Merrill Brink News Reviews and Opinion on Sep 11, 2014: Dealing with Multilingual Due Diligence and Anti-Corruption Compliance in Cross Border M&A

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http://www.merrillbrink.com -- The due diligence related to anti-corruption compliance is a crucial aspect of any merger and acquisition (M&A) transaction, but it takes on added complexity in deals involving cross-border acquisitions.

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Clearly translated documents and other communications can help both parties assess the risks involved in the merger or acquisition and/or, if issues are found, renegotiate the deal’s terms

The due diligence related to anti-corruption compliance is a crucial aspect of any merger and acquisition (M&A) transaction, but it takes on added complexity in deals involving cross-border acquisitions. Buyers and sellers must navigate differences in legal requirements; business practices and cultural norms to gain a clear assessment of their compliance risks related to their own anti-corruption laws as well as the target company’s laws.

Additionally, when a transaction involves multiple languages, it is crucial to have key documentation translated to prevent erroneous assumptions during due diligence. Clearly translated documents and other communications can help both parties assess the risks involved in the merger or acquisition and/or, if issues are found, renegotiate the deal’s terms.

The following is a summary of the top due diligence concerns related to mergers and acquisitions.

Financial Assets
When acquiring or merging with a foreign company, one of the most important aspects of due diligence is an assessment of the target company’s business practices for generating profits and the legality of those practices. A recent survey shows that establishing the credibility of an organisation’s financial accounts can be particularly challenging in African and Asian countries, with the exception of Japan.1 These difficulties may arise from the lower oversight and reporting expectations often found in developing markets. Even if the target company is headquartered in a more developed region, due diligence must be completed on all of the company’s foreign operations and subsidiaries. For example, when Kraft acquired British confection company Cadbury in 2010, it received a subpoena from the U.S. Securities and Exchange Commission regarding corrupt practices at Cadbury’s facility in India.2 As this example illustrates, when assessing their exposure to risk, today’s buyers must have a complete picture of all locations in which the potential target does business, worldwide.

Intellectual Property
Although a target company’s financial assets are still the leading decision factor in many M&A transactions, many of today’s buyers also place a high priority on owning the target company’s intellectual property. However, determining exactly who owns the intellectual property can be a complex process, especially in Japan, the Middle East, and Latin America, as well as in many private companies around the world.3 The real challenge lies in determining whether the target company actually owns its intellectual property, as well as its ownership in any licensing deals or joint ventures. To verify this, many buyers engage the services of local legal professionals who have experience with the governance and regulations in the target country. In multilingual cross-border deals, buyers also invest in language translation services to ensure that there is no miscommunication with the target company regarding what intellectual property it owns, and what steps should be taken to protect those assets.

Industrial Assets
When acquiring industrial assets—such as facilities related to manufacturing, infrastructure, energy and utilities—tax issues often become a main point of concern, particularly if the target company is in the Middle East.4 To avoid financial or legal risk, the buyer’s due diligence team should include tax experts who can accurately assess whether the target company has paid its taxes in full and is in compliance with local laws. Indeed, before the M&A transaction is complete, it may be helpful to “take advice not only on specific tax issues but also on tax matters that may cause reputational problems, even where there is no question of any rules having been broken.”5

Regardless whether you’re buying, selling or merging with a foreign company, if the buyer and seller do business in different languages, it’s wise to partner with a language translation partner to address multilingual communications. This will help to speed the due diligence. Choose a translation service provider with legal translation experience in the target company’s country, as well as experience translating anticorruption and regulatory compliance documents. By doing so, you will gain an added level of confidence in the thoroughness of your due diligence.

References
1 “Going Global: Strategy and Execution in Cross-Border M&A,” FT Remark: Research from the Financial Times Group (June 2014), http://www.bakermckenzie.com/files/upload/Baker&McKenzie_Cross-Border_Final_Web.pdf (accessed August 8, 2014).
2 Joe Palazzo and Julie Jargon, “India Says Cadbury Used Phantom Factory to Avoid Taxes,” The Wall Street Journal (March 5, 2013), http://online.wsj.com/news/articles/SB10001424127887324539404578338583145190730 (accessed August 8, 2014).
3 “Going Global: Strategy and Execution in Cross-Border M&A,” page 27.
4 “Going Global: Strategy and Execution in Cross-Border M&A,” page 55.
5 “Going Global: Strategy and Execution in Cross-Border M&A,” page 54.

Full article: http://www.merrillbrink.com/due-diligence-and-compliance-in-cross-border-mAndA-09082014.htm

About Merrill Brink International
Merrill Brink International (http://www.merrillbrink.com) is a leading provider of complete translation and language solutions for global companies and law firms, with special expertise in serving the legal, financial, life sciences, software, heavy machinery and corporate markets. A proven leader with more than 30 years of experience, Merrill Brink offers a wide range of language solutions including translation, localisation, desktop publishing and globalisation services.

Merrill Brink is recognised in the industry for its commitment to quality and its pioneering approach of leveraging technology to reduce costs, eliminate redundant processes and accelerate translation life cycles. Merrill Brink is certified to ISO 9001:2008; ISO/IEC 27001:2005 and ISO 13485:2003, and compliant to EN 15038:2006 and ISO 14971:2007.Together, these standards provide assurance that the most stringent process and quality standards for translation are followed. Merrill Brink International is a wholly owned subsidiary of Merrill Corporation.

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