Series 79 practice questioneasyLegal due diligence – review of litigation
During legal due diligence, an investment banker identifies several ongoing lawsuits against the target company. Which of the following is the banker’s PRIMARY concern?
- AWhether the lawsuits may result in material contingent liabilities for the acquirer✓ Correct answer
- BIf the lawsuits are disclosed in the annual report
- CHow long the lawsuits have been pending
- DWho the opposing counsel is in each lawsuit
Explanation
Why A — Whether the lawsuits may result in material contingent liabilities for the acquirer
The key concern is whether these lawsuits might result in significant contingent liabilities, which could impact valuation and deal structure. Disclosure, lawsuit age, and opposing counsel are less material unless they affect financial risk.
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