Juan Carlos Tristán
Partner - Costa Rica
Esteban Badilla
Senior Paralegal - Costa Rica
A transaction may successfully pass contractual, litigation, and regulatory compliance due diligence without any material findings, yet still be derailed by a press article or investigative report linking the target company (or its representatives) to acts of corruption, fraud, or money laundering. In an environment where information—whether accurate or not—circulates instantly through traditional media, digital platforms, and social media, a company’s reputational health has become an asset as decisive as its financial statements.
Mergers and acquisitions have become increasingly complex in recent decades, and with them new factors have emerged that must be considered during due diligence. National and international compliance and corporate governance standards and regulations require the buyer to understand not only the legal status of its counterparty, but also its reputational exposure.
Media Review as a Component of Due Diligence
This evolution has given rise to reputational risk analysis, whose central tool is the media review or media check: a systematic examination of open sources (press, public records, and the digital footprint of the parties and their representatives), with an emphasis on corruption, fraud, and money laundering. Its value lies in its ability to identify risks that rarely emerge during the review of strictly legal documentation.
Consider, for example, controversies related to the target company’s business activities, judicial proceedings or investigations involving its representatives, or challenges to its industrial processes. These are findings that may not appear in any registry or in the transaction’s data room, yet may decisively shape the public perception of the transaction.
Incorporating this component is methodologically straightforward, but it requires judgment: not every media finding constitutes a real risk. An essential part of the analysis consists of verifying sources, distinguishing between substantiated allegations and rumors, and assessing the materiality of each finding in light of the specific transaction.
Transactional Consequences
The outcome of a media review is not limited to identifying risks: it also encompasses the contingencies that may arise from them. A significant finding may be decisive for the interested parties when determining whether to invest in the transaction. It may also prompt a change in the transaction structure, the renegotiation of its economic terms, or, in extreme cases, the termination of the transaction.
From a legal perspective, the analysis also makes it possible to identify contingencies that warrant specific contractual protections: enhanced representations and warranties, specific indemnification obligations, price adjustments or holdbacks, or conditions precedent to closing.
Conclusion
Reputational risk analysis is no longer an ancillary component, but rather an essential element of any comprehensive due diligence process that is aligned with the changing reality of commercial transactions. By integrating the legal perspective with compliance and risk management, the interested parties can make a truly informed decision and, in the process, gain a strategic advantage in the negotiation.