Regulatory Due Diligence: Definition & Importance

Learn all about compliance due diligence in M&A

    So much of the mergers and acquisitions process is about mitigating risk. When the stakes are high, a comprehensive due diligence process is the most important factor in ensuring a profitable deal. Business risks that are regulatory in nature have the potential to be some of the most damaging to reputation and performance. This is why regulatory due diligence - as a specific type of due diligence - must be conducted with care. 

    Get the regulatory due diligence checklist

    A digitized template containing all the critical documentation for seamless due diligence.

    Regulatory due diligence definition 

    Regulatory due diligence involves the systematic review of an organization’s regulatory compliance status and that of its suppliers, agents and partners.

    Information to be reviewed includes:
    • Previous or current regulatory investigations, audits or reviews
    • Compliance policies for the prevention of fraud
    • Written standards of conduct
    • Compliance program and/or appointment of a compliance officer
    • Audit processes
    • Inclusion of any compliance/regulatory training for employees
    • Contracts and agreements with suppliers and partners
    The aim of this investigation is to reveal previously unknown issues or "red flags", mitigate regulatory risk, understand regulatory obligations, confirm that business partners are legitimate, evaluate potential business impact and rectify any issues.

    Why due diligence is required

    Regulatory due diligence is a vital part of risk management in an M&A deal. Regulatory issues can be a major drain on company resources when they arise unexpectedly. In an increasingly zero-tolerance regulatory landscape, identifying compliance risk within a target firm is critical. It’s especially important in certain high-risk industries, such as health care and pharmaceuticals. 

    The acquiring company needs to have a thorough understanding of the target's regulatory obligations, risks and issues.

    It's also highly recommended for the company that is being acquired to do due diligence on their own company first. This is because a large proportion of deals fail due to issues surfaced during the due diligence process. So, if the sell-side can perform due diligence before the buy-side is involved, issues can be resolved early which will make for a smoother transaction (and often, higher value outcome) when it’s time to do the deal.

    If the seller goes into the deal unprepared, the process can be extremely time-consuming and frustrating for the buyer. This is why the most successful deals are made between businesses in a state of always-on readiness.

    Regulatory due diligence checklist

    Our regulatory due diligence checklist covers everything you need to prepare or review (depending on whether you're sell or buy-side) during an M&A deal.

    The best advice we can give to any business considering a sale is to prepare well in advance. However, if you are selling a business in a hurry, Ansarada’s M&A: Company Sale/Exit Pathway is ideal.

    A digitized template for M&A, it contains all the critical data points that ensure a company is healthy and ready for sale. All you need to do is upload your documentation into the secure platform. Then, when it’s time for your business exit, all your information is correctly structured and ready to go.