Tag: pre-acquisition due diligence

Categories
31 Days to More Effective Compliance Programs

One Month to More Effective Compliance For Business Ventures – Why engage in pre-acquisition due diligence? The Business Perspective

Why should a company engage in pre-acquisition due diligence in the M&A context? In this episode, I am joined by Affiliated Monitors founder Vin DiCianni to explore the business reasons for engaging in what may be seen as a compliance exercise.

Financial, legal, or reputational risk can have a significant impact the valuation or a transaction or its desirability. Factors such as current or historical bribery/corruption discovered at any point in the acquiring company provide the compliance practitioner with strong ammunition when confronted with a management that fails to understand the need for a robust due diligence in a M&A 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:

  1. There are numerous legal and business reason to engage in anti-corruption due diligence in the M&A space.
  2. ESG can present significant corruption risks in emerging markets.
  3. Present your analysis in high, medium and low risk formats.
Categories
All Things Investigations

All Things Investigations: Episode 15 – The Power of Pre-acquisition Due Diligence with Mike Huneke

 

Welcome to the Hughes Hubbard Anti-Corruption and Internal Investigations Practice Group’s Podcast, All Things Investigations. In this podcast, host Tom Fox and returning guest Mike Huneke of the Hughes Hubbard Anti-Corruption & Internal Investigations Practice Group highlights some of the key legal issues in white-collar investigations, locally and internationally.

 

 

Mike Huneke is a partner in the firm’s Washington office. Among other things, Mike advises clients on navigating and resolving multi-jurisdictional criminal or Multilateral Development Bank (MDB) anti-corruption investigations. He assists companies subject to post-resolution monitorships or other commitments and designs and executes risk-based strategies for due diligence on third parties.

Key areas we discuss in this podcast:

  • The commentary on mergers in the FCPA space is largely around post-acquisition.
  • The reason for pre-acquisition due diligence.
  • Questions a potential acquirer should ask before buying a business.
  • Even if they don’t have a program for some voluntary due diligence, sellers with nothing to hide shouldn’t be scared of buyers asking questions.
  • In advance of a sale, ensure you have clear records of tax considerations and that they are ready to be shared.
  • The basic mandates from the DOJ around post-closing.

 

Resources

Hughes Hubbard & Reed website 

Mike Huneke

Anti-Corruption Due Diligence Can Help Buyers, Sellers, and Their Advisers to Facilitate Acquisitions

 

Categories
31 Days to More Effective Compliance Programs

Pre-acquisition due diligence


The compliance component of your M&A regime should begin with a preliminary pre-acquisition assessment of risk. Such an early assessment will inform the transaction research and evaluation phases. This could include an objective view of the risks faced and the level of risk exposure, such as best/worst case scenarios. A pre-acquisition risk assessment could also be used as a “lens through which to view the feasibility of the business strategy” and help to value the potential target.
I suggest a four-step process to plan and execute a strategy to perform pre-acquisition due diligence in the M&A context.

  1. Establish a point of contact.
  2. Collect relevant documents.
  3. Review the compliance and ethics mission and goals.
  4. Review the elements of an effective compliance program.

There are multiple red flags which could be raised in this process, which might well warrant further investigation. They include if the target has ineffective compliance program elements in their compliance program or if there were frequent breach of policies and procedures. Obviously, a target which is in financial difficulty would bear closer scrutiny. Structurally, if the company did not have a formal ethics and compliance committee at the senior management or Board of Directors’ level, this could present issues. From the CCO perspective, if the position did not have Board or CEO access or if there were not regular reports to the Board, it could present an issue for compliance. Conversely, if there were frequent requests to waive policies, management over-ride of compliance controls or no consistent consequence management for violations; it could present clear red flags for further investigation.
Three key takeaways: 

  1. The results of your pre-acquisition due diligence will inform your post-acquisition integration and remediation going forward.
  2. Periodically review your M&A due diligence protocol.
  3. If red flags appear in pre-acquisition due diligence, they should be cleared.