Due Diligence

Due Diligence is the procedure for formation of the fair presentation of the investment project, which includes investment risks, independent evaluation of the investment object and many other factors. Due Diligence is primarily aimed at a comprehensive monitoring of legality and commercial attractiveness of the proposed transaction or investment project, however, completeness of information provided in this type of monitoring has also no small part, this gives chance for investors and business partners to more deeply appreciate all advantages and disadvantages of cooperation.

Due Diligence implies carrying out of fundamental analysis of the enterprise activity from the point of view of financial analysts, auditors, lawyers, appraisers and experts, provided that each group of experts prepares for the client a detailed report on the state of enterprise.

Evaluation of obligations and benefits of the proposed transaction is carried out by analyzing of all aspects of the past, present and predictable future business and revelation of any possible risks. The lack of due diligence may cause poor financial results after change of ownership, be a cause of lawsuits, tax and financial audits and other more unpleasant consequences.

Due Diligence procedure starts from examination of the company’s activities, search of any information about the company, as a rule, through open sources (websites, publications in the press). Search, tracking and analysis are conducted in order to determine the value of the business and its prospects.

The purpose of the Due Diligence procedure is to avoid or minimize existing entrepreneurial risks (economic, legal, tax, marketing), in particular:

  • risk of acquisition of the enterprise (portfolio of shares) at inflated value;
  • risk of default of the enterprise in default;
  • risk of loss of property, money;
  • risk of infliction of harm (losses), including to intangible assets such as business reputation;
  • risk of initiation of legal proceedings and their adverse consequences;
  • risk of arrest of property or use of other provisional measures;
  • risk of recognition of transaction as invalid;
  • risk of imposing penalties on the property, securities (shares);
  • risk of bringing to tax, administrative or criminal liability;
  • risk of corporate conflicts (seizure, acquisitions, legal proceedings);
  • risk of loss of intellectual property (trademark, industrial design, invention, know-how, commercial idea, business plan, etc.);
  • risk of unethical practices of business rivals (conspiracy with contractors, initiation of “paid” inspections, pricing policy, lobbying of interests, etc.);
  • risk of non-receipt or loss of relevant permits, licenses, approvals, etc., to which the project, transaction is related.

Independent evaluation of the state of business is a necessary procedure in case of change of the object’s owner, because it allows you to set certain trust between the transaction parties, based on the experts’ findings and recommendations, to find necessary compromises in order to overcome possible conflict of interests.

In the course of the Due Diligence procedure not only quantitative indicators and financial data, but also qualitative indicators are taken into account: assessment of existing management, internal processes and procedures, cost of licenses, location and rights for real property.