Doing a Deal? Legal Due Diligence and the Crown Jewels

April 5, 2019

With a view towards closing a deal, legal due diligence occurs when a business attorney collects and analyzes information from a legal perspective and then makes recommendations regarding any action that should be taken.

This typically occurs during the period between signing the transaction (e.g. a purchase agreement or merger agreement) and closing the transaction. Depending on the complexity and nature of the transaction and volume of information, this period may extend for 30, 60 or 90 days or more. Typically, legal due diligence is tailored not only to the available data but the type of transaction (e.g. asset purchase versus stock purchase).

It is helpful for the business attorney to understand what the executive or business (the client) identifies as the crown jewels of the target company or what synergies may emerge from the deal. The business attorney will then tailor the legal due diligence process to those nuances and issues of paramount importance.

Examples of crown jewels may include leases, intellectual property and employees.


Let’s say an organic grocery store plans to acquire all of its direct suppliers. The landlords of the suppliers may have the power to approve the assignment of leases. These landlords need to be contacted as soon as possible to obtain their consent to the new party taking over each lease. If they communicate an unwillingness to assent to the assignment, the business attorney will recommend alternative approaches to the executive. If the client wants to maintain the lease for a reason (e.g. location, moving cost) but the landlord will not consent, the problem morphs from a legal issue into a business issue. The client may have to re-negotiate a new, less-advantageous lease with the landlord.

Intellectual Property

An acquiring company may wish to increase its portfolio of related patents or widen its “moat” protecting its primary patent by acquiring a target company that owns such a patent. The cost of the target company may be small compared to the cost of defending the acquiring company’s patent over its expected life. The legal due diligence process will need to determine first whether the patent is pending or granted. If the former, a substantial amount of investigation will need to be conducted to derive a legal expected value of that patent to allow the executive to make a business valuation. For example, if it is too similar to another patent, it may be worthless. If the patent has been granted, the legal due diligence process will need to evaluate any pending or potential challenges to the target’s patent by other patent holders. The business attorney will need to communicate to the executive how viable those are.


An attorney may represent a business purchasing a target whose employees have rare, creative talent. There may be no overt legal document to analyze nor any law that may come into play regarding these crown jewels, but here the attorney should flag the possibility that these employees may decide that they do not wish to remain employed by the combined entity. The acquiring business may have considered this already. The target’s management may have convinced the suitor that the employees will remain. Nevertheless, the business attorney will recommend that these employees are offered employment agreements to increase probability of retention.


Legal due diligence not only means analyzing information, but developing suggestions for action to maximize the value of the transaction to the business executive. This is particularly import with respect to the crown jewels, the reason the executive pursued the transaction in the first place.

This information is general in nature and should not be construed as tax or legal advice.