Mergers & Acquisitions from A to Z

By Andrew J. Sherman | Go to book overview
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CHAPTER 5
Due Diligence

Following the collapse of Enron, WorldCom, and several other major multinational companies, the capital markets experienced the Era of Accountability 1.0, which included the passage of Sarbanes-Oxley (Sarbox) in 2002. Sarbox brought new standards for conduct and governance for public-company boards of directors and officers, new and more stringent reporting requirements, stronger internal controls, and stiffer penalties for noncompliance. It also influenced the focus and depth of M&A due diligence standards, which began to take deeper dives into issues of financial reporting, objectivity, and verification. This is discussed further in the appendix to this chapter.

Less than a short seven years later, we have entered the Era of Accountability 2.0. The election of Barack Obama and the administration’s commitment to transparency; the role of government in bailouts, including TARP; the failure of banks and automobile companies; the Madoff scandal; the severe global recession; and mistrust of Wall Street collectively are contributing to an increase in staffing at the SEC, the expectation of vigorous government enforcement activities in a variety of areas, and the possibility of new generally accepted accounting principles (GAAP) standards. These evolving developments, in turn, are elevating, expanding, and refining the portfolio of due diligence best practices in M&A, financing, and other core business transactions.

I am not implying that graduation from 1.0 to 2.0 involves a tectonic shift in due diligence best practices. M&A practices and documen

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