One of a company's top priorities should always be to perform adequate antitrust due diligence before consummating a merger or acquisition. Conducting a thorough investigation on a target company ahead of time could expose potential legal and business risks that may impact business in the long run. Companies should involve their antitrust counsel in any merger/joint-venture transaction from the first day it is being considered as an option in order to adequately identify and/or minimize risks.
The due diligence investigation is important for a number of reasons, but being able to accurately evaluate a merger or acquisition's value is at the top of the list.
What if you identify an antitrust compliance violation in the target company? The costs associated with such a violation need to be factored into the equation for the transaction. It is also important to know how the target company generally conducts business it would be detrimental to acquire a company that has a pattern of conduct not in compliance with antitrust regulations; the purchasing company risks damaging its own reputation, as well as face possible legal liabilities.
Key Issues
There are a certain number of key issues that should always be part of an effective due diligence programme during a merger or acquisition campaign.
Existing antitrust compliance programme
First, does the target company have an existing antitrust compliance programme and is it up to date with current regulatory requirements and laws? Does the programme have the backing of the target businessâ executives? Are there programme materials that can be reviewed?
Prior violations
In addition, have protocols been put in place as a result of (any) prior antitrust violations? It is vital to uncover any prior violations at this stage in the proceedings - surprises are unwelcome at any stage but it's better to uncover any negative information at the beginning of a potential deal so that possible consequences can be properly assessed.
Compliance culture
Related to this, but still worth noting on its own, does the target company enforce its compliance policies? What is the ompliance culture, e.g. are employees encouraged to follow policies, report violations and attend compliance training classes? Is there a whistle blower hotline and has it received any calls? Review any records of any calls made to a whistle blower hotline if possible, though respecting the confidential nature of such information.
Industry trends
Next, performing a thorough assessment of the target company's risk profile is required. Are there any trends within the industry that may impact the likelihood and speed of antitrust or regulatory approval? What about trends that may make approval less likely? Who does the target company do business with and are they the subject of any antitrust investigations? Does the company partner with companies or other entities with compliance issues?
National security at stake?
Furthermore, where does the company do business? If the transaction involves national security or foreign investment issues, you may face roadblocks getting the transaction approved. The Exon-Florio provision gives the President of the United States the power to suspend or block a transaction for reasons of national security. As is the theme of our discussion here, it is always better to uncover this information earlier than later.
Pending investigations
The purchasing company should also be certain to ask about any and all compliance investigations, internal or external, that are currently taking place. This may not be a showstopper for the transaction, but knowing about any ongoing, pending or anticipated investigations helps the purchaser estimate potential consequences in dealing with them, or possibly ceasing operations in an area that has a compliance issue.
Miscellaneous
Other areas that could be investigated include whether any antitrust sanctions, penalties or damages have been imposed on the target company, whether there are any informal agreements or sales arrangements in place, a review of the board of directors and any shares they may hold in competing companies, and a review of any existing merger control clearances. Along with this last item, it would be wise to insure that the target company has not engaged in gun jumping, which is when a transaction is implemented prior to receiving all necessary clearances.
Final Remarks
These due diligence tasks are only the beginning of the compliance process for a merger or acquisition. The next step would be for the purchasing company to implement its compliance procedures, controls and antitrust measures at the target company.
How is this done without causing panic amongst employees who may fear or be resistant to change, be concerned about losing their jobs as mergers and acquisitions usually see a reduction in staffing levels due to streamlining of operations, or who are harbouring information on some wrongdoing at the target company? First, consider holding antitrust training sessions for employees. Also, consider having transition teams for each area of the company, and conduct specific antitrust compliance sessions with these groups.
In addition, think about offering an internal amnesty programme for employees who may have witnessed or been part of some wrongdoing within the target company. Give a specific amount of time for employees to come forward with relevant information. In turn, this information could be used on an amnesty or leniency application with an appropriate antitrust agency should it be necessary.
Asking for staff in the target company to own up to any known wrongdoing may lead to some awkward and uncomfortable situations, thus antitrust counsel should be included in all of these discussions, as well as issue-specific counsel. Issues could arise in a number of areas, including employment law. Be sure to explore all aspects of the potential wrongdoing.
