Due Diligence Is A Negotiation Superpower
Why not head to the negotiation table with an edge?
Aside from avoiding risk, our due diligence investigations provide you with a deeper understanding of who is sitting across the negotiation table.
This can be instrumental in negotiating the best price and structuring the deal in a way that places you in the strongest position to succeed.
Due diligence investigations are also essential for developing business risk intelligence. This may include not only due diligence on key executives as well as the target company itself, but also provides critical information to help you navigate economic and political risks which can cause other pressures on the target company affecting overall deal valuation.
Due diligence typically focuses on the legal and financial aspects of checking a business under consideration for acquisition or some type of partnership. This may also include joint ventures and adding third party vendors to a global supply chain. However, legal and financial due diligence does not evaluate the company’s footprint nor the executive team to determine whether than is an adverse history or executive level bad actors who may have exposed their company to serious issues such as bribery or corruption.
Understanding what issues may exist before your transaction is finalized may give you an important advantage in terms of the valuation of the deal as well as post-deal risk exposures which were not identified in advance.
Financial due diligence is extremely important in evaluating financial records to check that they are accurately portrayed, prior to starting a new business transaction. This may involve reviewing business ownership records, books and records, financial statements (income statements and balance sheets), and corporate tax documents, financial compliance and internal controls, to evaluate overall financial health and financial performance of the target company.
Legal due diligence is also extremely important particularly in Mergers and Acquisitions (M&A). This involves an in-depth assessment of the company’s operations, including the company’s legal structure, regulatory compliance, stockholder agreements and legal documents, as well as current and prior legal actions, to determine potential business risks and liabilities. This often includes review of legal contracts, open lawsuits, intellectual property, trademarks and patents owned by the company, property and tax liabilities, reps and warranties and other essential documents, in addition to the terms of the M&A deal itself.
However, these types of due diligence normally cannot identify whether there is a pattern of criminal behavior such as bribery or corruption and numerous other issues that are often hidden by the executive management team. This is in part why we see that 90% of third party violations of the Foreign Corrupt Practices Act (related to bribery of foreign officials and others) were missed during acquisition or vendor on-boarding by larger corporations.
Due diligence investigations focus on these issues and will often reveal information that was not found during legal or financial due diligence processes.
There are numerous examples of how effective due diligence investigations find this type of information:
1. Always conduct thorough due diligence investigation on the target business entity. What you don’t know can harm you, your company and your reputation.
2. Your due diligence strategy should include enhanced due diligence investigation of the senior executive team (C Suite executives).
3. Understand the business environment the target company operates in. Are there regional conflicts that could impact their business performance and delivery of goods or services. This may include diverse issues such as regional conflicts, social stability, culture, environmental issues, and numerous other global risk factors.
4. Develop an effective Business Due Diligence Investigation strategy to identify key risk exposures and serious red flag threats. Implement both business and key executive due diligence investigations to navigate hidden or undisclosed risks.
5. Take steps to mitigate risk exposures and document these as soon as possible. The federal government looks for actions taken to document and remediate problem areas. In fact, recent FCPA guidelines state that self-reporting within 6 months of an acquisition can result in significant reduction in fines, penalties and even deferred prosecution agreements (DPA’s) if corrupt business activities are later discovered.
6. Periodically monitor higher risk deals, high risk countries and emerging growth markets. Risk ranking can help control costs if you have a large number of third party vendors (suppliers, manufacturers, distributors, agents, etc) to evaluate. Conduct enhanced due diligence investigations on higher risk areas and emerging growth markets.
These provide the secret to outperforming your competition in the years ahead. Making sure you invest in identifying and responding quickly to any potential threats to your company’s financial security before they happen.
It’s only by considering all possible business risks in advance that you will be able to control any future problems and keep risk to your company as low as possible.
This is especially true when it comes to effectively managing the potential impact of changing geopolitical and international regulatory risks.
In order to carefully navigate through potentially hazardous waters, you must spot and steer clear of dangers as they present themselves. Identifying and mitigating risks before they occur is essential in today’s global marketplace.
That means actively monitoring your geopolitical risk environment in every type of business scenario so you can be proactive enough to prevent any negative outcomes and decide on the best next steps.
If you are planning a Merger & Acquisition (M&A) in a market unknown to you, then proper investigative due diligence is needed to make sure there are no political risks that could derail your market entry strategies.
Medical waste-disposal company Stericycle grew rapidly in Latin America through acquisition, without any centralized oversight of their accounting processes. This ultimately led to FCPA anti-bribery and records charges with Stericycle having to pay the SEC around $84 million in fees and another $17 million to regulators in Brazil.
There’s no need to find yourself in a similar situation with your next M&A. Proper due diligence from Infortal on the acquisitions and executives could have saved Stericycle millions.
Our Open Source Intelligence (OSINT) investigations are able to dive deep into financial and legal issues, relationships with other companies and entities, reputation issues, shell company involvement, evidence of fraud, signs of money laundering, financial impropriety, conflicts of interest, anti-competitive behaviors and numerous other issues…before you move forward on any deal.
It’s especially important to keep in mind that what may be socially and legally acceptable in one location may not be legal in another.
That’s why our “on the ground” intelligence is needed when operating in a foreign domain, especially as your business will still be accountable for adhering to the FCPA and other applicable laws if you have management or financial activity through the USA.
This deep dive due diligence lets you know exactly who you are about to do business with and stops you from working with “bad actors” and fraudsters willing to commit bribery, fraud, or other criminal acts.
