As businesses continue to use mergers and acquisitions (M&A) to achieve their strategic objectives, gain new capabilities, and address emerging challenges, the deal-making process is becoming increasingly intricate. With competitive pressures, tight timelines, and greater regulatory oversight to contend with, dealmakers need to have a well-defined and organized plan for managing corporate transactions.
Outsourcing aspects of M&A can help overcome these challenges while expediting and securing deal execution.
In this article, we explore why compliance is so critical during corporate transactions—for both buyer and seller—the benefits of outsourcing the process, what services to outsource, and what to look for in a service provider.
Impact of compliance on corporate transactions
To avoid issues, it is important to identify and address any potential compliance risks when engaging in corporate transactions. Any due diligence process must include Corporate Transparency Act (CTA) compliance in addition to lien searches, good standing and tax authority certificates, and other requests.
Unfortunately, compliance may not always be given the attention it deserves during pre-transactional due diligence. However, addressing any compliance concerns is essential to ensure that a potential deal is feasible and to protect the purchaser from any liabilities that may arise in the future. Moreover, when due diligence encounters minimal friction, the timeline for closing a deal can be accelerated.
Potential risks for the seller in a corporate transaction include failing to answer the buyer’s questions about the management of their target subsidiary. This can lead to additional probing of the deal, and time and money lost as the seller scrambles to locate records and close gaps in documentation. Moreover, lenders often require in-depth due diligence. If a seller can’t evidence beneficial ownership to the lender's satisfaction, financing may be delayed.
Several potential dangers and unforeseen issues can pop up during the deal for the buyer. To ensure a smooth and compliant M&A deal, buyers should follow best practices, such as verifying the entities involved, checking their good standing status, ensuring business license compliance, assessing the applicability of the Corporate Transparency Act, and completing necessary public records filings and post-merger responsibilities.
