DealLawyers.com Blog

In light of the FTC & DOJ’s invitation to the public to “drop a dime” on serial acquirors and other actions targeting private equity, a recent Mintz memo offers guidance on pre- and post-acquisition best practices that will help sponsors avoid trouble with the DOJ. This excerpt says that positioning the sponsor and a newly acquired portfolio company to take advantage of the DOJ’s voluntary disclosure program & implementing a rigorous compliance program are essential:

Deploying appropriate resources after completing a deal to assess risk, detect and address any existing issues, and put proper protections in place before executing a growth strategy is the best practice and the model for successful investments in the current environment with amped-up scrutiny of private equity deals. Doing so quickly after a buy-side deal to take advantage of the six-month safe harbor is critical. On the sell-side, assessing any risk and possibly disclosing it ahead of the sale process eliminates the risk of a deal getting scuttled during diligence or significantly impacting the value of the asset.

While self-disclosure will certainly not be the best option in every situation in which a potential issue is detected, it is an option that must be considered, and quickly, to ensure the greatest benefit if that route is pursued. A robust compliance program’s key function is to prevent any wrongdoing before it occurs or detect it quickly if it does. Private equity sponsors who neglect to do a quick but deep enough dive after an acquisition or neglect to implement an appropriate compliance function in those regulated industries where it’s warranted run an increased risk of coming into the crosshairs of the DOJ and becoming a scapegoat for the supposed evils of private equity.

– John Jenkins