CCCP Mergers & Acquisitions Compliance 2 — Questions and Answers
Question 1: During M&A due diligence, which area is most critical when the target company operates in a highly regulated industry such as healthcare?
- Marketing practices review
- Regulatory licensing and permit compliance (Correct answer)
- Employee benefit plan design
- Corporate branding analysis
Correct 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.
Question 2: What is the primary purpose of a representations and warranties (R&W) insurance policy in an M&A transaction?
- To replace the need for due diligence entirely
- To transfer risk of unknown breaches of seller representations to an insurer (Correct answer)
- To guarantee deal financing from the acquiring bank
- To indemnify employees against post-merger termination
Correct 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.
Question 3: Under the Hart-Scott-Rodino (HSR) Act, what triggers a mandatory pre-merger notification filing?
- Any acquisition of a publicly traded company
- Transactions exceeding specified size-of-transaction and size-of-person thresholds (Correct answer)
- Any cross-border acquisition involving a foreign buyer
- Acquisitions resulting in more than 10% ownership
Correct 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.
Question 4: A compliance officer discovers that the target company has an undisclosed FCPA investigation during due diligence. What is the most appropriate immediate action?
- Proceed with closing and address it post-merger
- Notify deal counsel and senior leadership to assess materiality and deal impact (Correct answer)
- Withdraw from the deal without further analysis
- Report directly to the DOJ before informing internal stakeholders
Correct 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.
Question 5: Which document typically governs the compliance obligations and risk allocations between buyer and seller after an M&A deal closes?
- Letter of Intent (LOI)
- Non-Disclosure Agreement (NDA)
- Purchase and Sale Agreement (PSA) or Merger Agreement (Correct answer)
- Confidential Information Memorandum (CIM)
Correct 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.
Question 6: What does 'successor liability' mean in the context of M&A compliance?
- The seller remains liable for all target company debts
- The acquiring company inherits legal and regulatory violations of the acquired entity (Correct answer)
- Employees are liable for prior management decisions
- The board of directors is replaced immediately after closing
Correct 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.
Question 7: Which antitrust remedy allows a merger to proceed after regulators identify competitive concerns in a specific market segment?
- Consent decree with divestiture of overlapping business units (Correct answer)
- Voluntary withdrawal of the merger filing
- Submission of an amended LOI to the FTC
- Payment of a civil monetary penalty to the DOJ
Correct 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.
CCCP Mergers & Acquisitions Compliance 2
During M&A due diligence, which area is most critical when the target company operates in a highly regulated industry such as healthcare?