In law firms, associates are usually tasked with undertaking due diligences. From a firm perspective, it makes sense to deploy their (relatively) cheapest resource to spend hours on documents, while for associates - it is a good opportunity to familiarse themselves with different kinds of documents/ concepts/ industries without having to worry about technical drafting.
Often I have seen partners take due diligence training and focus on what sort of documents need to be reviewed, or what laws need to be researched for some specific industry, or how to write the DD report, but I feel like the main essence of doing a diligence – the approach while handling a DD gets lost in the translation.
Okay. So, let’s address the elephant in the room. Due diligence is one of the most hated aspects of legal work in law firms, with most seniors trying to pawn it off to juniors, and juniors trying to pawn it off to interns. The hate towards this aspect of legal work is partially because this doesn’t involve drafting, so it doesn’t feel like legal work – and also, DDs usually involve huge volumes of data, so after a while going through so many documents feels mind numbing. However, every year, many associates join the legal workforce, and while they have big aspirations of working on cutting edge transactions and drafting agreements, this is the job they are mostly involved in.
Is there a way to salvage this? Is there a way to make DDs interesting? Here’s an idealistic view:
IDEALISTIC VIEW OF A DD:
Due diligence at its core – is investigative journalism. While reporters have to run around to get their hands on confidential internal company data, as lawyers we get all the data handed over to us in the virtual data rooms. DDs offer us an opportunity to take a deep dive into an industry, and see the functioning of the company in and out. Maybe the below example will help you visualise this better:
Imagine you’re an analyst sitting in the office of Lindenburg. One fine morning, your boss bursts into the office, and tells you he has received a big scoop - a tip off about some huge financial scam going on in a large conglomerate. All analysts need to drop everything and immediately get on this task to see if the allegations are true. Because if the allegations are true, this will not only cause a huge upheaval in the public and send shock waves in the stock market, this may also have the potential of destabilising an entire nation as there are also allegations the ruling party of the country may be linked to the conglomerate.
As an analyst, when you are researching the leads, you may have to go through various complicated agreements, pull out obscure licenses, and keep a track of all the potential red flags you have come across. But even under such tight deadlines, you know that when you are preparing the Lindenburg report, you cannot afford to make a mistake. Every sentence you write in the report has to accurate, every footnote in the report has to be properly formatted and rock solid. Because when the Lindenburg Report is published in the news and it causes the stock price of the conglomerate to nosedive, this conglomerate is going to come at you with full force. It will unleash thousands of lawyers and accountants on you, make them go through every line of the report, trace back every footnote in the report – just to find that one mistake you have made – and use that to discredit your entire report. The stakes are that high.
You are probably spending long hours in the office trying to finish the report, trying to find the needle in the haystack, all the while racing against time. You’re probably even pulling regular all-nighters to complete the report faster. Imagine – during this time, you go up to your senior – and ask for “work life balance”. Your senior is going to be explode.
Alright, let’s come back to reality. Thankfully, your legal DD report in a law firm is not going to destabilise an entire nation, and the stakes aren’t that high. But it kind of explains why several seniors hate the idea of “Work life” balance. Some seniors are so involved in their work and take so much ownership in their work, they feel work life balance is not important as work is part of life. But I mean, to each their own.
REALISTIC VIEW OF DD:
Working on that Lindenburg report, deep diving into a company’s financials and finding the hidden skeletons – that sounded exciting, right? So why doesn’t my day to day job of doing a DD feel that exciting? A couple of reasons I can offer:
1. First impression: Your first brush with DD probably happened when you were an intern. Some associate may have asked you to prepare the list of documents, or review some obscure form without giving you any context, and you felt like a headless chicken, confused out of your wits, just doing some mind numbing work of data entry – day in and day out. From the associate’s perspective it makes sense, as preparing list of documents is the least risky element of the DD report, and even if the intern misses something here or there, it won’t have a huge impact. But unknowingly, the associate has killed your interest in law.
2. Negative reinforcement: You speak to some seniors in the team about their view of DD, and either they have probably gone through the above experience as an intern, or they are too senior to deal with DD, so they tell you that DDs aren’t that interesting, and you just have to power through the mind numbing work. The subtext being – you are getting paid a lot of money to do the grunt work – so shut up and do it. Here, even before your first brush with a DD, you have a negative idea about it in your head.
3. Volume of data: Objectively, the amount of data that companies upload on virtual data rooms is no joke, especially if it is a listed company. Dealing with the huge amounts of data can be extremely overwhelming, especially if you lack prior experience or your team is understaffed. Here’s another perspective – when you seniors were doing DDs, because the tech wasn’t that developed, they had to often travel to the company headquarters or get to stay in fancy 5 star hotel, order pizzas and work on the due diligence. They also had to work hard, but it was also an all expenses paid trip with their colleagues. But now that we have Onedrive and great internet, the documents are simply uploaded in 40-50 folders by the target company, documents often not arranged properly and now you have to sit in your office cubicle and get the work done.
