During the diligence process that precedes a merger or acquisition, investment firms and corporations should pay careful attention to political law risks. Political laws are notoriously complex, are often not intuitive, and even seemingly minor or technical violations of these rules can result in significant penalties and reputational harm. These risks are especially acute when the target company is a government contractor, retains a lobbying firm, has a government affairs department, operates a PAC, or has politically active executives. To help investment firms and acquirers navigate these issues, we recently published an article addressing the top political law red flags to consider in the diligence process. Red flags addressed include:
- Is there a lingering “pay-to-play” problem that could jeopardize a major contract?
- Is the company appropriately registered under applicable lobbying laws?
- Is there a looming FARA problem?
By considering these and other political law issues up-front, an acquirer can avoid being blindsided by a massive compliance problem and can adjust purchase terms to minimize any risk the acquirer may inherit from the target.