Document Review-Due Diligence

Due diligence, also called document review, is the process of reviewing existing legal and business contracts of a business (including corporate documents, agreements and financial statements) for potential problems and issues prior to a proposed transaction, such as a merger or acquisition. The usual goal is to make sure that there is nothing in any of the contracts that would prohibit the sale of the company (or require a third party's consent) and to make sure that the contract will not terminate as a result of the sale. Usually, an associate will catalog the documents he or she has reviewed and write summaries of the key agreements. For example, when a merger is being considered and the acquirer hasn't had the time to read all of the contracts of the company it is considering purchasing, the lawyers will be expected to summarize the agreements. The purpose of due diligence is to give your client the clearest possible picture of the company you're examining, so the client can assess the risks and benefits of going through with the contemplated transaction.

In an initial public offering, due diligence involves reading agreements that are summarized in the deal prospectus -- the document given to prospective investors summarizing important information about the company and the deal -- to make sure the prospectus is correct. If you are representing an underwriter in a securities offering, you will review documents so that the underwriter can claim to have made a reasonable investigation of the issuer's statements in the offering document. Basically, it's done so that the underwriter will be able to claim the due diligence defense if there is a material misstatement in the offering document. ("I investigated and everything looked fine so don't come after me with a lawsuit because the investors lost their money.")

A junior associate does more due diligence than contract drafting because one of the best ways to learn to draft contracts is to read a lot of them. In the past, lawyers frequently traveled to the company they were reviewing and spent a few days, or however long it took, to review all the materials pertinent to the transaction. Some attorneys have noticed a trend toward cutting back on lawyer travel. Apparently, clients have discovered it's cheaper to have their own employees copy all the documents and send them to the law firm for review.

If you do travel to the company, document review is a great way to bill a lot of hours in a short period of time. You don't waste time looking for work or trying to decide whether to go to lunch with your colleagues. And no one can give you any non-billable work to do, like updating the firm's research files. The company sets aside a room for you and puts all the documents in there, and you read and read and read all day. They send in breakfast and lunch, and you keep reading (and billing). If the company will not let you stay there when they close for the evening, you and your colleagues will go out to dinner and stay overnight in a nice hotel, for which the client pays. If the company does let you stay in their offices, you might be there until 1 or 2 in the morning. Most lawyers find the work tedious, but it's excellent training on how to draft contracts and how to review them for pertinent information. In addition, it's a chance to get to know your colleagues really well. On rare occasions, you'll get to do a little detective work if the company has not supplied the proper documents and you have to interview employees to determine where they are.