How is it affecting the market for mergers and acquisitions (M&A)?
A firm looking to acquire must assess the value-price tradeoff, and it must ask Sarbanes-Oxley and governance-related questions. Remember, acquisitions are not only of public firms—private firms can also be acquired. In this case, internal control questions are critical, and insufficient answers may kill the deal. Because companies are still in the ‘learning’ phase of Sarbanes-Oxley, M&A activity has slowed a bit. M&A activity may pick up after firms have implemented and paid for Section 404 and have been shown to be Sarbanes-Oxley compliant, but that will reduce the pool of potential targets. Aren’t some larger private firms choosing to follow Sarbanes-Oxley? Interestingly, even though they are not required to do so, some large private firms are implementing many Sarbanes-Oxley provisions. These firms’ banks or owners care about governance quality and ask Sarbanes-Oxley-like questions about these private firms. Many of these firms are also key partners with public firms that want to b
