Buyers’ best defence against M&A fraud requires rigorous, pre-closing due diligence — when fraud is suspected, deal teams should seek legal advice and proceed with caution.
Oliver Browne, Richard Butterwick, Alanna Andrew, Frederick Brodie, Connor Cahalane, and Catherine Campbell
Recent high-profile fraud cases gravely illustrate how a failure to detect fraudulent activity can cause lasting damage to corporate value. In January 2019, publicly listed bakery chain Patisserie Valerie collapsed following allegations of a £40 million accounting fraud.
In our view, instances of fraud in the context of acquisitions are more common than is often thought. There can be (or have been) allegations of artificial inflation of reported revenues, revenue growth, and gross margins or other distortions — underlining the high stakes and public nature of M&A fraud allegations.
The best protection against fraud comes from specialist due diligence and an early emphasis on fraud detection pre-closing. Where concerns arise post-closing, English law provides some innate protections, but deal teams should seek legal advice early on to help navigate this complex area without causing further damage. Continue Reading