revealed in the course of the due diligence procedure. Our staff supports our clients both in the preparation of legal due diligence on the seller ‘s side, and in conducting the due diligence procedure. Afterwards, as a result of a comprehensive familiarisation with the target company, they efficiently participate in the negotiation and contracting process, thus ensuring the implementation of the transaction. 

Tax due diligence 

In case of M&A transactions – regardless of the fact whether the subject matter of a transaction is the acquisition or sale of a company, shares or a quota –, it is important to assess the tax consequences of the transaction, and to mitigate the taxation risks of investors. 

Tax due diligence ensures the following for buyers and sellers: 

• Exploration and quantification of the past task risks of the target company 
• Mapping of so far unused tax opportunities 
• Analysis of the target company’s tax policy, tax risk management, tax calculation, and tax return process operations 
• Impact of the risks and opportunities explored to the transaction and to the pricing thereof 
• Establishment of appropriate guarantees in line with the tax position and their integration in the purchase contract 

Our specialists can also participate in the tax audit of the target company planned to be acquired or in the preliminary tax-related preparation of the company to be sold in the course of each transaction, contributing to the successful closure of the relevant transaction. In addition, assistance is provided within the scope of transaction consultancy for the design or tax-based analysis of an optimal transaction type or transaction series.