Top issues we uncover in pre-transactional due diligence
- Low-level corruption. The use of low-level corruption to facilitate the target company’s day-to-day operations. This can be especially prevalent in companies that rely upon regular interactions with public authorities, such as customs agencies.
- Political connections. The reliance on a potentially illicit relationship with a politician or political party. This exposes the target company to bribery and corruption risks, and potential operational difficulties in the event of a transfer of power.
- Ownership structure. Multi-tiered shareholding structures that make use of low-disclosure jurisdictions. These can be used to anonymise the ultimate beneficial owners of the target company or its subsidiaries, or to hide corruptly held interests held in the company.
- Management expertise. Concerns about the competence of the target company’s senior management. These often relate to a lack of proven managerial experience, or the absence of adequate technical knowledge required post-transaction.
- Proxy management. Proxy control of management by an external actor can occur when a founder or former significant shareholder continues to exert influence over the operations of the target company.
- Company culture. The corporate culture of a target company may impact on post-transaction integration of new management, or labour conditions may contribute to a poor reputation.
legal & regulatory
- Regulatory change. Unanticipated regulatory or political changes may hamper or even entirely alter the company’s operating model.
- Litigation. The target company may be involved in upcoming or ongoing litigation which could have a future financial impact. Board members who are anticipated to remain post-transaction may not have disclosed historical legal issues.
- Compliance. The target company may have an underdeveloped compliance function. This can occur with smaller businesses which have expanded rapidly, or in jurisdictions with lower regulatory requirements.