Speakers: Deal Due Diligence Includes Digital Issues

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By Michael Greene

Aug. 20 — The digital age of information is changing the way mergers and acquisitions and other types of deals should be evaluated, according to speakers at an Aug. 18 Bloomberg BNA webinar.

Traditional M&A practices still are important, said James A. Sherer, counsel at Baker & Hostetler LLP, New York. However, he added that practitioners working on due diligence issues need to consider whether there are gaps in their deal frameworks because of the way information is being shared, created and maintained.

Sherer and his co-panelist—Taylor M. Hoffman, a senior vice president and head of e-discovery at Swiss Re—recently co-authored, together with Eugenio E. Ortiz, a researcher with Quantitative Management Associates, a paper that argues that a framework that considers issues related to data privacy, information security, e-discovery and information governance may provide greater insight into a deal's cost and also help better define an acquirer's risks at the time of the transaction.

Before the Deal

During their presentation, the speakers highlighted the importance of considering digital issues before a deal is completed.

Hoffman observed that conducting due diligence on these issues can help an acquirer avoid regulatory problems down the road. While regulatory fines may end up being only a tiny fraction of the overall deal's value, the better comparison is that the fine and other risk exposure typically will be more than the cost of doing a thorough due diligence, he said.

Knowledge Walking Out the Door

Part of this due diligence is meeting with people from the target company and speaking to them about things that may not show up on paper, Sherer said.

For example, companies may have systems in place the purpose of which may be unclear, Sherer said. The only way an acquirer can find out what the systems really are used for is by speaking to people who are working on the ground floor.

After the transaction is complete, an acquirer may lose access to these people and “knowledge about this stuff will walk right out the door,” he said.

Framework Benefits

According to presentation materials, a framework that includes the digital component has many benefits, such as:

• showing the maturity level of the target entity in areas such as data privacy, information security, discovery and information governance;

• determining greater cost certainty for the deal's bottom line and positioning the acquirer nearer to paying the appropriate amount for the target entity;

• presenting integration issues at a more opportune time and increasing the odds that the resulting entity operates as planned; and

• decreasing the acquirer's risks.

 

To contact the reporter on this story: Michael Greene in Washington at mgreene@bna.com

To contact the editor responsible for this story: Yin Wilczek at ywilczek@bna.com