Successful investors understand the importance of high quality, strategic due diligence as a critical tool to ensure positive outcomes when entering into an M&A transaction, and the importance of really understanding the complex questions that lie at the heart of a deal. Here are the top nine issues uncovered by S-RM’s Deal Advisory practice for investment teams.
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 emerging or frontier markets and in companies that rely upon regular interactions with public authorities.
Political connections. The reliance on an undisclosed or potentially illicit relationship with a politician or political party. This exposes the target company to bribery and corruption risks, and potential business continuity risks 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 in the company.
Management expertise. Concerns about the abilities of the target company’s senior management. These often relate to a lack of proven managerial experience or success, or the absence of adequate technical knowledge required post-transaction.
Interference by proxy stakeholders. 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.
Toxic company culture. The corporate culture of a target company may impact on post-transaction integration of new management, or employment conditions may contribute to a poor reputation.
Legal & Regulatory Issues
Unexpected regulatory change. Unanticipated regulatory or political changes may hamper or entirely alter the company’s operating model.
Undisclosed 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.
Ineffective compliance procedures. The target company may have an underdeveloped compliance function, posing business continuity, reputational and financial risks. This can occur with smaller businesses which have expanded rapidly, or in jurisdictions with lower regulatory requirements.
S-RM provides critical intelligence to support effective due diligence for deals and transactions. We have deep experience advising clients on mergers and acquisitions, private equity investments, licence and asset acquisitions, joint ventures, major financings, and new ventures. Our multidisciplinary, consultative approach ensures that investigations always focus on the specific issues that matter the most for each deal.