Your Questions: Answered - Written by Barry & Richard on Tuesday, May 22, 2012 10:11 - 2 Comments
Your questions answered: Jo Morgan IMI CCO looks at M&A
We are a mid size UK PLC and have grown substantially through acquisition over the last few years. I have noticed that in recent times specific questions have appeared in legal due diligence around the Bribery Act. I’ve heard a lot about this and we have put in place a policy on this. My question is this. In addition to the legal side are there practical steps that you recommend taking when doing M&A transactions.
Your observations are interesting and I think it is good to know that people are starting to take due diligence on Compliance matters seriously in M&A transactions, as I firmly believe that an acquirer which does not make due enquiry on such matters prior to acquisition is not discharging its duty under adequate procedures. I appreciate that there will be circumstances, such as a transaction which is subject to the Takeover Code, where extensive due diligence in such matters will not be possible, but one should always try.
If you are on the acquisition trail, I recommend that you engage with your business development team early to desktop assess the risk that the acquisition represents from a corruption point of view. We do this via a scorecard where we look for factors that will contribute to, or lessen, the risk of exposure to corruption. Typically we look at the country in which the business is located as well as where they do business and we score that according to the Corruption Perceptions Index produced by Transparency International. Additionally we look at route to market e.g. is there a heavy reliance on third parties in order to sell the products or services. Naturally we will also look at their reputation, ownership, and standard of auditors etc. Once we have assessed these factors we will decide what level of due diligence we need to carry out and also start to think about what a post acquisition integration plan might look like in terms of the cost and resource required to get the target up to our standards.
In terms of due diligence we will ask a detailed set of compliance based questions to establish more detail around the areas we have considered in the scorecard (as noted above), and in most cases we will try (as the Compliance team) to do an attitude and aptitude based interview with the key people in the business to test their awareness and acceptance of good compliance practice. I usually find this the most informative part of the whole process, compliance is all about culture and if the right culture is not in place then you need to think about whether the business is a good fit for you. You won’t find out about culture in an answer to a legal due diligence questionnaire.
After we have completed our process, in response to a target which represents a higher risk, we have, in some instances, done email searches (with consent) of the key people at the target based on key words which we associate with bad compliance practice. These can also be very revealing, although time-consuming and expensive so they should be reserved for the most risky targets and of course there is no guarantee that you will get consent.
Finally I believe it to be essential that Compliance gets a seat at the decision-making table in M&A. An acquisition can bring you much joy but also a great deal of pain, both commercially and from a compliance point of view, and it is important that the Compliance team get chance to give their view on the prospects for the target too.