Especially with FCPA violations being at an all-time high and the introduction of additional enforcement actions, it is more important than ever to proactively incorporate due diligence investigations into your company’s strategy for success and to protect the board as well as the company’s profits.
Executive due diligence investigations will reveal far more information than a simple background check which is typically very limited in scope.
Infortal Specializes in Finding Bad Actors™ and Rogue Players to Reduce Your Business Risk Exposure.
The chances of Finding Bad Actors™ on your own is low, because this is not typically part of legal or financial due diligence. Routine background checks which will reveal less than 1% of serious issues!
Infortal’s investigative analysis looks at both public records and also conducts a deep, dark and historical web search or OSINT (Open Source Intelligence) investigation, looking for anything that could cause potential embarrassment or serious risk exposures to your company.
It’s not enough to just check a global watch list which only tells you who is on someone’s radar in a given region for an existing issue. You also need to know if you are doing business with a person or business who has already been sanctioned. These lists will not inform you about ongoing corruption issues or future concerns.
If Infortal discovers someone on a global watch list, we don’t stop there.
To find out if a company or person has a history of criminal activity, civil litigation issues, regulatory sanctions, important business conflicts, ownership in other entities, hidden and undisclosed information, or other compromising behavior which may come back to haunt your deal.
Our investigative analysis examines and triangulates all the available data to give you a truly comprehensive picture of your business risks before you make any decisions to move forward.
Failure to conduct such effective due diligence can lead to reputation damage, stock price drops and shareholder lawsuits, profit loss, staggering regulatory fines, and even a loss of freedom for your key executives.
Similarly, it’s important to understand exactly who the true owners are of the business you are dealing with. And you will face an even bigger challenge trying to determine if there are any Beneficial Ownership issues with a non-publicly traded company, especially if it is international.
You don’t want to wake up to the shock of discovering that the people you have been interfacing with are not actually the ones who own the company you’re about to acquire.
You might even discover too late that there were legal issues which impact going into business with them to begin with, or issues which may surface later that cause serious financial impacts.
Infortal’s expert OSINT and in depth analysis can help you see though potential shell companies, serious conflicts of interest, or bad actors that a standard background check will not be able to uncover.
This same ”deep dive” due diligence will also help you avoid potential reputational damage or litigation risks in your future business dealings and transactions.
That’s because potential litigation risks are typically hidden. For example a company may trade under several business names and if you do not check these you may miss that the company has outstanding civil litigation or even criminal issues, and you may not find out that the executives will be tied up in litigation matters…or worse.
If you don’t know for certain who you are doing business with, you could end up making a deal with a bad actor executive with a history of suing their business partners. Similarly, if you don’t completely understand the legal frameworks you are about to engage in, you leave yourself vulnerable to the possibility that what is considered a legal operation in one country is completely illegal in another.
If you are not looking at the right indicators, you could also miss any potential Credit Risks if a country is going to default on its bonds or debt payments to creditors. This can cripple your business with extremely high interest rates, plummeting exchange rates and even the complete loss of your firm’s market capitalization.
The key to mitigating all of these potential business risks is to cast a very wide net through the use of Open Source Intelligence (OSINT) tools to gather and analyze all publicly available information to have the fullest picture possible of any future business deal or transaction.
Infortal is a leader in conducting the deep dive due diligence investigations necessary to expose serious business risks that may be hidden or undisclosed.
It all starts with an initial consultation with the Infortal Worldwide team of experts with decades of experience in due diligence investigation.
Based on the scale and scope of the deal, Infortal will partner with your deal team to establish a due diligence investigation roadmap that will yield the required information to move forward confidently and protect your investment.
First we start with review of public domain records and databases. This is where most other companies end their due diligence reviews. Public records only provide a rear-view look at what has occurred historically. It is like driving while only looking in your rear-view mirror. You cannot see what is happening around you (your transaction)nor if there are obstacles that lay ahead.
We then employ cutting-edge, industry-leading investigative techniques to ensure that we pull in accurate and definitive intelligence. This includes examining proprietary deep, dark, and historical web resources. We also employ full open-source intelligence (OSINT) investigation capabilities. This is essential to understanding whether an issue is occurring currently or whether something is actively developing which may cause your deal to be at serious risk.
Enhanced or “deep dive” due diligence may reveal hidden information that could impact the overall value of the deal or transaction under consideration. Additionally enhanced due diligence, when done correctly, provides an additional layer of fiduciary duty protection for your company’s board of directors.
Once the investigation begins, communication is fundamental. We provide updates regarding key information throughout the investigation's lifecycle.
To assess potential risk exposure in M&A deals, we examine a wide range of due diligence investigation sources focusing on the following types of information:
Infortal Worldwide provides your legal, finance, and accounting teams with key intelligence to minimize due diligence exposures and to evaluate deals more effectively.
Importantly, we analyze the information and provide Actionable Recommendations™ to enable your team to determine whether further assessment, restructuring, or renegotiation of deal terms is necessary.
Here’s an alarming statistic to be aware of if you’re planning a merger or acquisition (M&A) in a new market, especially if it’s overseas…between 70% and 90%.
Here’s some news you should take very seriously.
As of August 2022, there are around 100 Foreign Corrupt Practices Act (FCPA) investigations ongoing.
Did you know that 35% of the supply chain vendors for global corporations around the world have bribery and corruption related issues? And that most will never be detected until it’s too late?
