Pop quiz! What’s the best time to engage an independent monitor for an M&A process? Answer: “as early as is practicable.” Jay Rosen explores how an independent integrity monitor can benefit the entire M&A process.
By engaging an independent monitor as early as is practicable, there can be preliminary discussions with senior management about the process, sometimes at the CEO level, and at other times with the CFO. From these initial meetings, an independent monitor could be a part of the acquirer’s team assembled for the project. Most likely, there would be a due diligence room with documents made available for the acquiring company to review under a nondisclosure agreement (NDA). This could facilitate meetings with teams from one company meeting with their counterparts from the other company.
M&A work is to some extent a fire drill: Everyone’s working very hard, trying to do a lot in a very short period of time.
This means, at times, issues arise that may require the companies to further negotiate the terms of an escrow or other risk management protection for the buyer.
One key may be the independent nature of the monitor. Part of it is due to the reality that independent monitors have no stake in the outcome, no stock to vest or other remuneration. Also, it is natural for the target company’s employees to have their guard up, as they are more than a little wary about anybody coming in and asking questions.
Over the past 15 years, we’ve participated in numerous proactive and independent monitoring engagements, and we’ve found that people have an easier time opening up in these circumstances. They seem to be more forthcoming when somebody from outside their company comes in and asks questions in a non-threatening way. The independent monitor is just looking for the facts. We’ve found that we can learn more information than we would otherwise get if we were not an independent third-party.
During the post-acquisition phase, the acquirer needs to have a plan in place. Obviously, this is important if the government ever comes knocking, but it’s equally important for the newly acquired (former target) employees. If you have a plan in place, it can help you avoid some of those problems, because people will have certain expectations (e.g., there will be training in week three and focus groups in week four, etc.).
Let’s address a final question that is usually on everybody’s mind: What should our company do if an FCPA or other problem arises despite our robust pre-acquisition due diligence? Immediately, it is important to stop the illegal or even unethical conduct as quickly as possible. This has become more important because of the recent addition of the Safe Harbor for M&A to the FCPA Corporate Enforcement Policy. This has incentivized companies to not only remediate, but also self-report.
This new FCPA Safe Harbor for M&A re-emphasizes how powerful a tool an independent monitor can be in the M&A context.
The DOJ certainly sees it as good practice to have a third-party independent involved on both the company side and the reporting side, if required. All of this lends credibility to your ethics and compliance program.
If your company finds itself under scrutiny from a M&A transaction, you can take some comfort in the strategies outlined here.
Please join me next week when we begin a new five-part series. I will be speaking with my colleague and Affiliated Monitors founder and president Vin DiCianni as he reminisces on the company he founded, conveys his idea on using independent oversight monitoring and shares his first 15 years of independent monitoring excellence.
In case you missed the earlier installments of this ongoing series, please see the links below.