There exist very few laws or regulations that provide specific guidance or recordkeeping responsibilities during mergers and acquisitions (M&A) activities. Along these lines, inadequate M&A documentation can create significant losses for an enterprise. Considering the high number of contested acquisitions or mergers, the need to create serious electronic document records management (EDRM) support for due diligence processes is self-evident.
The most important legal issues have to do with regulatory compliance and e-discovery. While due diligence procedures conducted during M&A activities are not identical with e-discovery, they should involve organizing the new document repository in a manner that can accurately and effectively support legal inquiry. Creating a due diligence team records center that includes dedicated document management technology, an EDRM repository and software can ensure that records of long-term interest during regulatory investigations, tax audits or litigation are preserved and available for e-discovery.
EDRM processes may or may not be combined in the new company, depending on various factors, such as taxonomy, subject content, facility location and the users involved. In heavily regulated industries such as banking, securities and insurance, because they employ similar taxonomies and do numerous transactions daily with one another, the systems used to manage them may be so alike that the integration effort is routine. The downside is that government regulatory intervention or oversight may extend due diligence timeframes, and the longer the inquiry takes, the greater the risk likely exists for records loss, corruption or compromise. Specialized industries, however, frequently employ taxonomies and technology platforms that vary from company to company and are not interoperable, so due diligence may require new research.
The computer data and physical documents created for decision analysis during due diligence activities and the records directly related to the M&A business agreements are crucial, particularly those that detail the rationale for the M&A and what occurred during its execution. Needless to say, they should be captured and preserved early in their life cycle. These mission-critical documents include: merger or acquisition agreements; financial documents; strategic plans; technology plans; inventories of organizational assets; researched copyrights or patents; and disaster recovery plans.
Of these, many will be highly confidential, creating concern about limiting their access - particularly if the two companies are competitors. Nondisclosure agreements and erecting "Chinese Walls" within a law firm offer partial solutions. Often, the best recourse is that lawyers representing the two companies review key documents in confidence and confer attorney-to-attorney if problems arise. Some of the major document categories for M&A discovery are: (a) Corporate Records; (b) Intellectual Property; (c) Material Agreements; (d) Personnel and Employee Benefits; (e) Rights, Permits and Other Regulatory Matters; (f ) Litigation, Investigations and Other Disputes; (g) General Financial Information; (h) Cash/Investments; (i) Accounts Receivable; (j) Property and Equipment; (k) Purchased and Developed Software; (l) Accounts Payable and Accrued Liabilities; (m) Revenue Statements; (n) Product Expenses & Other Operating Expenses; and (o) Taxes.
Without an effective EDRM system, the liabilities of an organization can remain hidden until a third party initiates a lawsuit against the new company. Hence, it is important to build in legal penalties and payouts contingent on due diligence findings after the merger or acquisition. Finally, a privately held company seeking to be acquired should first get its own legal house in order and tailor its EDRM systems to comply with SOX, just in case.
ARTHUR GINGRANDE [email@example.com], ICP, is co-founder and partner of IMERGE Consulting, a document-centric management consulting firm. Mr. Gingrande holds a Juris Doctor degree from the Massachusetts School of Law.