Don't Let Background Checks Trip Up the Deal
STAMFORD, Conn., March 6, 2013 /PRNewswire/ -- In the world of mergers and acquisitions, the sale of a company could hinge on what due diligence background reports tells potential buyers about your C-Level executives. And here's the rub -- if the deal falls through, you may never know because you never saw the report.
"In the merger/acquisition due diligence process, a release isn't required to conduct a background check on someone nor is there any obligation to share the information in the reports," says Chris Procopis, of LexPro Research. "This is different from pre-employment checks where signed releases are required."
Procopis says a company up for sale or being acquired should do the following when it comes to the due diligence process:
- Ask if background checks are being conducted and on whom
- If reports are being run, ask to see the reports
- Ask for the opportunity to correct inaccuracies and explain any negative information
"Background reports can contain errors so here's your chance to refute or augment the results and protect your reputation," he adds. "A mistake could be as simple as someone else with the same name having negative information that mistakenly ends up in the report."
Procopis cites an example: "A chief executive had been in negotiations to sell his company, and a due diligence background report was produced on several executives, including 'John F. Jones' (not real name). But the deal was never completed and no reason was given. It seems the report stated that 'John Jones' was accused of sexual harassment. However, the accused 'John Jones' was a different person and the background check company made the mistake of reporting it for the executive in question. The acquiring company walked away from the deal based on the information without further investigation."
According to Procopis, "You'd be surprised how many companies walk away from deals based upon negative information found in background checks. They often pull out of a deal without further investigation rather than deal with any potential 'PR time bombs.'" It is easier to move onto another company than move forward with one with 'built-in headaches.'"
A company can help itself by conducting self-due diligence on its own C-level executives, before putting itself up for sale. The process should include ordering a full background check on executives and then reviewing the report for accuracy. If there are inaccuracies, they can be addressed before they are perpetuated. If there is negative information in the report that's true, be prepared to explain it.
"It's better to do a check on yourself so you'll know upfront what it will reveal and how best to handle it," Procopis says.
LexPro Research is a leading provider of domestic and international risk mitigation background checks, and business intelligence services to the corporate, financial and legal communities. For information, call 203-921-1281 or visit www.LexProResearch.com.