SOX and M&A Due Diligence

Because private companies are not subject to SOX, whether the new entity will be compliant after merger with or acquisition by a public company, may be in question absent serious due diligence work.

This article, M&A Due Diligence and Disclosure Considerations in the Post Sarbanes-Oxley Era from PLI, by James M. Lurie (Holland & Knight LLP) highlights dozens of concerns for M&A DD in the SOX era and notes, especially, that the acquiror will have to "increase its normal due diligence procedures to assess the internal controls and disclosure control environment of the target company and the manner in which the target's internal and disclosure controls will be integrated with the acquiror's own control structure." Lurie's checklists are a starting point in DD not only for disclosure controls and internal controls, but include SOX's impact on the traditional financial DD, exchange-related (i.e. NYSE, NASDAQ, etc.) governance considerations, trigger concerns raised by the new Form 8-K as it relates to M&A and more.