4. Turnaround time: Sometimes you may end up in a team, or with some clients who are extremely demanding, and you have to turn around and prepare the DD in 2 weeks or so. Depending on the scope of the DD, this can be extremely stressful, ruin your sleep cycle and create havoc in your daily life. No one likes staying up till 4am-5am in the night to work on documents under such tight deadlines.
5. Uncertainty: This is probably the worst contributor and a silent killer. Uncertainty about when the documents will be uploaded to the data room after you have sent your Nth requisition list (7pm on a Friday night?), or not knowing at the beginning of the transaction how many more documents you will need to ask and review when you are under a tight deadline. I mean – it’s almost counterintuitive. To do a proper DD, you need to scrutinise documents, and ask for requisitions (i.e. more documents) if you find things missing or something fishy, and this can make you go down a rabbit hole, but then the client wants the report prepared by a certain date. This means you have to take enough care to ensure you have looked at the critical aspects, but not so much care that you can’t prepare the report on time. Also, at a junior level, if there is communication breakdown within the team, not having visibility by when you need to review and complete documents, or what you should be looking for in a new document you have never come across – that can cause unnecessary friction because you will end up taking more time than what your senior has anticipated/ estimated.
Without proper mentorship and without enough time to absorb the work you are doing, doing DDs become a nightmare. But at the core, doing a DD is still a lot like investigative journalism and it can be exhilarating and exciting if the DD workload is managed well. Which is why, even if you may not have enjoyed working during the entire span of doing a DD, I’m sure if you have been involved in a DD for some time, and the workload management hasn’t been terrible, you may found yourself in a state of flow, where you suddenly start taking interest in the documents you are reading and actively start following an industry which was extremely alien to you 2 weeks back.
Dev manus, thank you for this. People like you are really special!
If it is not too much trouble, could you please elaborate (in future threads) the basics and details of an M&A transaction (it seems as if you have some sick powers of explanation)?
Thank you bhai/ behen once again.
-A0 literally thrown into the deep end of a transaction. doing a DD currently, with no idea as to what to "review" and leave out/ what comes next.
First off, I wanted to say that your post brilliantly captures the intricacies and emotions associated with due diligence in the legal world. It's clear that you've given a lot of thought to the subject, and your comparisons to investigative journalism and the hypothetical Lindenburg situation drive home the intensity and depth of the work.
Having said that, while due diligence is essential and forms the backbone of many transactions, it shouldn't be viewed as a standalone activity. As you mentioned, associates often begin their careers immersed in due diligence, but it's crucial to see it as just one facet of a larger process, rather than the endgame.
Rather than simply viewing it as a task to perform, young lawyers can leverage the DD process to gain an edge in the broader context of a transaction. For instance, by being meticulous and thorough in your DD, you set the stage for other important roles in the transaction. When you've done a stellar job in due diligence, you're in an optimal position to contribute to the drafting of transaction documents and to provide critical insights during negotiations.
Imagine presenting a meticulously prepared schedule of potential concerns to be addressed in the transaction documents. Not only does this underscore the depth of your understanding but also showcases proactive thinking and foresight. You could even go a step further by outlining potential negotiation points based on your DD findings. By doing this, you're providing invaluable information to the negotiation team, showing them potential positions they might take.
The goal for any young associate should be to make themselves indispensable to the transaction, adding value at every stage and not just limiting themselves to the due diligence phase. Yes, you start with due diligence. It's your proving ground. But if you can display competence, insight, and initiative during this phase, you'll quickly find yourself contributing to other aspects of the deal, including transaction documents, negotiations, and strategy discussions.
Your point about mentorship is also crucial. Having the right guidance can drastically change one's perspective on due diligence. Instead of being a daunting task, it can become a challenge, an investigation, a puzzle waiting to be solved.
In conclusion, consider these summarized takeaways:
- 1) Beyond DD: While due diligence is foundational, it's just one facet of the transactional process. Think bigger! - 2) From DD to Drafting: A thorough DD can position you to contribute significantly to transaction document drafting. - 3) Proactive Insights: Present a schedule of potential concerns based on DD findings to guide the transaction documents. - 4) Negotiation Advantage: Outline potential negotiation points, giving your team an edge in discussions. - 5) Indispensable Asset: Aim to be indispensable by adding value at every transactional stage, not just during due diligence. - 6) Mentorship Matters: The right guidance can transform DD from a daunting task to an exciting challenge. - 7) Career Launchpad: Use due diligence as a springboard to delve deeper into the broader aspects of transactions and establish your reputation in the legal world.
