Why should a company engage in pre-acquisition due diligence in the mergers and acquisition context? Certainly compliance with anti-corruption laws such as the FCPA or UK Bribery Act is a good starting point. However there are other reasons that were laid by Transparency International (TI) in, a White Paper entitled “Anti-Bribery Guidance for Transactions.” The TI White Paper suggests that there are greater forces driving compliance than simply compliance with anti-corruption and anti-bribery laws such as the Foreign Corrupt Practices Act (FCPA) and UK Bribery Act. A company engaging in an international acquisition should also strive to avoid the potential financial and reputational damage that may arise from investing in or purchasing a company associated with bribery or corruption.
Some of the specific consequences where investments are made in a company which has a history of bribery or corruption include.
There are several positive benefits from appropriate due diligence, including:
To begin the process, the following should be actively explored:
Financial, legal or reputational risk can have a significant impact the valuation or a transaction or its desirability. The following potential impacts for a purchaser or investor of anti-corruption or anti-bribery risks during due diligence can be laid out visually in chart format, which is a useful way to think through and present your analysis.
| Legal Risk | Financial Risk | Reputational Risk |
Current bribery and/or corruption in target company discovered during transaction | High | High | Medium |
Current bribery and/or corruption in acquired company discovered in post-transaction | High | High | High |
Historical bribery and/or corruption discovered during transaction | High to low depending on jurisdiction | High to low depending on jurisdiction | Low to medium |
Historical bribery and/or corruption in acquired company discovered post-transaction | High to medium depending on jurisdiction | High to medium depending on jurisdiction | High to medium |
These factors provide the compliance practitioner strong ammunition when confronted with a management which fails to understand the need for a robust due diligence in a mergers and acquisition transaction. By not focusing on the regulatory aspects of M&A transactions but more on the market reasons for engaging in the appropriate due diligence, you can emphasize the business reasons for compliance.
Three Key Takeaways
This month’s podcast series is sponsored by Michael Volkov and The Volkov Law Group. The Volkov Law Group is a premier law firm specializing in corporate ethics and compliance, internal investigations and white collar defense. For more information and to discuss practical solutions to compliance and enforcement issues, email Michael Volkov at mvolkov@volkovlaw.com or check out www.volkovlaw.com.