By, Hogan Lovells, global legal practice that helps corporations, financial institutions and governments across the spectrum of their business and legal issues globally and locally.
Companies continue to focus due diligence on asset or industry-specific areas at the expense of anti-bribery and corruption due diligence. This is true despite increased anti-bribery legislation enforcement globally.
This report from Hogan Lovells explores bribery and corruption trends that compliance teams face in M&A.
An overriding message in the 600-plus interviews conducted is that management doesn't bring in the compliance team in good time. Ideally, compliance should be first in and last out. When involved early, the team can help shape management conversations with the target company.
Due diligence will help an acquirer understand the target company’s culture, assess what portion of its value results from bribery (if any), and identify risks. For example, contracts "won" through bribes are likely unenforceable and performance may depend on continued bribes.
Discovering links to bribery during due diligence is not necessarily a deal-breaker. In fact, 57% of respondents reported going ahead with a transaction despite high bribery and corruption risk.
Globally, the rate at which companies are performing anti-bribery and corruption due diligence varies greatly. In the UK, only 58% of respondents indicated they performed such due diligence, whereas Germany, China, and the U.S. led the way at 85%.
Globally, on average, 60% of companies were not completing anti-bribery and corruption due diligence until after closing--a point at which there's no window to negotiate on price based on the results.
Successor liability is a chief concern in M&A. An acquirer may inherit their target's liability for any earlier corrupt acts, even if the acquirer had no knowledge of them. This liability can persist if the acquirer fails to address the corruption post-closing.
Proper risk-based due diligence will make a company a less attractive target in the eyes of a prosecutor, allowing the company to show it acted responsibly by undertaking due diligence as far as possible ahead of the deal and then a deeper dive after acquisition.
During diligence, an acquirer should go beyond the leadership team and speak to people at all levels in the target company to gauge how far the compliance message filters down.
Acquirers can further limit their liability post-closing with further diligence, or an audit. Any suspected bribery that's discovered should be reported to the authorities. Speed, openness, and self-disclosure can all positively impact how the authorities will respond.