Due Diligence

Today, any transaction for investment, consolidation and incorporation of capital involves a preliminary Due Diligence (DD) – a set of procedures for a thorough study of the investment instrument, in order to obtain an objective picture and confirm the reliability of the data provided, their analysis for compliance with legal requirements. Due Diligence is considered to be the most effective tool to reduce risks, in order to protect the commercial interests of the party interested in the transaction.

At the legislative level, no uniform regulation and approach to the implementation of Due Diligence is fixed, therefore, when conducting it by yourself, you can face a number of problems:

  • no necessary information is available;
  • failure to follow the action algorithm for obtaining information;
  • lack of understanding of the sources of possible risks and the necessary directions for conducting the inspection;
  • lack of special knowledge to analyze information;
  • no possibility for assessing the sufficiency of the information necessary to study the object.

Taking into consideration the bureaucracy of governmental authorities that possess the information you need, it is often difficult to obtain this information in the right time and in the right amount. In addition, without special knowledge and professional experience, the availability of information does not guarantee its correct interpretation and conclusions, which reflect the objective state of the company you are interested in.

Law Firm “DOMINANTA” pays special attention to the practice of M&A (mergers and acquisitions), where Due Diligence is an integral part of. Constant development and improvement of the services which we provide in the field of mergers and acquisitions enable us to meet all the needs of a dynamically changing market. Our team carries out a comprehensive preliminary study of investment objects. The key to correctly determining the efficiency of any investment is a comprehensive preliminary analysis, defining the level of commercial cost-effectiveness, profitability and safety of an investment, which is the main purpose of conducting Due Diligence.

The lawyers of Law Firm “Dominanta” will help you to:

  • get an exhaustive list of information about the investment object;
  • evaluate objectively and minimize risks;
  • check whether the declared payback and profitability correspond to the actual condition;
  • secure transactions of any complexity;
  • choose the right investment object.

In the process of conducting Due Diligence of your activities, our lawyers set the following tasks to be solved:2

  • assessment of the actual financial performance of the business and its financial condition, including profitability and payback;
  • determination of the company’s position in the competitive environment, potential and prospects of the market development as well as assessment of the company’s development opportunities in accordance with the market dynamics;
  • identification of current financial risks of a business;
  • analysis of accounts payable and identification of hidden debts;
  • structured analysis of the size of tax burden on business;
  • risk assessment for existing and potential claims by fiscal authorities;
  • analysis of the assets owned by the business and the presence of their encumbrances;
  • analysis of legal propriety in the conduct of necessary registration procedures in respect of the company’s property;
  • verification of the availability and diligent execution of all necessary permits and licensing documents;
  • monitoring of obligations and risks emerging from agreements concluded by a company (contracts with suppliers and contractors, labor contracts, loan contracts, guarantees, etc.);
  • forecasting the possible consequences of existing and potential litigations;
  • state analysis of engineering and technical support of production and business activities of the company.

It is impossible to achieve the objectives set in the course of a comprehensive audit of a business instantly; in order to do this, you should follow a specific algorithm, which consists of the following steps:

  • primary conversations with management and key personnel; obtaining detailed comments and clarifications on issues arising during the implementation of the project;
  • collection of necessary information;
  • operational analysis (analysis of business organization), in which the main areas of study are: history of the company, organizational structure, management, staff, sales, procurement, strengths and weaknesses, constraints;
  • analysis of the market situation in order to determine the company’s position in the competitive environment;
  • analysis of documents, financial statements and data of the accounting system;
  • confirmation of financial indicators and information relevant to making investment decisions;
  • analysis of information about the business available in public and specialized sources;
  • verification of the legality of ownership of assets and the correctness of registration of ownership rights to them;
  • on-site visit to the production facilities for inspection;
  • consultations with specialists and experts in the industry.

As the result of activities, we will receive the following information:

  • conclusion on the degree of investment attractiveness, indicators of the profitability and payback levels of the company;
  • obtaining confirmation of the correct bookkeeping and tax accounting, the absence of the company’s indebtedness concerning the payment of taxes and fees;
  • a report on the “good faith” of the seller’s ownership of assets acquired or created in the course of the company’s business, compliance with the procedures for their execution, exclusive possession of all rights to the assets by the seller and the absence of risks of their potential loss;
  • information on the presence or absence of claims to a potential object of investment by third parties and the risks of their occurrence in the future;
  • a report on the compliance of the actual practice of managing the company with the rules established in the legal regulations (compliance with both the laws of the country of residence of the company and the internal regulatory acts of the company);
  • recommendations and a detailed activity plan to eliminate the violations found.

