DD In Private M&A in Spain

Concluding an M&A deal in Spain often includes a preliminary due diligence (DD) of a Spanish company. A comprehensive study of the information provided implies a set of actions aimed at checking the purity of the transaction. If you intend to carry out such a transaction, today's blog post may be useful to you.

Should you do DD?

Nowadays, market participants need to manage risks in their activities. Nobody wants to buy a pig in a poke. The requirement of "transparency" when buying a business is a norm that is relevant both for large companies leading the market and for young businesses aimed at development.

Any company intending to conclude an important contract, or an investor planning to acquire a business in Spain, wants to be completely confident in the profitability and security of a future transaction. This confidence can only be based on reliable and comprehensive information about a potential counterparty. It is for the collection and analysis of such information that we advise you not to neglect the preliminary DD.

Due diligence in private M&A in Spain provides an opportunity for a potential buyer to clarify the following aspects:

• Financial and tax reporting;
• Legal issues;
• Labor relations;
• Market position of a company registered in Spain (or its assets)
• Assessment of the degree of competence of the target company management.

It is recommended to separately focus on legal issues. 

The legal DD of a Spanish company allows you to define:

• who owns the company or business;
• what is the company structure;
• whether there are registered IP objects in Spain;
• actual availability of assets;
• current financial commitments;
• issues related to labor law;
• licensing issues;
• whether the target company was involved in the dispute resolution in Spain and whether there were any proceedings at the time of purchase.

DD reports provided by sellers are commonly used in a controlled company sales process in Spain. This allows sellers to:

• speed up the sales process;
• minimize disruptions to the target business;
• facilitate access to information;
• explain any questions related to the transaction.

In general, the buyer can rely on the seller's DD reports. However, as practice shows, entrepreneurs who intend to conduct a merger transaction in Spain also often independently carry out a confirmation DD as part of the transaction evaluation.

Publicly available information

Typically, firms provide a potential buyer for verification:

• articles of association of a company registered in Spain;
• information about the board of directors;
• audited financial statements;
• data on the changes made to the authorized capital;
• annual report.

Buyers can also take advantage of public information in the Spanish company's DD verification process.

Those who intend to conduct due diligence in Spain should take into account that the following information about the target object can be obtained from open sources:

1. About ownership, mortgage and real estate expenses;
2. On the IP ownership in Spain.

You can also search for information stored in the Commercial Register to ensure that the target is not in a state of remediation or liquidation.

Conclusion

The initiator of the study is usually a buyer, an investor but in some cases, the persons interested to conduct DD may be the company shareholders or top management.

When making a major M&A transaction in Spain, it is very important to have up-to-date information about the object of purchase, its real value, possible legal and tax consequences of such an acquisition.

The information obtained as a result of DD can be used in the issue of own securities, developing a mechanism for protecting against a takeover by another company, or in other important business events.

It is also obvious that the data obtained during the DD verification at the time of the transaction prevents the filing of a claim for violation of the ownership agreement or a claim for hidden defects.