Financial and Legal Due Diligence

Due diligence – is comprehensive inspection of legality and commercial attractiveness of a planned transaction or investment project which allows the investors or business partners to make a more profound evaluation of all the avantages, disadvantages and risks of cooperation.

An independent assessment of the state of affairs is necessary when a facility owner is replaced, since it makes it possible to establish a certain level of trust between parties to the transation and to find a necessary compromise, relying upon conclusions and recommendations of experts, to overcome a potential conflict of interests and to choose a form of transaction which would be ideal for the parties.

Involvement of PRUDENS specialists saves time, ensures independence of assessment and quality of results.

The use of DUE DILIGENCE would be expedient in the following cases:

You intend to buy / sell participatory interests, a business, or assests
You want to set up a joint venture or merge companies
You are restructuring your business
You want to develop a mechanism of protection against hostile takeovers
You must check the dependability and solvency of your counterparty
You want to be honest in showing your partner or investor your creditworthiness and presentability.

DUE DILIGENCE may be broken down to financial due diligence and legal due diligence

I. Financial DUE DILIGENCE

Financial due diligence is an inspection of the Company’s financial management system which includes a comprehensive analysis of the internal control system, document flow, company’s financial statements and management reporting data with delivery of information on the company’s key assets and liabilities, profitability of primary activities, expense structure, etc.

Financialdue diligence includes:

1) Review of the cost and management accounting system

2) Analysis of availability and quality of assets and liabilities

3) Economic analysis

4) Tax analysis

1) Review of the cost and management accounting system includes but is not limited to the following procedures:

Analysis of the cost accounting procedure, analysis of the accounting policies
Analysis of the budgeting and planning system
Analysis of the efficiency of planning procedures, analysis of the accomplishment of annual and long-term plans
Assessment of the reliability of financial statements
Assessment of the internal control system
Analysis of the existing document flow system
Analysis of credibility and completeness of income and expense generation
Analysis of the cost price formation procedure
Cash flow analysis
Events occurring after the balance sheet date
Assessment of the accounting information system and accounting database
Acquisition of information upon the client's request

2) Analysis of availability and quality of assets and liabilities includes but is not limited to the following procedures:

Analysis of the structure of assets and liabilities
Analysis of the main assets (both current and non-current) of the enterprise, determination of their availability, condition and value
Express stock-taking of key assets and liabilities
Analysis of restrictions in the management and use of assets, including assets that are leased-out or pledged as collateral for obligations
Analysis of the main assets of the enterprise (bank loans, main creditors) and conditions of the attraction of such borrowed resources
Identification of any existing or expected events which may cause a significant increase in liabilities
Analysis of timeliness in the performance of one’s obligations, identification of the risk of contract breach sanctions imposed against the enterprise and the risk of creditors’ claims in relation to bankruptcy of the enterprise

3) Economic analysis includes but is not limited to the following procedures:

Analysis of the financial condition, financial independence and economic resilience of the enterprise
Analysis of enterprise liquidity and financial solvency
Analysis of enterprise profitability
Analysis of the dynamics in the main key performance indicators which characterize the activity of facility under inspection
Analysis of the structure and income behavior with a breakdown of activity segments, key counterparties, and types of products
Analysis of the structure and cost behavior with a breakdown of elements and activity segments
Analysis of the main investment projects of the enterprise, their achievement index, planned periods, planned completion dates and expected results

4) Tax analysis includes but is not limited to:

Diagnostics of the enterprise tax accounting system
Analysis of the technique of reflecting typical operations in the tax accounting documents
Assessment of the company’s key contracts for compliance with the tax legislation requirements
Analysis of tax aspects in the company interaction with non-residents
Analysis of reflection of non-typical operations which are essential or are characterized by elevated risk (such as operations with connected persons) in the tax accounting documents
Analysis of potential additional tax charges
Acquisition of information upon the client’s request

II. Legal Due Diligence

Legal due diligence is legal examination of the company documents, legal analysis of the correctness of the company’s business management and competence of its management team.

Legal due diligence includes but is not limited to:

Examination of the legality of setting-up procedure, company’s founding documents and authorized capital formation
Examination of the legality of the company management legislative plan
Assessment of the legality of company management team’s authority naming and scope of authority
Investigations of clean title to property
Checking real estate for clean title and identification of existing encumbrances
Assessment of the risks of contesting property rights
Checking business rights and obligations for reality and validity
Assessment of various risks of challenging of the concluded transactions (major transactions, interested-party transactions, lack of authority to sign, etc.)
Legal examination of the main licenses and risks of their withdrawal or suspension
Legal examination of intellectual property items which belong to the company (patents, trademarks, etc.) and risks of their contestation or revocation of registration
Analysis of risks arising from application of competition laws to the company to be purchased and to the purchase transaction itself
Assessment of the possibility of transaction approval by the competition authorities
Overall assessment of the efficiency of contractual work and contracts with key partners as regards their legal cleanness, and identification of the main legal risks
Analysis of the present status and prospects of the main current and potential lawsuits
Analysis of legality of the activity which requires licensing and/or certification

Due diligence helps our customers:

make sure that information about the company specified in the documents is complete and true
take measures against overstatement by the company of its assets and concealment of its debts and material losses
analyze profitability of business in the past and probability of future cash flows
fully assess the risks of investment in an enterprise and prospects for payback
structure a transaction with maximum protection of their interests

On completion of the due diligence carried out by our specialists, we issue a Conclusion which contains the assessment of investment risks and other information necessary for making a decision on the investment and on the transaction price. Should severe financial, legal, tax or other problems or risks be identified, you will have an opportunity to either withdraw from the transaction (from execution of the transaction) in due time or propose that the transaction price or another transaction condition gets adjusted.

COMPLETED PROJECTS

Due diligence of the following companies has been carried out for AB Ukraine LLC (a subsidiary of Swisskom Central&Eastern Europe Ltd.): OOO TK Srim (TK Srim LLC), ООО Nasha Merezha (Nasha Merezha LLC), OOO NVP S-NET (NVP S-NET LLC), : ООО NPP Trifle (NPP Trifle LLC)
ОАО Akhtyrskiy Syrkombinat (Akhtyrka Cheeze Plant OJSC)
ОАО Vasilievskiy Syrzavod (Vasilievskiy Syrzavod OJSC)
ZАО RAKS (RAKS CJSC)
ОАО Lvovskiy Zavod Avtopogruzchik (Lvov Automatic Loader Plant OJSC)
ОАО Krasnaya Zvezda (Kraznaya Zvezda OJSC)
ZАО Glukhovetskiy Kaolinovyi Zavod (Glukhovetskiy Kaolin Plant CJSC).