Comparing M&A Legal Support: Legal DD, SPA Negotiation and What LegalAgent Provides

Hello, I'm Noriaki Asato, Representative Attorney at LegalAgent.

When you ask attorneys for a quote on M&A support, the proposals you receive cover different scopes depending on the firm: "legal DD only," "SPA review only," "end-to-end through closing," and so on. If you simply line up the quoted amounts side by side, you may overlook substantive differences, such as one proposal including contract negotiation while another ends with delivery of the DD report.

Legal DD, SPA negotiation and closing procedures are separate tasks, but they form a single continuous process in which risks are handed from one stage to the next. Will an issue identified in DD be remedied before closing, reflected in the purchase price, or addressed through representations and warranties or indemnification provisions? That decision is written into the provisions of the SPA and leads directly to the documents to be submitted and the conditions for carrying out the closing.

What Can Be Requested in M&A Legal Work

In the early stages of an M&A transaction, the work includes concluding a non-disclosure agreement (NDA), preparing a letter of intent (LOI), and confirming the scope of exclusive negotiation rights and whether provisions are legally binding. Once the buyer begins investigating the target company, the work moves on to requests for disclosure of materials for legal DD, review of the disclosed materials, exchanges of questions (Q&A), interviews with management and preparation of the report.

At the definitive agreement stage, the work involves drafting or reviewing the share purchase agreement (SPA) and similar documents, and negotiating with the counterparty on the purchase price, representations and warranties, the scope of indemnification liability and so on. After signing, the satisfaction of conditions precedent, obtaining consents from relevant parties, the flow of payment settlement and the like are managed using a closing checklist.

How many of these stages to entrust to the same attorney depends on the progress of the transaction and the company's internal setup. If legal DD has already been completed, it is possible to hand over the existing report and disclosed materials and request support from SPA negotiation onward. On the other hand, where the target company has been decided and disclosure of materials is about to begin, requesting legal DD and SPA negotiation together makes it easier to reflect the risks found in the investigation in the contract terms without delay.

Differences by Scope of Engagement

Item	Legal DD only	SPA drafting and review only	From legal DD through SPA negotiation	End-to-end through closing
Main tasks	Document review, Q&A, risk assessment	SPA drafting, revisions, negotiation advice	DD and reflecting it in the SPA, contract negotiation	LOI, DD, SPA, conditions precedent, closing support
Main deliverables	DD report, list of risks	Draft SPA, redlines, negotiation memo	DD report, draft SPA, issues list	Each agreement, closing checklist, documents for submission
Materials needed when engaging	Company overview, scope of investigation, disclosed materials	Existing draft, agreed terms, DD results	Transaction overview, disclosed materials, desired terms	Overall transaction schedule, related materials, internal approval schedule
Work remaining in-house	Deciding how to carry DD results into contract terms	Cross-checking DD results against the SPA	Closing management	Business decisions and internal approval
Suitable when	Contract negotiation can be handled separately	DD is complete and handover materials are available	The buyer wants to connect the investigation and the contract	The company wants to supplement its in-house M&A legal function externally

There are two approaches to legal DD: a red-flag approach, which shares serious concerns early, and a detailed report approach, which describes a wide range of investigation items. When adopting the red-flag approach on a limited schedule, it is important to make clear at the outset what will be regarded as a serious matter and which areas will be excluded from the investigation. Keep in mind that for areas excluded from the investigation, it has not been confirmed that no legal problems exist. Also, even an approach designed to extract serious matters first does not guarantee that every risk will be covered.

Whether there are interim reports is another factor affecting the scope of engagement. In transactions where contract negotiation begins in parallel without waiting for the final report, the main issues identified cannot be reflected in the first draft of the SPA unless they are shared as they arise. Decide in advance the timing, format and recipients of reports, and also decide who will update the assessment when answers to follow-up questions arrive.

These service categories are scopes of work that each firm defines for itself. Even a quote described as "legal DD, complete package" does not necessarily include preparing questionnaires, interviewing management, or carrying the results into the SPA. And even where it says "contract work," the hours involved differ greatly depending on whether it covers only preparing the first set of revisions or also assumes attending negotiation sessions with the counterparty.

When comparing the scope of external support, do not be misled by the names of the stages; confirm specifically what deliverables will be produced and at what stage the work ends. For legal DD, determine whether it ends with delivery of a list of risks or also includes assessing their materiality and presenting specific responses. For the SPA, confirm whether the work is complete once revisions are returned to your company, or whether support continues after the counterparty presents further revisions.

