Foley & Lardner LLP partner David Simon is quoted in the American Conference Institute article, “Practical Implications of the Department of Justice’s M&A Safe Harbor Policy,” offering perspective on the importance of M&A deal diligence.
“The most important thing is the risk assessment,” said Simon. Practically speaking, to identify high-risk areas on the front end and focus on them at the outset, Simon recommended the following key measures: interviewing the heads of legal, compliance, and finance, and at times the company’s business leaders in high-risk regions of the world; seeking out key documents and information; and getting an overall sense of whether the company has an effective and well-resourced compliance program. While less common, it may even be necessary to bring in a forensic accounting firm to do forensic transaction testing to uncover potential misconduct, he added.
Even given the U.S. Department of Justice’s M&A Safe Harbor Policy, Simon noted that acquiring companies might decide it best to not to go through with a deal if misconduct is uncovered.
“If the acquiring company flags a major, systemic FCPA (Foreign Corrupt Practices Act) problem, a lot of times the answer is, ‘No thanks. We’re not doing this deal,’” he said. Other times, the acquiring company might say, “‘You need to clean this up with the Securities and Exchange Commission or DOJ before we close.’”
In the post-deal context, Simon emphasized that it is crucial for legal and compliance teams to undertake “immediate and aggressive” implementation measures. Simon said that especially with high-risk deals, the process of quickly integrating IT systems, policies and procedures, and internal controls can function like a risk-based audit, providing a good line of sight into where compliance problems could be.
