Financial due diligence
Financial due diligence is the most efficient option to have a clear understating of the company’s business. We provide services to corporate and private investors that are aiming to implement their strategy correctly in M&A deals, as financial due diligence report provides the interested parties such as potential investors, shareholders, lenders key value drivers, but also helps the owners to raise funds in case of divestiture.
So far as a potential investor wants to understand the risks of the intended deal, and assess the company’s performance, we examine a company’s financial statements, accounting policies, business processes in order to provide the investor independent and clear view of the company operating activity, the quality sustainability of earnings, and the risks that may impact the intended transaction.
Typically, we analyse:
- Financial performance: analysis of revenue, its dynamics and structure, gross/net profit margin by products/services, analysis of cost of goods sold, general and administrative expenses, distribution expenses, financial income and expenses, other income and expenses, determination of normalised EBITDA.
- Capital expenditure: analysis of capital expenditure, construction in progress including terms of completion, required funds for completion.
- Working capital: analysis of components of working capital, dynamics, required provisions and non-liquid assets. Analysis of transactions with related parties, bad debt allowance.
- Non-operating assets: changes in fixed assets and intangible assets, review of impairment/revaluation, analysis of leased/rented assets.
- Cash flow: analysis of cash flows by type of activity.
We would present financial report in English or Russian language and in currency more suitable to the client’s needs. The report will include the business overview, operating structure, transactions with related parties, summary section including description of quality of financial information and difference with IFRS and management accounts, the adjusted balance sheet including non-operating assets, working capital, net debt position including contingent liabilities, and normalised EBITDA.
Tax due diligence
Our tax due diligence procedures are focused on identification of material tax exposures that need to be considered before entering into the potential transaction.
Tax due diligence is a comprehensive analysis of company’s tax position considering the specifics of company’s activities (investment preferences, subsoil use, special economic zone, etc.). It is aimed to identify tax risks by analyzing corporate, payroll related taxes, property, transportation, VAT and other taxes and obligatory payments applicable to the company in respect of their compliance with current legislation. We also analyse historical tax controls undertaken by government authorities. If the potential investor is a foreign company, we will analyse the tax issues related to cross-border taxation of the potential deal.
Typically, we analyse: tax returns and tax statements, financial statements, contracts, licenses, other documentation such as minutes of corporate board meetings, labour agreements, national standards applicable to the company’s activities, etc.
Legal due diligence
During the process we analyse the legal aspects of the company’s activities with regards to legal risks. Within the framework of a legal due diligence we check the legal history of the company, constituent and corporate documents, documents confirming and relating to rights and encumbrances on the company’s assets (including rights to immovable property, intellectual property, subsoil use right and other rights and encumbrances), material agreements and contracts entered into by the company, litigation (including enforcement proceedings against the company), licenses and other company’s permits.
The report of legal due diligence primarily describes the following risks: the risks of non-recognition of registration or re-registration of the company as a result of a violation of corporate legislation in the past, the risks of loss of assets due to disputes or violation of applicable legislation, the risks of voidability of material transactions because of a violation of corporate legislation, financial risks associated with disputes with counterparties, employees and shareholders (participants), including with former shareholders (participants) of the company, as well as the risks of violation of the relevant legislation in accordance with the specifics of the company’s activities (financial organisation, subsoil user, subject of special applicable rules, i.e. dominant company).