One of a company's top priorities should always be to perform adequate antitrust due diligence before consummating a merger or acquisition. Conducting a thorough investigation on a target company ahead of time could expose potential legal and business risks that may impact business in the long run. Companies should involve their antitrust counsel in any merger/joint-venture transaction from the first day it is being considered as an option in order to adequately identify and/or minimize risks.
The due diligence investigation is important for a number of reasons, but being able to accurately evaluate a merger or acquisition's value is at the top of the list.
What if you identify an antitrust compliance violation in the target company? The costs associated with such a violation need to be factored into the equation for the transaction. It is also important to know how the target company generally conducts business it would be detrimental to acquire a company that has a pattern of conduct not in compliance with antitrust regulations; the purchasing company risks damaging its own reputation, as well as face possible legal liabilities.
Key Issues
There are a certain number of key issues that should always be part of an effective due diligence programme during a merger or acquisition campaign.
Existing antitrust compliance programme
First, does the target company have an existing antitrust compliance programme and is it up to date with current regulatory requirements and laws? Does the programme have the backing of the target businessâ executives? Are there programme materials that can be reviewed?
Prior violations
In addition, have protocols been put in place as a result of (any) prior antitrust violations? It is vital to uncover any prior violations at this stage in the proceedings - surprises are unwelcome at any stage but it's better to uncover any negative information at the beginning of a potential deal so that possible consequences can be properly assessed.
Compliance culture
Related to this, but still worth noting on its own, does the target company enforce its compliance policies? What is the ompliance culture, e.g. are employees encouraged to follow policies, report violations and attend compliance training classes? Is there a whistle blower hotline and has it received any calls? Review any records of any calls made to a whistle blower hotline if possible, though respecting the confidential nature of such information.
Industry trends
Next, performing a thorough assessment of the target company's risk profile is required. Are there any trends within the industry that may impact the likelihood and speed of antitrust or regulatory approval? What about trends that may make approval less likely? Who does the target company do business with and are they the subject of any antitrust investigations? Does the company partner with companies or other entities with compliance issues?
National security at stake?
Furthermore, where does the company do business? If the transaction involves national security or foreign investment issues, you may face roadblocks getting the transaction approved. The Exon-Florio provision gives the President of the United States the power to suspend or block a transaction for reasons of national security. As is the theme of our discussion here, it is always better to uncover this information earlier than later.
Pending investigations
The purchasing company should also be certain to ask about any and all compliance investigations, internal or external, that are currently taking place. This may not be a showstopper for the transaction, but knowing about any ongoing, pending or anticipated investigations helps the purchaser estimate potential consequences in dealing with them, or possibly ceasing operations in an area that has a compliance issue.
Miscellaneous
Other areas that could be investigated include whether any antitrust sanctions, penalties or damages have been imposed on the target company, whether there are any informal agreements or sales arrangements in place, a review of the board of directors and any shares they may hold in competing companies, and a review of any existing merger control clearances. Along with this last item, it would be wise to insure that the target company has not engaged in gun jumping, which is when a transaction is implemented prior to receiving all necessary clearances.
Final Remarks
These due diligence tasks are only the beginning of the compliance process for a merger or acquisition. The next step would be for the purchasing company to implement its compliance procedures, controls and antitrust measures at the target company.
How is this done without causing panic amongst employees who may fear or be resistant to change, be concerned about losing their jobs as mergers and acquisitions usually see a reduction in staffing levels due to streamlining of operations, or who are harbouring information on some wrongdoing at the target company? First, consider holding antitrust training sessions for employees. Also, consider having transition teams for each area of the company, and conduct specific antitrust compliance sessions with these groups.
In addition, think about offering an internal amnesty programme for employees who may have witnessed or been part of some wrongdoing within the target company. Give a specific amount of time for employees to come forward with relevant information. In turn, this information could be used on an amnesty or leniency application with an appropriate antitrust agency should it be necessary.
Asking for staff in the target company to own up to any known wrongdoing may lead to some awkward and uncomfortable situations, thus antitrust counsel should be included in all of these discussions, as well as issue-specific counsel. Issues could arise in a number of areas, including employment law. Be sure to explore all aspects of the potential wrongdoing.