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Mergers and Acquisitions (M&A) Present Real E-Discovery Challenges

Created on July 31, 2012

There are a lot of inherent complexities involved when one company acquires another. There are a whole host of economic concerns along with a number of regulatory hurdles that must be overcome. An equally vexing challenge involves the handling of electronically stored information (ESI). While M&A (mergers and acquisitions) is a broad term that describes a number of different business arrangements, a typical scenario involves one company purchasing another and taking over its business operations, which necessitates the migration of ESI and integration of at least some systems. In most cases, certain records belonging to the acquired company will be of no business value to the acquirer once the merger is complete, such as promotional materials or quality control records of discontinued products. After this ESI is identified the natural response might be to have it destroyed. Indeed, there is usually at least some records destruction that goes on during a typical merger. But the situation is far thornier when you consider that, in many circumstances, the acquired company's legal obligations transfer over to the purchaser. Among those legal obligations is the duty to preserve ESI that may become evidence in a particular legal or regulatory matter.

Two experts in the e-discovery field, Amy Longo, partner at O'Melveny & Myers LLP and Tom Mullane, e-discovery specialist at United Technologies (UTC), presented on some of these e-discovery data management concerns during Exterro's recent webcast “M&A Challenges: Minimizing E-Discovery Risks Pre- and Post-Merger." The speakers stressed that prior to the merger a careful evaluation of the target company's ongoing legal activities and exposure, as well as their data infrastructure, is an essential component of a comprehensive M&A due diligence process. Mullane suggested that when considering an acquisition target, it is also important to assess the target company's e-discovery process because that will help reveal how ESI is being identified and preserved and make the migration of that data much easier to execute. “You have to understand for preservation the mentality for each company. Is it a preserve in place? Is it a preserve to collect? That's a real large difference in approach," said Mullane, adding that those types of questions will help determine how e-discovery processes will look after the merger.

Most M&A activities result in at least some degree of employee reshuffling and, depending on the nature of the merger, potentially a large number of layoffs. Longo said this as another major challenge when it comes to fulfilling legal obligations. “For years in a matter, you may have been relying on assistance from certain individuals within the company, or there may be certain individuals who were particularly knowledgeable about a subject or where certain information is located with respect to different cases," said Longo. “If you are dealing with personnel turnover you could find yourself missing those former resources that you had."

The experts both emphasized the importance of planning in the M&A process to help avoid e-discovery mishaps, offering up the following checklist:

  1. Analyze Continued/New Preservation Obligations: First and foremost, the primary objective is to ensure that all responsive data is preserved both before and after the merger. That usually requires the acquiring company invest ample time and resources into gaining a comprehensive understanding of the target company's litigation and regulatory profile.
  2. Assess Target Company's Data Profile: As previously mentioned, all M&A activities result in at least some amount of data migration and systems integration. To help make this process run as smoothly as possible, it's important to gather as much intelligence as possible about the acquired company's data infrastructure: What types of data do they have? How is it stored? Is there a data retention policy and, if so, was it being actively followed or enforced? Is there a data map? These are the types of questions that an acquiring organization should be asking. And this analysis is not limited to just internal data. It is equally important to identify the company's data that may be held by outside parties, such as law firms or service providers.
  3. Apply Data Management Technology: Part of understanding an acquired company's data environment means also assessing what technology is in place to help manage and potentially extract the data. Many M&A activities prompt the Federal Trade Commission and Department of Justice to request information and records relating to the sales and assets of the businesses that are subject to the transaction. Referred to as “Second Requests," these actions can place a heavy burden on organizations, forcing them to gather significant amounts of ESI in short time periods. It is essential that all existing technologies be leveraged to their fullest extent possible to ensure a swift and defensible regulatory response.
  4. Investigate Target Company's Litigation/E-Discovery Background: Beyond recognizing active preservation obligations, it's also useful to investigate the target company's litigation background, namely whether they have been subject to past e-discovery disputes or sanctions. This information is helpful because it provides a window into the company's risk profile and may influence how an organization chooses to proceed with ongoing e-discovery activities.

You can watch a full reply of Exterro's webcast “M&A Challenges: Minimizing Risks Pre- and Post-Merger" here.