M&A Vocabulary – experts explained: “Information Request List”

In a classic M&A transaction, once the target company has been identified and a letter of intent (LOI) or memorandum of understanding (MoU) has been drafted, due diligence is the next phase in a properly executed transaction process. The target is typically to assess the company from commercial, financial, and legal perspectives: determining enterprise value, identifying risks, finding synergies and negotiation points, and planning the post-transaction phase.

The success of due diligence essentially depends on the specific definition of the target, as well as the type and scope of the due diligence. A review carried out with the required level of care (“due diligence”) is only possible if complete transaction-relevant information is provided. Since due diligence sometimes requires reviewing large volumes of information consisting of a range of contracts, business records, and other documents, an appropriate information request must be made to the target company. The target company then—usually after a non-disclosure agreement has been concluded—provides the information required for the purposes of the review in a secure (virtual) data room.

The process of requesting information itself is referred to as a “Request for Information” (RFI) or “Information Request.” In German, terms such as “Informationsanforderung” or “Datenabfrage” are also used. The information request is made via an (electronic) document that is sent to the target company: the “Information Request List.”

The purpose of the Information Request List is to make it easier to select the information to be reviewed. It is advisable to request prioritized information tailored to the target company. Key factors include the type of transaction (share deal/asset deal, management buy-out, leveraged buy-out, restructuring, joint venture, spin-off, etc.) as well as the type and structure of the target company. Is it a start-up or a company that has been in business for many decades? Is it a distribution company, a holding company, or a manufacturing company? Another aspect is the company’s field of activity—for example, whether it operates in food, mechanical engineering, or IT. Based on this classification, the content and scope of the information request must be determined.

Because it is necessary to focus on the specific target company, there is no universally applicable Information Request List that could be used as a template for every due diligence review. Rather, it must be created for the specific case so that the different areas in which information is requested, as well as the volume of data to be provided, reflect the specific risks of the transaction.

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

An accurate information request is central to the entire transaction. If the work here is imprecise or superficial, this usually cannot be made up for later in the due diligence review. If the information situation is deficient, the entire due diligence review rests on shaky foundations. While the Q&A phase, which often follows the information request, may serve to obtain additional information, Q&A often goes into depth rather than breadth—so there is still a risk that information from areas not covered in the Information Request List will remain unknown.

Conclusion

A carelessly conducted information request poses a major risk to the transaction itself because—as shown—decision-relevant data may remain unknown. A prudent investor will therefore always strive to ensure that the Information Request List is complete and tailored to the specific case, so that they become aware of all relevant information about the company they intend to buy.

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