Company Mergers And Acquisitions Due Diligence Issues In The Research

Many enterprises start to engage in merger and acquisition transactions in order tosurvive or to expand the operation scale. M&A transactions of china’s companies havedeveloped so fast for the past ten years. The original intention for company is to expandthe business, scale and increase the profit, however, many companies fails to achieve theanticipated goals. The author believes that one of the most important reasons isinsufficient due diligence. In fact, due diligence is able to provide the importantinformation of M&A transactions, which can reveal the hidden risk and get the balancebetween the goal and the risk brought by information asymmetry. M&A due diligence is,in the process of M&A, the activities to investigate the target company’s information offinancial, legal, management and other aspects, and put forward opinions and suggestions.According to different standards, due diligence has different classifications. The analysisof classifications can deepen the understanding of due diligence. Due diligence plays asignificant role on M&A transactions: to reveal the target company’s defects and risks,discover and assess the target company’s value, preserve evidence, and provide the basisinformation for the negotiation of the deal and future integration. China’s legal systemhas no special systematic requirements on due diligence, just contains in some ministerialrules, so the due diligence activities in corporate M&A is not universal in China. Tosummarize and induce the characteristics of due diligence, the author puts forward andanalyses seven principles including reasonable and prudent principle, independenceprinciple, objective principle, importance principle, confidentiality principle, moderateprinciple and systematic principle. In order to make clear of the standard of “duediligence", the author, based on the theories and rules of due diligence in foreigncountries, puts forward her own opinion namely the general professionals’ reasonable andprudent obligation. The author finally analyzes the liabilities of due diligence of trustee,the purchaser and its director of board, the directors of the target company. The trustee’sliability is theoretically based on the diligence obligation. In practice, they usually bearthe civil liability of contract and administrative liability based on particular rules. Thepurchaser and its board of directors have the rights of due diligence choice, but they haveto bear the risks and losses of M&A transactions, which is in fact a kind of hidden liability. Whether the board of directors of the purchaser is necessary to perform due diligenceobligation, they should follow the “business judgment" standards. The target company’sdirectors，especially when the target company as a listed public company is acquired, areresponsible for due diligence obligation.