Stay on target with due diligence

What are the main areas of focus for your team?

Key areas of focus differ depending on the different businesses and locations. General legal and regulatory support covering the usual areas of contract negotiation, litigation and compliance are a key focus for a lot of the team. Other team members devote significant time to mergers and acquisitions projects.

To what extent does your team outsource work and to which law firms?

The overwhelming majority of legal work is done in-house by the Danone team. The main areas where we obtain external assistance are large mergers and acquisitions projects, significant litigations or in countries where we do not have a local legal team member and some local specialist advice is required. We have relationships with major global law firms such as Freshfields, Allen & Overy and Baker & McKenzie, as well as leading firms in certain countries.

You recently spoke on the subject of target due diligence at the In-house Counsel Summit in Hong Kong hosted by Asialaw (CLP's sister title). Since the GFC, are we witnessing a return to full 'audit-style' due diligence exercises or is the exceptions-only/red flags approach still the norm?

From our perspective, as a food manufacturing company, we generally follow the exceptions-only/red flags approach. The GFC has not impacted on that for us.

Whichever approach is adopted, which particular aspects of the investigation would you say are seeing a sharpened focus?

In recent years the focus on anti-corruption and internal controls has increased, together with other areas such as employee benefits, environmental compliance and regulatory permits to conduct the business at current and planned levels. Also, in countries where targets may have been state-owned enterprises in the past, it is important to ensure the proper sale processes took place so as to not put current ownership rights at risk.

How important is it to investigate a target's corporate governance systems, internal controls and anti-corruption policies? What does it tell us if these are neglected or not adhered to in practice?

These are obviously very important areas. However, we also need to recognise that the level of sophistication in these areas can vary across countries or types of businesses. The absence of these systems does not in itself mean there is a problem. But it does mean, if we do an acquisition, we have to ensure we put in place quickly the necessary resources to manage risks going forward.

How would you sum up a really good due diligence report – one that really adds value to the project?

A good due diligence report is one that focuses on the key business and legal risks, and provides real and practical ideas on how to deal with those risks. It is in the area of providing solutions where I think law firms need to work harder – warranties and indemnities are often not practical solutions and lawyers need to think outside of the box for commercial ways to deal with issues. However, for any due diligence project or report to be effective, it is vital the lawyers are given a clear briefing from the commercial team on what are the key aspects of the target that are important and what are the future plans regarding the target. Without this, there is little prospect of having an effective process or report and almost certainly a lot of time and money will be wasted.