How the Initial Request List (IRL) can set you up for buy-side M&A due diligence success
If the Buyer proceeds to the due diligence phase of the M&A process, the Buyer will typically prepare an Initial Request List (or IRL) for the Seller. The requested information allows the Buyer to conduct their due diligence on the target beyond the information that is publicly available. (Note: For an acquisition of a publicly listed company, it is common to conduct due diligence only on publicly available information due to legal risks such as insider trading of the target company disclosing other material non-public information.)
The IRL might differ depending on the industry and sector of the target, and proposed transaction type. You can download a Due template IRL which is a good starting point for the documents a Buyer might request from the Seller.
The Buyer normally prepares the IRL in a Word or Excel file, and it's shared via Email directly to the Seller or via the Seller's corporate advisor This is normally because the Buyer doesn't have access to the VDR yet so they can't submit the requests using the RFI functionality in the Seller's data room.
The Seller (or its representative) uploads the requested documents to the data room in response to the requests. The Seller invites the Buyer to the data room so they can access the requested documents and start their due diligence.
What are the challenges with the current process?
There are many challenges with sending the IRL using a Word or Excel file, including keeping track of what requests have been answered, and knowing what request a document provided relates to as it's not always obvious. Often there are missing, incomplete or outdated documents uploaded to the data room which means the Buyer has to send the Seller follow-up requests requesting the correct documents. Depending on how responsive the Seller is, this can cause delays in the due diligence process.
Below you can see a demo of how you can use Due to solve these problems. In Due, you can upload the template IRL straight into Due and assign the requests to the Seller. The Seller uploads their documents and attaches those documents to requests so you can keep track of outstanding requests.
Preparing the IRL as a buy-side legal advisor
If you're the law firm representing the buyer in an acquisition, one of the key initial steps is to prepare the IRL. Here is how you might approach preparing the IRL:
- Start with a template IRL (if your firm doesn't have one, you can download a Due template IRL which is a good starting point)
- Gather information about the proposed transaction, the target company's business, industry, and any specific areas of concern or risk that need to be evaluated. You can customise the IRL based on these findings. For more information regarding transaction types, see the below article.
- Consult with the buyer's internal team, financial advisors, and other professionals involved in the transaction to understand their specific areas of interest and any particular concerns they may have.
- Organize the IRL in a structured manner by categorizing requests by subject matter. This can make a long list more digestable by the Seller and the Seller can assign the requests to specific departments. As a guide, consider separating the requests into the following subject matter areas:
Assets
Banking and finance
Corporate
Employment
Environment and planning
Financial
Government and regulatory
Information technology (IT) and software
Intellectual property (IP)
Litigation and disputes
Material contracts
Other
Real property
Taxation
- Work with the seller's legal counsel or representatives to understand the best way to provide the requested information and to address any potential confidentiality or logistical concerns.
- Confirm with your client (the Buyer) that there is nothing missing from the IRL.
- Once the document request list is finalized, formally submit the IRL to the seller's representatives, either through the VDR (if access has been given) or other agreed-upon method (e.g. Email).
Agree on scope of Buyer's review
After the Seller has provided the documents and opened the data room, the Buyer and its legal advisor will agree what documents need to be reviewed and the nature of their review (e.g. ‘red flags’ only or a more detailed review).
After the Seller has provided the documents and opened the data room, the Buyer and its legal advisor will agree what documents need to be reviewed and the nature of their review (e.g. ‘red flags’ only or a more detailed review).
Customize document review templates based on scope of work
- Specialist reviewers locate and customize (if necessary) document review templates based on the scope of work.
- We have 100+ document review checklists on Due's website , available to download for free.
- These templates can be used by junior document reviewers as checklists to ensure nothing is missed in the document review process.
Assemble review team
- The Buyer’s legal advisor assembles a team of document reviewers, normally consisting of subject matter experts required to perform the scope of work.
- The legal advisor classifies the documents in the VDR based on document type and assigns them to the relevant subject matter expert reviewers. Example document classifications include:
Customer contract assigned to the corporate/commercial team
Supply contract assigned to the corporate/commerical team
Shareholders deed assigned to the corporate team
Loan agreement assigned to the banking and finance team
Employment agreement assigned to the employment team
Joint venture agreement assigned to the industry specific team (e.g. energy and resources team)
- In Due, we adopted the standard document classifications used by the Standards Advancement for the Legal Industry (SALI) Alliance. Read more about the SALI Alliance here.
- When classifying documents, you need to consider the document from the perspective of the target (e.g. is the target buying goods and/or services, in which case it's a supply /procurement contract; conversely, if the target is selling goods and/or services, it's a customer contract). The classification is important as the checklist will be slightly different, based on the document type.
Review documents
- The Buyer's legal advisor reviews the assigned documents using the checklists, identifying any red flags and preparing document summaries of key terms.
- The co-ordinating lawyer compiles the individual document reviews, comments, and findings from the review teams, making sure all document summaries are consistent and conducts a quality control review.
Prepare legal due diligence report
- The co-ordinating lawyer prepares a draft report summarizing the findings, risks, and recommendations from the due diligence process.
- The due diligence report is finalized, incorporating the client’s feedback and flagging any outstanding requests for information asked of the Seller (sometimes the seller hasn't responded to RFIs by the time the report is issued).