All the best! Ace your next DD and move up the ladder. That will be a killer move!
Often I have seen partners take due diligence training and focus on what sort of documents need to be reviewed, or what laws need to be researched for some specific industry, or how to write the DD report, but I feel like the main essence of doing a diligence – the approach while handling a DD gets lost in the translation.
Okay. So, let’s address the elephant in the room. Due diligence is one of the most hated aspects of legal work in law firms, with most seniors trying to pawn it off to juniors, and juniors trying to pawn it off to interns. The hate towards this aspect of legal work is partially because this doesn’t involve drafting, so it doesn’t feel like legal work – and also, DDs usually involve huge volumes of data, so after a while going through so many documents feels mind numbing. However, every year, many associates join the legal workforce, and while they have big aspirations of working on cutting edge transactions and drafting agreements, this is the job they are mostly involved in.
Is there a way to salvage this? Is there a way to make DDs interesting? Here’s an idealistic view:
IDEALISTIC VIEW OF A DD:
Due diligence at its core – is investigative journalism. While reporters have to run around to get their hands on confidential internal company data, as lawyers we get all the data handed over to us in the virtual data rooms. DDs offer us an opportunity to take a deep dive into an industry, and see the functioning of the company in and out. Maybe the below example will help you visualise this better:
Imagine you’re an analyst sitting in the office of Lindenburg. One fine morning, your boss bursts into the office, and tells you he has received a big scoop - a tip off about some huge financial scam going on in a large conglomerate. All analysts need to drop everything and immediately get on this task to see if the allegations are true. Because if the allegations are true, this will not only cause a huge upheaval in the public and send shock waves in the stock market, this may also have the potential of destabilising an entire nation as there are also allegations the ruling party of the country may be linked to the conglomerate.
As an analyst, when you are researching the leads, you may have to go through various complicated agreements, pull out obscure licenses, and keep a track of all the potential red flags you have come across. But even under such tight deadlines, you know that when you are preparing the Lindenburg report, you cannot afford to make a mistake. Every sentence you write in the report has to accurate, every footnote in the report has to be properly formatted and rock solid. Because when the Lindenburg Report is published in the news and it causes the stock price of the conglomerate to nosedive, this conglomerate is going to come at you with full force. It will unleash thousands of lawyers and accountants on you, make them go through every line of the report, trace back every footnote in the report – just to find that one mistake you have made – and use that to discredit your entire report. The stakes are that high.
You are probably spending long hours in the office trying to finish the report, trying to find the needle in the haystack, all the while racing against time. You’re probably even pulling regular all-nighters to complete the report faster. Imagine – during this time, you go up to your senior – and ask for “work life balance”. Your senior is going to be explode.
Alright, let’s come back to reality. Thankfully, your legal DD report in a law firm is not going to destabilise an entire nation, and the stakes aren’t that high. But it kind of explains why several seniors hate the idea of “Work life” balance. Some seniors are so involved in their work and take so much ownership in their work, they feel work life balance is not important as work is part of life. But I mean, to each their own.
REALISTIC VIEW OF DD:
Working on that Lindenburg report, deep diving into a company’s financials and finding the hidden skeletons – that sounded exciting, right? So why doesn’t my day to day job of doing a DD feel that exciting? A couple of reasons I can offer:
1. First impression: Your first brush with DD probably happened when you were an intern. Some associate may have asked you to prepare the list of documents, or review some obscure form without giving you any context, and you felt like a headless chicken, confused out of your wits, just doing some mind numbing work of data entry – day in and day out. From the associate’s perspective it makes sense, as preparing list of documents is the least risky element of the DD report, and even if the intern misses something here or there, it won’t have a huge impact. But unknowingly, the associate has killed your interest in law.
2. Negative reinforcement: You speak to some seniors in the team about their view of DD, and either they have probably gone through the above experience as an intern, or they are too senior to deal with DD, so they tell you that DDs aren’t that interesting, and you just have to power through the mind numbing work. The subtext being – you are getting paid a lot of money to do the grunt work – so shut up and do it. Here, even before your first brush with a DD, you have a negative idea about it in your head.
3. Volume of data: Objectively, the amount of data that companies upload on virtual data rooms is no joke, especially if it is a listed company. Dealing with the huge amounts of data can be extremely overwhelming, especially if you lack prior experience or your team is understaffed. Here’s another perspective – when you seniors were doing DDs, because the tech wasn’t that developed, they had to often travel to the company headquarters or get to stay in fancy 5 star hotel, order pizzas and work on the due diligence. They also had to work hard, but it was also an all expenses paid trip with their colleagues. But now that we have Onedrive and great internet, the documents are simply uploaded in 40-50 folders by the target company, documents often not arranged properly and now you have to sit in your office cubicle and get the work done.
