Most commercial buyers know that due diligence is part of the transaction process. Fewer have a clear picture of what due diligence actually uncovers, what it does not uncover, and how the findings concretely shape price, contractual terms and the final decision to proceed.
At its core, due diligence is a systematic examination of a target company — its legal, tax, financial and operational position — designed to surface risks, confirm assumptions and give the buyer a sufficient basis on which to enter into an informed agreement. The exercise typically runs after the parties have signed a letter of intent (LOI) and before the share purchase agreement (SPA) is concluded.
Legal due diligence: what we look at
Legal due diligence focuses on the company's contracts, obligations and legal position. The central question is straightforward: are there legal risks that could affect operations, value or transferability?
Contracts and change-of-control clauses
The most frequent and most serious category of findings is change-of-control clauses in material agreements. A change-of-control clause gives the counterparty a right to terminate or renegotiate the contract if control of the company shifts. It can apply to supply contracts, customer agreements, licences, leases and financing documents.
A company that depends on one key supplier agreement or one large customer contract — both containing non-waivable change-of-control clauses — is a fundamentally different proposition from the one it appears to be on the surface. If this is identified during diligence, it requires either counterparty consent ahead of closing, a price adjustment that reflects the risk, or a frank assessment of whether the transaction still makes sense.
Intellectual property
For technology and brand-driven businesses, the IP review is often the most critical strand of legal diligence. The central questions: does the company actually own the rights it markets itself on? Are trade marks registered and in force? Has software been developed in-house or through subcontractors, and are proper assignment agreements in place? Are open-source licences used in ways that could trigger copyleft obligations?
IP defects are typically difficult to fix post-closing — and they are rarely discovered without a systematic review.
Employment and key personnel
Employment diligence maps the company's obligations to its workforce: collective agreements, individual employment terms, bonus arrangements, non-compete clauses and customer-protection clauses. A particular focus is key personnel — senior employees, sales leads or developers who are central to operations and who may not be contractually obliged to stay after a change of ownership.
A company's real value often sits in two or three key individuals. A diligence exercise that does not map those people's contractual obligations and their incentive to stay produces an incomplete risk picture — no matter how good the rest of the numbers look.
Tax due diligence: what sits below the surface
Tax due diligence is separate from legal diligence and focuses on historical tax positions, open risks and latent tax exposures. Looking at the most recent accounts is not enough — a tax case relating to an income year four years back can still produce a substantial claim.
The central points in tax diligence are: whether the company has taken accounting positions that are doubtful for tax purposes; whether there are ongoing or announced audits from the Danish Tax Agency (Skattestyrelsen); whether transfer pricing is properly documented and defensible on controlled transactions; and whether VAT has been handled correctly — particularly on cross-border supplies.
A latent tax exposure that does not appear in the accounts but emerges during diligence can either be priced into the transaction through a reduction in the purchase price, or addressed through a tax indemnity in the SPA, where the seller takes the risk for historical tax claims up to a specified cap.
What due diligence cannot do
Due diligence is an examination of the material made available — what goes into the data room. It is not an audit and not a guarantee. The seller controls what is disclosed, and the disclosure obligation is shaped by the framework of the transaction documents.
That means the scope and quality of any diligence exercise depend directly on the questions asked and on how thoroughly the material is reviewed. A diligence run by a lawyer who looks primarily at contract structure and not at tax will miss risks on the tax side — and vice versa. A coordinated legal and tax diligence is not a luxury upgrade; it is the only way to obtain a full picture.
Findings — and what they trigger
Findings from diligence have four possible consequences: price adjustments (purchase price adjustments) that reflect identified risks; changes to the transaction's protective mechanics — escrow, holdback or earn-out; specific representations and warranties and indemnities in the SPA defining what the seller stands behind; or, in serious cases, a decision by the buyer not to proceed.
It is the fourth option that is most often overlooked. Deal momentum can, at a certain point, overtake risk assessment — and parties continue with a transaction that should have stopped, simply because no one is willing to say so out loud. An independent legal adviser is precisely there to make sure the assessment stays grounded in the facts and is not driven by the urge to close.
Vendor due diligence — the seller's perspective
In structured sales processes and auctions, it is increasingly common for the seller to commission a vendor due diligence (VDD) before the sale process opens. The point is to surface and address weak spots proactively, before they are uncovered by the buyer's advisers during negotiation.
A VDD lets the seller correct errors in the contract base, tidy up employment matters, secure IP documentation and assess tax positions — before those points are used as leverage to push the price down. For a seller with an otherwise attractive company, a VDD can concretely raise the sale price by reducing the uncertainty premium a buyer would otherwise demand.