Why should a company engage in pre-acquisition due diligence in the M&A context? Certainly, compliance with anti-corruption laws such as the FCPA or U.K. Bribery Act is a good starting point. A Transparency International white paper, entitled “Anti-Bribery Due Diligence for Transactions”, suggested that there are greater forces driving compliance than simply compliance with anti-corruption and anti-bribery laws. 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.
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:
- There are numerous legal and business reason to engage in anti-corruption due diligence in the M&A space.
- ESG can present significant corruption risks in emerging markets.
- Present your analysis in high, medium and low risk formats.