LegalAgent's M&A Legal Support

At LegalAgent, after checking for conflicts of interest in each matter, we provide support on the buyer's side or the seller's side, whether legal DD only, SPA negotiation only, or end-to-end support through closing. For transactions where some stages have already been completed, we take over the existing DD report, disclosed materials, negotiation history and so on, identify the legal work that remains unfinished, and then begin.

Stage	LegalAgent's support	Main deliverables
Initial review	Confirm the transaction scheme, the status of disclosure and the focus areas for legal DD	List of materials, initial issues
Initial risk analysis	Identify key issues within 2–5 business days of disclosure, as a rule	Follow-up questions, initial list of risks
Legal DD	Investigate contracts, permits, intellectual property and so on, within a scope suited to the transaction	Q&A, DD report
SPA negotiation	Reflect DD results in the representations and warranties, indemnification, conditions precedent and so on	Draft SPA, redlines, negotiation issues
Closing	Confirm conditions precedent, resolutions under the Companies Act and documents for submission	Checklist, closing documents

On the buyer's side, we do not stop at merely listing the target company's risks; we consider how to reflect them in the contract terms needed to move the transaction forward. On the seller's side, we handle in an integrated way the management of the disclosure process, responses to questions, and the organization of disclosure items for the representations and warranties.

If a serious problem going to the heart of the transaction is identified during legal DD, we share it promptly without waiting for the final report to be completed, and move ahead with reflecting it in the first draft of the SPA and the negotiation strategy. In transactions on a short timeline, we review areas in order, starting with those directly connected to the value of the transaction and the continuation of the business after the acquisition, and proceed with a clearly defined scope of investigation. We set an individual schedule according to the status of disclosure and the scope of the investigation. Note that what we carry out within 2–5 business days of disclosure as a rule is the initial extraction of issues and risk analysis; it is not intended as a guarantee that the entire legal DD investigation will be completed within that number of days.

From Which Stage to Engage LegalAgent

Before disclosure of materials, we confirm the envisaged scheme, the target company's business and the desired schedule, and then start by preparing the disclosure request list for legal DD and selecting the focus areas. If legal DD has already been completed, we review the report and disclosed materials and begin by identifying the matters that should be reflected in the SPA. For transactions in the middle of SPA negotiation, we begin by having you share the current draft, the remaining points of dispute and the scheduled closing date. Even when taking over contract negotiation only, we cross-check the DD results against the history of the Q&A and carefully confirm the consistency of the representations and warranties, indemnification provisions and conditions precedent.

The scope of our services can be found at LegalAgent's M&A Support. How to conduct legal DD is explained in detail in Legal Due Diligence: Purpose, Process and Required Materials, and the definitive agreement in SPA Indemnification, Price Adjustment and Closing.

Connecting DD and the SPA on the Buyer's Side

In legal DD on the buyer's side, we review shares and capital policy, major business contracts, ownership of intellectual property rights and so on. The aim of the investigation does not stop at simply identifying deficiencies. It is to determine whether the target business can be continued stably after the acquisition and to reflect the conditions necessary for the transaction in the provisions of the SPA.

Issues identified during DD are addressed by considering one of the following methods, depending on their nature and degree of impact.

• Remedy before closing
• Conditions precedent to closing
• Purchase price or price adjustment
• Representations and warranties and disclosure items
• General indemnity or special indemnity
• Post-closing covenants

Where a major customer contract contains a change of control clause, we confirm the requirements for which the counterparty's consent is needed and the effect of termination in the event of a breach. Taking into account the importance of the contract and the impact if it is terminated, we choose the response for each transaction: whether to require that consent be obtained in advance, make obtaining consent a condition precedent to closing, adjust the timing of closing, or accept the risk by building it into a price adjustment or indemnification provision. Note, however, that even if monetary indemnification is secured, it does not restore the operational losses to the business that result from the termination of the business relationship itself.

Where materials concerning ownership of intellectual property are insufficient, one option is to conclude an additional assignment of rights before closing, premised on agreement with the right holder, but agreement will not necessarily be obtained. As for unpaid wages, the facts are confirmed in legal DD, and remedies such as payment, a reduction in the purchase price or indemnification provisions are considered. Even if the buyer and seller decide how to allocate the burden between themselves, the company's obligation to pay its employees does not disappear. Tax risks are reflected in the SPA based on the results of specialized investigations such as tax DD.

