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Investigative Due Diligence for Private Equity

Learn about the process of investigative due diligence and its importance in private equity. Discover why it is essential to uncover hidden risks and evaluate advantages before engaging in business transactions. Gain insights into when and how to conduct investigative due diligence, as well as special considerations for international due diligence.

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Investigative Due Diligence for Private Equity

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  1. Investigative Due DiligenceApplications for Private EquityHofstra University Annual ConferencePrivate Equity: A New Force for Value Creation May 2, 2007 John MacKessy Managing Director, Investigations & Forensic Accounting FTI Consulting, Inc.

  2. Investigative Due Diligence: What is it & Why? • Due Diligence - the process of investigation carried on usually by a disinterested third party on behalf of a party contemplating a business transaction for the purpose of providing information with which to evaluate the advantages and risks involved • source: Merriam-Webster's Dictionary of Law • Two Primary Types of Activity • Mergers, acquisitions, and equity investments • Business relationships, including joint ventures, strategic alliances, supplier / distribution agreements, and license / franchise agreements

  3. “Life is a trap for logicians. It looks just a little more mathematical and regular than it is; its exactitude is obvious, but its inexactitude is hidden; its wildness lies in wait.” G.K. Chesterton

  4. Who is performing Investigative Due Diligence • A 2006 survey of 565 investing executives shows that: • 67% conduct background/integrity checks all of the time; • 57% have restructured or renegotiated as a result of information uncovered; • Smaller firms are less likely than large firms to conduct thorough investigations; and • 49% always conduct investigations before entering into international business relationships. • Source: Deloitte FAS 2nd Annual Business Intelligence Survey

  5. Four Questions to Ask About Every Deal • • Who are these people, really? • • What am I not being told? • • What does the record show? • • Do all the dots connect?

  6. Who are these people, really?

  7. What am I not being told?

  8. What am I not being told?

  9. Do all the dots connect?

  10. “Life is the art of drawing sufficient conclusions from insufficient premises.” Samuel Butler

  11. Investigative Due Diligence: When to Conduct • Consider staging the Investigative Due Diligence investigation. This will identify issues to be addressed before a commitment to invest financial and managerial resources is made. • The following are the four common stages of investigative due diligence: • Data mining of publicly available material; • In-depth and discreet field inquiries; • Review and analysis of Non-Disclosure Agreement information; • Detailed report and analysis

  12. International Due Diligence: Special Considerations • Standards of Corporate Governance • Accounting Standards • Auditor Independence • Disclosure Practices • Availability of Public Record Information • Relations with Government Officials

  13. Before FCPA

  14. After FCPA: Recent Corruption Cases

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