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Immigration Compliance Due Diligence is Essential to M&A Transactions

Posted on July 21st, 2017 | Author: Raymond G. Lahoud

Okay, you are about to close on the $50,000,000 acquisition agreement that was signed months ago.  A New Jersey company is acquiring a New Jersey company.  No international offices.  Due diligence has commenced and concluded.  You and your lawyers have looked at everything – balance sheets, annual reports, vendor, sales, purchasing, and operating agreements, years of revenue, expenses, and cash flow reports, projections for decades ahead.  The bank is ready to fund the deal.  So close, and the final state and federal regulatory forms are nearly complete and ready to docket.

Buyer’s phone rings: “there is an immigration problem.”  Buyer responds: “an immigration problem?  We are a New Jersey company buying a New Jersey company.”

The most overlooked due diligence area is immigration compliance, regardless of whether the acquisition is wholly domestic or entirely global.  Often, mergers, acquisitions, divestitures, and joint ventures will involve:

(i)      The transfer of status to new employers;

(ii)      Compliance filings to reflect changes of name, ownership, address, corporate relationship;

(iii)     Impact on employees with intracompany transfer status;

(iv)     Impact on ongoing qualification for permanent residence; and

(v)     Entirely new applications for work permits to achieve continued work authorization.

With the growing enforcement measures that are focused on employers’ immigration-related responsibilities, M&A transactions must include detailed immigration compliance as part of the due diligence checklist.  If the Buyer waits until the deal has closed to review immigration compliance matters, substantial risk for severe penalties may very well follow.  For example, the Buyer inherits the Seller’s immigration violations, along with a great risk of enforcement actions at the federal level.  Federal, state, and local licenses and contracts will be jeopardized.  Lawsuits.  Investigations.  Tens, if not hundreds, of thousands in fines.

In all M&A transactions, the Buyer must ensure that the transition includes a well-executed employer immigration update and compliance process.  The transition must be flawless, as the simplest, smallest, least obvious of errors, put the Buyer at risk.

The immigration component in M&A transactions varies on the type of deal, companies involved, and employees.  The risks could be minimal to the most complex—including stock or asset acquisitions, corporate name changes and updates, reverification of current employees, complete overhaul on either or both sides of an M&A transaction, changes in payroll sources, recertification and transfers of sponsorship for any already-employed foreign employees, employer or employee relocation, to undoing an immigration compliance mess that has resulted from years of inadequate immigration compliance procedures.

Any M&A transaction must conduct immigration compliance due diligence.  Doing so provides the time to fully investigate the predecessor’s immigration compliance prior to closing the deal, thereby reducing the risks and allowing for the smoothest transition for all employees, without facing hundreds of thousands of dollars in fines.

If you have questions about this post, your rights, or any other immigration law issues, please contact me at rglahoud@nmmlaw.com.