Why Deals Fail After Signing: Due Diligence and Structure in Pakistani M&A
Practice areas: Mergers & Acquisitions · Private Equity · Tax
Key takeaways
In most failed acquisitions, the problem was present before completion; it was simply not discovered, or not properly allocated between the parties.
Disciplined due diligence is not a box-ticking exercise — it shapes the price, the structure, the warranties and, in some cases, the decision to walk away.
The choice between buying shares and buying assets carries very different consequences for liability, tax and continuity, and should be a deliberate decision rather than a default.
Regulatory clearances, including competition and securities approvals where applicable, must be identified at the outset, because they can determine both the timetable and the feasibility of a transaction.
An acquisition is one of the most consequential decisions a business will make, and one of the easiest to get wrong. In my experience advising on transactions, the deals that disappoint rarely do so because of a fall in the market or a failure of execution. They disappoint because a liability that existed before completion — an unresolved tax exposure, a defective title, a contingent litigation, an unenforceable key contract — was either never discovered or never allocated to the party who should have borne it. The art of a sound transaction lies in surfacing those issues before signing and dealing with them in the documents.
Due diligence shapes the deal, it does not merely describe it
Too many buyers treat due diligence as a formality to be completed after the commercial terms are agreed. That is the wrong order. Properly conducted, diligence examines the target's corporate standing and ownership, the validity of its material contracts, the state of its tax affairs, its regulatory compliance, its employment liabilities, its real-property title, and any pending or threatened litigation. What that exercise reveals should feed directly back into the commercial terms. A discovered liability may justify a reduction in price, a specific indemnity, a condition that must be satisfied before completion, or in some cases the conclusion that the transaction should not proceed at all. Diligence that does not influence the deal has been wasted.
Share purchase or asset purchase: a decision, not a default
One of the earliest and most important structural choices is whether to acquire the shares of the target company or to acquire its business and assets. The two are not interchangeable. A share purchase takes the company as it stands, with its history and its liabilities attached; an asset purchase allows a buyer to select what it wants and, with care, to leave unwanted liabilities behind, though it brings its own complications around the transfer of contracts, consents and employees. The right choice depends on the target's liability profile, the tax consequences for both sides, and the importance of continuity in licences and contractual relationships. Selecting a structure by habit, rather than by analysis, is a frequent and costly error.
Allocate risk in the documents
Once diligence has mapped the risks, the transaction documents must allocate them. Representations and warranties establish the factual basis on which the buyer is proceeding and provide a remedy if that basis proves false. Specific indemnities address identified risks directly. Conditions precedent ensure that essential matters — regulatory approvals, third-party consents, the resolution of a known problem — are dealt with before the buyer is committed. Completion mechanics, including any adjustment to the price based on the final position at closing, prevent value from leaking between signing and completion. These provisions are where a well-run diligence exercise is converted into protection.
Identify the regulatory path early
A transaction's timetable and feasibility can turn on approvals that have nothing to do with the commercial bargain. Depending on the size and nature of the parties, a transaction may require clearance from the competition authority before it can complete, and transactions involving regulated or listed entities may engage securities and corporate regulators. These requirements should be identified at the very start of a deal, not discovered midway through, because they affect how long the process will take and, occasionally, whether it can happen at all.
How Muzy & Meraris LLP can help
We act for buyers, sellers and investors across the lifecycle of a transaction — scoping and conducting legal due diligence, advising on the most appropriate structure, negotiating and drafting the transaction documents, and managing the regulatory approvals a deal requires. Our aim is to ensure that the risks discovered before completion are the risks our clients have consciously chosen to accept.
This article is general commentary and does not constitute legal advice. Every transaction turns on its own facts and on the applicable regulatory framework at the relevant time; please seek tailored advice before entering into or relying on any acquisition. For a consultation, contact Muzy & Meraris LLP.
