Failing at due diligence often means failing at M&A.
Compliance is more important than ever in mergers and acquisitions, especially in cross-border deals. Yet, it is often the neglected stepchild of due diligence in M&A deals, according to a new study by law firm Baker McKenzie.
Neglect can expose parties to risks that lower the value of the deal. Furthermore, the buyer may face legal liability if the target violated the US Foreign Corrupt Practices Act, the UK Bribery Act or other such laws.
A surprising number of deals fail because of lack of due diligence in compliance, warns Taking Center Stage: The Rise and Rise of M&A Compliance Due Diligence, which was based on interviews with more than 300 corporate leaders worldwide. North American companies seem to lead in this area, the study found; only 10% of those interviewed said more than half of their deals in the past three years failed because of a compliance issue. Among European companies, the figure was 18%, for Asia Pacific 30% and for Latin America it was a hefty 52%.
Worldwide, 56% of respondents said they wished they had done more due diligence on M&A. A bare majority—51%—said they have a standard set of procedures to address compliance issues that surface in M&A deals.