Latham & Watkins’ Bret Stancil and Bridge Bank’s Heather Kelly discuss the steps dealmakers can take to ensure that merger consideration is delivered to payees in an age of widespread fraud risk.
In April 2022, a Delaware Court of Chancery opinion established that buyers may ultimately be responsible for ensuring merger consideration reaches security holders, even in circumstances where a buyer uses a third-party vendor to facilitate payments. The decision, coupled with a recent uptick in fraud, highlights the importance of heightened sensitivity to money transfer risks in M&A transactions and a comprehensive approach to mitigate the threat.
The risks are significant: Internet fraud resulted in losses of $6.9 billion in 2021, according to the FBI’s Internet Cyber Crime Center, with nearly $2.4 billion due to business email compromise. They are also particularly relevant during a significant liquidity event such as an M&A transaction. The sums of cash involved, the often hectic pace of the days leading up to closing and the number of parties involved make the M&A transaction a particularly attractive target for bad actors.