The combination of cheap debt, low organic growth prospects and high corporate cash reserves is fueling record M&A activity, with 2015 poised to become a banner year for the market, according to an October 2015 report by RR Donnelly and Mergermarket.

With US$2.87 trillion worth of deals being inked in the first three quarters of 2015 - up 21 per cent on the first three quarters of 2014 - and another $100 billion deal brewing, this trend looks likely to continue.

There are significant benefits for companies embarking on the M&A path. A value boost in the short term can open up new opportunities and consolidation can increase efficiency, but companies also need to be aware of the substantial risks that accompany a merger, aside from simple valuation concerns.

Assess Risk Appropriately

One of the biggest mistakes a company can make when going through an M&A is not assessing risk appropriately, says Lisa Gross, Ethics Analysis Sr. Manager, Lockheed Martin. “Finding risk can be clouded as it is often concealed or simply not considered a risk by the potential acquired company,” she says. Marginal procurement practices or demeaning leadership styles, which might not be flagged during an ethics assessment, could be examples of these concealed risks, she adds.

When conducting a risk assessment, you need to review relevant documents relating to the ethics and compliance programs, advises Gross. “For example, are there prior infractions that could impact your company? What compliance or ethics risks currently exist and what are the mitigation efforts – and are they effective? What’s key is that you assess all program components so that you have an understanding of who you are absorbing into your business. And don’t forget to look for missing program elements that may also suggest complications,” she says.

Establishing a Compliance Program

Typically, the acquired company will fully integrate into your program. But when merging two large companies there should be a joint effort between both companies to adopt best practices, says Gross. If the acquired company’s compliance program is completely inadequate, however, Gross advises completely replacing it with your own company’s program.

The biggest hurdle, from an ethics and compliance perspective, is culture. “It is one of the hardest aspects to change as employees and leadership get ingrained in a special way of handling conflict, compliance, etc. That said, it is imperative that when moving forward with a new ethics and compliance culture it is not ‘forced’ upon the newly acquired team,” says Gross. “Rather, educate new employees and leaders about the values of your program – the company’s expectations of their behavior and that your role serves as a resource for information, advice and resolution of problems and issues. Help them understand their concerns will be taken seriously and they will be treated with dignity and respect.”

Stay Involved

And most importantly, don’t walk away after you’ve successfully assimilated the employees and leaders and assume business is now normal, says Gross. “Follow-on activity is just as important as your role during due diligence and the assimilation phases. The ethics and compliance professional should establish a schedule to meet periodically with key leaders and their established point of contact.”

Gross also suggests establishing a process for communicating key messages and activities on a regular basis and visiting the site often so employees see you, know you are approachable and are comfortable reporting concerns to you.