4. Turnaround time: Sometimes you may end up in a team, or with some clients who are extremely demanding, and you have to turn around and prepare the DD in 2 weeks or so. Depending on the scope of the DD, this can be extremely stressful, ruin your sleep cycle and create havoc in your daily life. No one likes staying up till 4am-5am in the night to work on documents under such tight deadlines.
5. Uncertainty: This is probably the worst contributor and a silent killer. Uncertainty about when the documents will be uploaded to the data room after you have sent your Nth requisition list (7pm on a Friday night?), or not knowing at the beginning of the transaction how many more documents you will need to ask and review when you are under a tight deadline. I mean – it’s almost counterintuitive. To do a proper DD, you need to scrutinise documents, and ask for requisitions (i.e. more documents) if you find things missing or something fishy, and this can make you go down a rabbit hole, but then the client wants the report prepared by a certain date. This means you have to take enough care to ensure you have looked at the critical aspects, but not so much care that you can’t prepare the report on time. Also, at a junior level, if there is communication breakdown within the team, not having visibility by when you need to review and complete documents, or what you should be looking for in a new document you have never come across – that can cause unnecessary friction because you will end up taking more time than what your senior has anticipated/ estimated.
Without proper mentorship and without enough time to absorb the work you are doing, doing DDs become a nightmare. But at the core, doing a DD is still a lot like investigative journalism and it can be exhilarating and exciting if the DD workload is managed well. Which is why, even if you may not have enjoyed working during the entire span of doing a DD, I’m sure if you have been involved in a DD for some time, and the workload management hasn’t been terrible, you may found yourself in a state of flow, where you suddenly start taking interest in the documents you are reading and actively start following an industry which was extremely alien to you 2 weeks back.
Love to hear other views on this.
@Mods do I have to register or something so others can’t use this name?
If it is not too much trouble, could you please elaborate (in future threads) the basics and details of an M&A transaction (it seems as if you have some sick powers of explanation)?
Thank you bhai/ behen once again.
-A0 literally thrown into the deep end of a transaction. doing a DD currently, with no idea as to what to "review" and leave out/ what comes next.
Having said that, while due diligence is essential and forms the backbone of many transactions, it shouldn't be viewed as a standalone activity. As you mentioned, associates often begin their careers immersed in due diligence, but it's crucial to see it as just one facet of a larger process, rather than the endgame.
Rather than simply viewing it as a task to perform, young lawyers can leverage the DD process to gain an edge in the broader context of a transaction. For instance, by being meticulous and thorough in your DD, you set the stage for other important roles in the transaction. When you've done a stellar job in due diligence, you're in an optimal position to contribute to the drafting of transaction documents and to provide critical insights during negotiations.
Imagine presenting a meticulously prepared schedule of potential concerns to be addressed in the transaction documents. Not only does this underscore the depth of your understanding but also showcases proactive thinking and foresight. You could even go a step further by outlining potential negotiation points based on your DD findings. By doing this, you're providing invaluable information to the negotiation team, showing them potential positions they might take.
The goal for any young associate should be to make themselves indispensable to the transaction, adding value at every stage and not just limiting themselves to the due diligence phase. Yes, you start with due diligence. It's your proving ground. But if you can display competence, insight, and initiative during this phase, you'll quickly find yourself contributing to other aspects of the deal, including transaction documents, negotiations, and strategy discussions.
Your point about mentorship is also crucial. Having the right guidance can drastically change one's perspective on due diligence. Instead of being a daunting task, it can become a challenge, an investigation, a puzzle waiting to be solved.
In conclusion, consider these summarized takeaways:
- 1) Beyond DD: While due diligence is foundational, it's just one facet of the transactional process. Think bigger!
- 2) From DD to Drafting: A thorough DD can position you to contribute significantly to transaction document drafting.
- 3) Proactive Insights: Present a schedule of potential concerns based on DD findings to guide the transaction documents.
- 4) Negotiation Advantage: Outline potential negotiation points, giving your team an edge in discussions.
- 5) Indispensable Asset: Aim to be indispensable by adding value at every transactional stage, not just during due diligence.
- 6) Mentorship Matters: The right guidance can transform DD from a daunting task to an exciting challenge.
- 7) Career Launchpad: Use due diligence as a springboard to delve deeper into the broader aspects of transactions and establish your reputation in the legal world.
All the best! Ace your next DD and move up the ladder. That will be a killer move!