Mergers & Acquisitions Compliance Flashcards

During M&A due diligence, which area is most critical when the target company operates in a highly regulated industry such as healthcare?

Answer: Regulatory licensing and permit compliance

Regulatory licensing and permits are critical in regulated industries because gaps or violations can block deal closure or create post-close liability.

What is the primary purpose of a representations and warranties (R&W) insurance policy in an M&A transaction?

Answer: To transfer risk of unknown breaches of seller representations to an insurer

R&W insurance shifts the financial risk of unknown representation breaches from the seller to an insurance carrier, facilitating cleaner deal structures.

Under the Hart-Scott-Rodino (HSR) Act, what triggers a mandatory pre-merger notification filing?

Answer: Transactions exceeding specified size-of-transaction and size-of-person thresholds

HSR filings are required when both size-of-transaction and size-of-person thresholds are met, currently adjusted annually by the FTC.

A compliance officer discovers that the target company has an undisclosed FCPA investigation during due diligence. What is the most appropriate immediate action?

Answer: Notify deal counsel and senior leadership to assess materiality and deal impact

Undisclosed government investigations are material findings that must be escalated to legal counsel and leadership to evaluate risk and renegotiate terms if needed.

Which document typically governs the compliance obligations and risk allocations between buyer and seller after an M&A deal closes?

Answer: Purchase and Sale Agreement (PSA) or Merger Agreement

The Purchase and Sale or Merger Agreement contains indemnification provisions, representations, warranties, and covenants that govern post-closing obligations.

What does 'successor liability' mean in the context of M&A compliance?

Answer: The acquiring company inherits legal and regulatory violations of the acquired entity

Successor liability means the acquirer can be held responsible for pre-acquisition violations or liabilities of the target company.

Which antitrust remedy allows a merger to proceed after regulators identify competitive concerns in a specific market segment?

Answer: Consent decree with divestiture of overlapping business units

Regulators frequently permit mergers to close after the parties agree to divest overlapping assets to preserve market competition via a consent decree.