A practical scenario: a Vietnamese group buys a US manufacturer for USD 50 million. Diligence is cursory — after closing it discovers: the factory land has been contaminated since the 1980s, cleanup costs USD 20 million under CERCLA, and the buyer is liable even though it didn’t cause it. In US M&A, what you don’t diligence is what costs most.
1. Six-sided diligence you cannot skip
- Legal: corporate standing, licenses, material contracts (change-of-control clauses), ongoing disputes.
- Financial: audited statements, liabilities, receivables — verify real cash flows.
- Tax: federal/state obligations, enjoyed incentives, reassessment risks — US tax is two-layered (federal + state).
- Labor: contracts, collective agreements (if unionized), pension duties — US “at-will” but mass layoffs trigger the WARN Act.
- Environmental: Phase I/II Environmental Site Assessment — the CERCLA trap: joint, retroactive cleanup liability, even for innocent new owners.
- IP and technology: IP titled to the target, software licenses, infringement risks.
2. Three US-specific risks
CERCLA (Superfund): as above — buying contaminated land means buying cleanup liability, with no “I didn’t know” defense without proper environmental diligence. Class actions: the target may be defending consumer or labor class actions — tens of millions in hidden exposure. HSR: deals over the threshold need pre-filing with the FTC/DOJ (Hart-Scott-Rodino) and a waiting period — “gun-jumping” draws heavy fines. (National-security/CFIUS risk is covered separately.)
3. Share deal vs asset deal
Share deal: fast, contracts/licenses stay — but you inherit all hidden liabilities (tax, environmental, litigation). Asset deal: pick “clean” assets, shed bad liabilities — but transfer each contract, license, and employee individually, costing time and risking key customers/staff. Vietnamese investors usually prefer share deals for simplicity — but for US targets with environmental/litigation risk, asset deals deserve serious thought. Reps & warranties + indemnity plus a price holdback (escrow) are the buyer’s armor in either structure.
Thorough diligence is the cheapest deal
This article is general information. Each transaction needs its own diligence. FLAT Law Firm supports investors in cross-border M&A. Contact us for advice.
This article is general information only and does not replace legal advice for any specific case. Regulations may change; please check the current texts.
Frequently asked questions
1. What does M&A due diligence cover?
Six sides: legal, financial, tax, labor, environmental, IP — skip none.
2. What is CERCLA?
The US cleanup law — joint, retroactive liability; new owners liable even if they didn’t pollute.
3. What is HSR?
Hart-Scott-Rodino — over-threshold deals need FTC/DOJ pre-filing and a waiting period.
4. How do share and asset deals differ?
Share deal: buy stock, inherit hidden liabilities; asset deal: pick clean assets but transfer everything individually.
5. How does a buyer protect itself?
Reps & warranties + indemnity plus an escrow holdback — the buyer’s armor.
This article has been quality-reviewed by the FLAW AI Legal Council