The Changing Complexion of M&A Due Diligence

The Changing Complexion of M&A Due Diligence

When it comes to mergers and acquisitions, changing times make for changing standards of due diligence. Not so long ago, getting a proposed M&A transaction approved was essentially a matter of making sure companies’ books were in order and that they weren’t running afoul of antitrust laws – and even those laws were often overlooked during the merger mania of the 1980s. No longer. Over the past few years, several social, geopolitical and data privacy issues have increasingly become significant considerations for purchasers and buyers engaged in high-stakes negotiations.

Consummating a deal these days requires more stringent vetting, largely due to the rising number of risk factors that can torpedo a company’s brand or subject it to catastrophic liability. Take for example, the recently announced acquisition agreement involving Brookfield Asset Management and Oaktree Capital Management, which will make Toronto-based Brookfield one of the largest alternative money managers in the world.

A quick perusal of the agreement filed with the SEC demonstrates the importance that companies now place on factors like sexual harassment, cybersecurity, and the careful vetting of foreign investments – all issues that, only a few years ago, may not have appeared in this type of agreement at all.

The Brookfield/Oaktree agreement includes 1) a representation that no allegations of sexual harassment or unlawful sexual misconduct have been made against either company; 2) a warranty that neither party has experienced a material data privacy incident and each has taken all reasonable steps to protect personal information and ensure cybersecurity; and 3) a covenant to make reasonable best efforts to obtain transaction clearance from the Committee on Foreign Investment in the United States (CFIUS), an interagency committee that monitors the national security implications of cross-border investment.

Clearly, the rising tide of the #MeToo movement, the prevalence of corporate data breaches, and the political hand-wringing regarding Chinese and other cross-border investment in U.S. businesses, have made their way into the transaction clauses governing M&A deals. Companies are on alert regarding the risks that these factors pose and are taking measures to protect their businesses from corresponding damage to their brand and bottom line.

If you are familiar with Intelligize, you know that we rarely bypass an opportunity to look at an interesting trend. So, you won’t be surprised that we’ve decided to take a closer look at this phenomenon. Next Tuesday, March 26, Intelligize will release a special report, The Impact of Social, Political and Data Privacy Issues on M&A Transactions. Utilizing public company filings and transaction documents available in our M&A application, we examined and visualized the growing significance of three discrete factors – cybersecurity risk, the #MeToo movement and foreign investments in the United States.

Stay tuned for this report, as it tells a compelling story regarding just how vulnerable M&A transactions have become amidst the changing political, social and technological tides of our modern era.

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