When legal DD and SPA negotiation are entrusted to different attorneys, it is important not to complete the handover simply by passing on the DD report. For each key issue, organize in a table which SPA provision will address it, whether additional materials should be requested, and what further questions should be put to the seller. Even if the attorney in charge of DD will not attend contract negotiations, the schedule must allow the attorney in charge of the SPA to review the disclosed materials themselves.

Disclosure of Materials and SPA Negotiation on the Seller's Side

On the seller's side, while responding to the document request lists and questionnaires from the buyer, the seller confirms the accuracy and scope of the information to be disclosed. It is not possible to prepare answers as if materials existed when they are not actually on hand. Where there are deficiencies or gaps in internal management, explain them by separating the objective facts, the impact on the business, and the extent to which they can be remedied by closing.

In SPA negotiation, the main issues are the scope of the representations and warranties, the application of exceptions based on disclosure items, and the scope of the obligations the seller bears after closing. How far matters disclosed to the buyer are excluded from indemnification liability depends on the wording of the SPA itself and on how the disclosed materials are compiled. It is important to determine, in line with the contract provisions, whether the design allows an exemption merely because the materials were placed in the data room, or whether an exemption applies only if the matter is listed individually in the disclosure schedule.

If the seller engages an outside attorney for SPA negotiation only, there is a risk that the attorney cannot sufficiently check the consistency of past answers to questions and disclosed materials with the representations and warranties provisions. At the stage of requesting a quote, specify clearly whether the work includes reviewing the disclosed materials, refining the answers to questions and preparing the closing documents.

It is also important to confirm the obligations that remain with the seller, such as release of management guarantees, procedures for the resignation of officers and post-closing handover of business operations. Release of a management guarantee requires the individual consent of the creditor, such as a financial institution, and is not released automatically merely by agreement in the SPA. If you choose an engagement structure under which the attorney's work ends with the signing of the SPA, you need to confirm whether managing the progress of conditions precedent and preparing the closing documents can be carried out in-house alone.

Items to Align When Comparing Quotes

The quoted amount for legal DD and SPA negotiation is determined based on the specific work involved, in addition to the target company's sales and the purchase price. The hours required depend on the volume of disclosed materials, the complexity of the target business, the expected number of negotiation rounds and so on. When obtaining quotes from multiple candidates, give them the same assumptions and then check side by side whether each of the following tasks is included.

Stage	What to check is included in the quote
Initial review	Transaction scheme, NDA, LOI, exclusive negotiation, overall schedule
Legal DD	Document requests, data room review, Q&A, interviews, report, report meeting
SPA	First draft, review of the counterparty's draft, redlines, issues list, negotiation meetings
Disclosure support	Q&A answers, disclosed materials, disclosure schedule, cross-checking against representations and warranties
Closing	Conditions precedent, obtaining consents, corporate approvals, documents for submission, checklist, closing day support
Additional work	Expanding the scope of investigation, additional negotiation, schedule extensions, related agreements, post-closing support

There are also various formats for legal DD reports: a detailed report format, a red-flag format focusing on material matters, a format centered on oral reporting, and so on. For transactions on a tight schedule, you can also choose to have serious matters shared on an interim basis first, with the detailed report submitted later. Share your preferred report format, as well as the dates of your internal investment decision meeting and the planned signing date, when you request the quote.

For fixed fees, confirm the assumed volume of disclosed materials, the number of rounds of questions, the cap on the number of contracts to be reviewed and so on. For time charges (hourly billing), confirm the hourly rate for each attorney, how often hours worked are reported, and whether you will be notified in advance when the pre-set budget cap is approaching. How to read quotes is covered separately in Attorney Fees for M&A.

Frequently asked questions

Should legal DD and SPA negotiation be entrusted to the same attorney?

Entrusting them to the same attorney makes it easier to reflect matters identified in legal DD in the conditions precedent to closing, the price, representations and warranties, indemnification and so on. If you entrust them to a different attorney, the DD report, disclosed materials, Q&A and outstanding issues need to be handed over.

Can we request only legal DD for an M&A?

Yes, you can request legal DD alone. However, you need to confirm who will reflect the DD results in the SPA, who will handle additional Q&A, and whether consultations after the report is submitted are included in the quote.

What should be compared in quotes for M&A legal work?

Compare how much is included for legal DD (document review, Q&A and the report), the SPA (first draft, further revisions and negotiation meetings) and closing (conditions precedent, documents to be submitted and same-day support).

What does LegalAgent's M&A support include?

For both the buyer side and the seller side, we handle everything from initial risk analysis, legal DD and the drafting and negotiation of the SPA and other agreements through closing preparation. After materials are disclosed, we carry out the initial risk analysis within 2–5 business days as a rule.