M&A DUE DILIGENCE
Both in the private equity and trade buying space, regulatory change is the primary driver of volatility in the market. However, traditionally in M&A transactions, financial, legal and commercial considerations have taken precedence over regulatory considerations. Failure to perform robust regulatory / FDA Compliance due diligence is not an option in today’s regulatory environment and can lead to unknown liabilities materializing after the deal.
The benefit MEDVACON provides is very unique and the service we offer is critical during the due diligence phase. During this time, we conduct inspections and audits of the company’s FDA regulated systems. This may include warehousing, manufacturing, packaging, distribution, supply chain, all supporting computer systems, Quality Management Systems, etc. The reason this work is so important is because many organizations ignore this area during the due diligence phase and then are surprised later when issues in the system are flawed and they have to pay six or seven figure fee’s to rectify the issues. This becomes especially critical (and more expensive) if these gaps are found during an FDA audit. By identifying these issues ahead of time the cost and impact of remediation could be factored into the offer placing the acquiring company in a better financial position. This approach and work also provides the company with a detailed report as to the critical issues that must be addressed. This initiative also serves another purpose, if the FDA does inspect, the fact that the issues were identified and plans were in place to remediate the issues, places the company in a more defensible position and provides it with time to address the items identified. In addition to conducting the assessment, MEDVACON provides the expertise to help the organization remediate any gaps and achieve compliance.
By ensuring a robust approach to regulatory due diligence, firms can gain a host of benefits. Throughout the process of an acquisition and while taking into consideration the factors mentioned above, firms should constantly reflect on whether their due diligence process (and the deal itself) facilitates:
- Regulatory approval – approval of the transaction is of course the end goal, and robust due diligence can help achieve this
- Effective risk analysis – ensuring your process leaves no stone unturned will result in the highest level of assurance against future regulatory-related costs
- The avoidance of fines – through gaining a full understanding of what issue may exist and putting a plan in place to mitigate those issues places the company in a much more defensible position for regulator inspection. Furthermore, after a transaction has taken place, acquiring firms may struggle to obtain restitution for any historic issues. Robust regulatory due diligence can help mitigate this
- The preservation of reputation – whether issues are uncovered that make a deal untenable, or a solvable issue presents itself, the acquiring firm can protect its reputation by either walking away or implementing a plan to solve regulatory issues as early as possible. The acquiring firm can also stipulate that issues are solved within the firm to be acquired before acquisition takes place
- Pricing assurance – issues identified by regulatory due diligence needn’t always result in a transaction being blocked and, indeed, robust due diligence can provide the information a firm needs to negotiate a realistic price – one that reflects the cost of correcting any issues, for example
- The understanding of best practice – aligning the firm with regulatory expectations will help ensure compliance and help to drive best practice prior to completion of the deal
