How Buyers Lose Capital – Neglecting Legal Diligence

Last words of a business buyer who will lose money:

“Oh Elliott, I leave all of that legal stuff to my lawyer.”

Yikes! You might be amazed, but I hear variations of this all of the time. People forget the power of legal documents in a transaction. The legal documents can mitigate key risks identified during due diligence but only if the buyer is consistently communicating with his/her lawyer. The lawyer won’t know the financial and operational risks like the buyer will. Customer concentration? Risk of key employees leaving? Will the seller compete with you post-close? What remedy does the buyer have if the seller leaves 3 months into the deal and does not fulfill their employee agreement?

All of those challenges get mitigated in the legal docs. So, a wise investor works hand-in-hand with their lawyer. This is a key reason that legal diligence is always a part of the processes we lead.

TopTal has a great and detailed article on this topic which you can read here.