M&A Vocabulary – Experts explain: Information Request List

published on 13 April 2023 | reading time approx. 2 minutes

In this ongoing series, a number of different M&A experts from the global offices of Rödl & Partner present an important term from the specialist language of the mergers and acquisitions world, combined with some comments on how it is used. We are not attempting to provide expert legal precision, review linguistic nuances or present an exhaustive definition, but rather to give or refresh a basic understanding of a term and provide some useful tips from our consultancy practice.

In the context of a classic M&A transaction, after the target company has been identified and a Letter of Intent (LOI) or a Memorandum of Understanding (MoU) has been formulated, the so-called due diligence is the next step in a carefully conducted transaction process. Usually, the aim is to evaluate the company from a commercial, financial and legal point of view. The due diligence’s scope is determining the value of the company, uncovering risks, finding synergies and negotiation points as well as planning of the post-transaction phase.

The success of a due diligence essentially depends on the concrete definition of the objective, the type, and the scope of the due diligence. A due diligence can only be carried out with the necessary degree of care if complete information relevant to the transaction is provided by the target company. Since for this, most of the times, the examination of large amounts of information consisting of various contracts, business documents and other records is required, an appropriate information request to the target company is necessary. The information required is provided in a secure (virtual) data room, usually after execution of a non-disclosure agreement.

The process of requesting information itself is called “Request For Information” (RFI) or “Information Request”. In German, the terms “Informationsanforderung” or “Datenabfrage” are also used. The information request is achieved by means of an (electronic) document sent to the target company, called an “Information Request List”.

The purpose of the Information Request List is to facilitate the selection of information to be reviewed. It is advisable to request prioritised information that is specific to the target company. The type of transaction (share deal vs. asset deal, management buy-out, leverage buy-out, restructuring, joint venture, spin-off, etc.) as well as the type and structure of the target company are decisive. Is the target company a start-up or a company that has been in business for many decades? Is it a distribution company, a holding company or a production company? Another aspect is the field of its activity, e.g. if the target is active in the food, mechanical engineering or IT sectors. Based on this classification, the content and target of the information request must be determined.

The need to focus on the specific target company means that there is no generic information request list that can be used as a template for every due diligence. On the contrary, it shall be drafted for each individual case, so that the different areas in which information is needed, as well as the scope of the data to be provided, reflect the specific risks of the transaction.

Within the thematic areas relevant to the transaction, the focus can then be further defined and differentiated.

Accurate information retrieval is essential to the entire transaction. If the information request list is drafted inaccurately or superficially, there is no proper way to compensate for this in the further course of the due diligence. In case of deficient information, the entire due diligence process stands on shaky ground. It is true that the Q&A-phase, which often follows the information request, can possibly serve to ascertain further information. However, the Q&A-phase aims to examine already provided information in greater detail, thus usually not covering areas that have not been previously considered. Therefore, also in the latter phase of Q&A it remains uncertain if risks that haven’t been covered in the information request list but are crucial to the entire transaction will become known to the acquirer.

Conclusion

A carelessly conducted information request poses a great risk to the transaction itself, since relevant data may remain unknown. A prudent investor will therefore always endeavour to ensure that it disposes of an information request list that is as complete as possible and specific to the transaction, in order to be aware of all relevant information on the company to be acquired.