Cooperation scheme (according to the type of page on Registration of LLC)

  • Consultation in the office of the consulting law firm “DOMINANTA” to clarify the wishes of the customer and the formation of the objectives of inspection
  • Preparation of commercial proposals and signing of a contract for the provision of legal services
  • Conducting a comprehensive legal audit of the investment object
  • Transfer of a comprehensive written report with conclusions and recommendations according to all sections of the study to the customer

Law Firm “DOMINANTA” provides services for conducting a comprehensive pre-investment study of Due Diligence (DD) and its individual types.

Financial DD

is a check of the company’s financial indicators, their reliability and the compliance of the declared profitability with real indicators, an assessment of payback and an analysis of the profitability of an asset. The fiscal DD includes:

  • definition of key financial indicators of the company;
  • check of their validity;
  • estimate of the market value of the business;
  • calculation of financial stability, solvency ratio and business activity;
  • calculation of payback and profitability of the inspected company or the asset.

Legal DD

is a legal examination of all areas of the company’s activities and documents of title to assets in order to confirm the validity of their ownership, identify possible risks and formulate recommendations on asset protection. The legal DD includes:

  • verification of all constituent documents of the company and their proper registration;
  • analysis of the legality of ownership of assets, their acquisition history and the risks of loss;
  • analysis of existing encumbrances, lawsuits related to the company and assets;
  • checking the availability of necessary licenses, certificates and permits. Certificates of intellectual property used by the company;
  • analysis of possible legal claims of third parties;
  • analysis of the correctness of the contract work and the content of the main contracts;
  • verification of compliance with the requirements of legislation in the area of labor relations;
  • preparation of a report containing identified risks and ways to minimize them.

Tax DD

is intended to give the buyer reliable information about the performance of the tax obligations of the company to be acquired. It is evident that a company with heavy tax arrears, suspended bank account operations and incessant litigations with tax authorities has a significantly reduced investment attractiveness. The tax DD includes:

  • checking the status of the company’s settlements of budgetary payments for taxes and other obligatory payments;
  • identifying elements of high-risk tax planning;
  • verification of the completeness and accuracy of keeping and submitting tax reports;
  • estimated probability of claims to the organization by the tax authorities;
  • verification of the legal status of contractual counterparties of the company;
  • analysis of the optimal corporate structure of the company and the scheme of work in terms of tax burden;
  • development of proposals for the optimization of tax deductions.

Technical DD

includes a physical inspection of the object of future investment in order to examine its technical condition, check all engineering and technical systems, technical documentation and evaluation of production facilities. The technical DD includes:

  • verification of design and technical documentation related to the investment object;
  • comprehensive technical inspection of real estate structures;
  • conformity assessment of the actually constructed building with design and permission documentation;
  • conformity assessment of actually assembled engineering systems of design documentation and issued specifications;
  • assessment of building and equipment dilapidation;
  • instrumental control of engineering systems;
  • checking of the necessary limits and contracts for electricity, gas, water supply and sewerage;
  • analysis of possible dependence in the supply of the object from third parties;
  • checking the status of technical documentation;
  • drawing up an appropriate engineering and technical report indicating the identified defects and recommendations on the possibility and cost for their elimination.

As a result of the audit, we will provide you with comprehensive information about the company you are interested in, point out all possible risks, ways to minimize them, offer a secure transaction structure that will enable you to make the right decision and save your money.

Conducting Due Diligence on your own

In order to be confident in a transaction, you can conduct Due Diligence on your own; it includes analysis, which is the basis for complete elimination or significant minimization of possible negative consequences. You will also have the opportunity to take a comprehensive look at the situation and it will help you optimize many business processes depending on the scope of the analysis. Conducting Due Diligence will give you a complete picture of the activities in which you plan to invest, or about the object to be purchased.

The first task in conducting the study is to collect complete information about the subject of the transaction; state registries, documents confirming ownership, tax and accounting reports, expert assessment of an object in the relevant market, prospects for its growth or decline, and other details may be the source of information. Then, you need to evaluate all available information identifying risks and benefits, to check it for compliance with legal requirements. These actions will help you achieve your goals and make the right choice. However, in order to save your time and get a guaranteed result, you can always address to experts.

Your right choice and reliable partner – Law Firm “DOMINANTA”

Our team has many years of experience in the practice of mergers and acquisitions M&A – we have conducted a comprehensive pre-investment study Due Diligence of Ukrainian and foreign companies more than 20 times. As a result of numerous transactions which were supported by the team of Law Firm “DOMINANTA”, the investor always received the results predicted by us and most of them became our regular customers. The lawyers of Law Firm “DOMINANTA” provide a full range of services in support of the investment process, and our professionalism and responsible attitude to work guarantee the result you expect. Our job is to help you make the right decisions that will generate profits.

We work for your success!