| Ben Rapinoja and Anne Korpi-Filppula of Borenius & Kemppinen, attorneys at law, explain legal due diligence and how to avoid key legal risks in the life science industry
Legal due diligence (LDD) is a process of gathering information and assessing risks, liabilities and possibilities in connection with a business transaction. LDD is a necessary and important part of many business transactions including mergers and acquisitions, venture capital investment, licences and other financial arrangements, as well as initial public offerings.
LDD is usually part of a larger due diligence that critically reviews and analyses the financial, management and operational conditions of a company. From a business perspective, due diligence includes an evaluation of the management team, resources and verifying customers and markets and, from a financial perspective, it includes a thorough examination of the accounting books of the target company. The aim of LDD is to pinpoint the legal risks in the planned transaction or investment, as well as to determine the value of the target company or business.
LDD needs to be tailored according to the specific transaction in question. In order to do this effectively, it is essential to understand the nature of the potential transaction, as well as technological aspects and the business strategies of the companies in question. For instance, in any deal with a substantial technology component, an important focus for LDD is intellectual property rights. One must look beyond the concerns of traditional due diligence to examine a company’s technological assets.
The material that the due diligence process discloses should cover all relevant aspects relating to the target company and its business. Based on business goals and the objectives of the transaction, additional information can be requested directly from the target company. So-called management interviews are commonly used to identify the data relating to non-published information.
LEGAL RISKS IN LIFE SCIENCES BUSINESS
Legal risks relate in many cases to the intellectual property rights, as they form an instrument by which the protection of the results of R&D is organised. Patents generally constitute the most important form of intellectual property rights in a life sciences transaction. |
