Firms operate under a wide range of rules and regulations. These include, for example, environmental regulations (in which some industries have increased regulatory exposure) and finance and accounting (where all industries have reporting requirements). In other areas, such as antitrust cartels, enforcement is unregulated, and antitrust leaves the market as the default tool to police against anticompetitive behavior. In all of these areas, detection of noncompliance by a firm can result in significant penalties. This issue of noncompliance has implications in the merger and acquisitions (M&A) context. In a transaction between an acquiring firm (buyer) and a target firm (seller), there is asymmetric information about the target's quality. In our framework, we link a target's quality directly to the strength of its regulatory compliance. In an M&A transaction, an acquirer seeks information about the target's compliance, as a compliance failure may result in substantial penalties and sanctions, post-acquisition. In the presence of quality (compliance) uncertainty about target firms, low-quality targets can masquerade as high quality. This would tend to give rise to an M&A market with Lemons-like characteristics, resulting in low transaction prices and dampening of M&A activity. We examine how M&A transactions in such regulatory areas – environmental, finance and accounting, and antitrust compliance problems – might function to alleviate quality uncertainty. Copyright © 2013 John Wiley & Sons, Ltd.