DUE DELIGENCE – For investors

Despite the global political and economic situation, the most optimistic investors are still continuing their attempts to find companies attractive for investment. As a rule, such investors are guided by a simple consideration: “Crises come and go, and the business should develop.” There are even those who consider the changes that have occurred positive.
There are many problems that arise in the process of interaction of the investment structure with potential initiators of projects. The most common of them: the inability of management to formulate a development strategy for the company, develop a sound business plan, present a specific financial proposal. However, imagine that all these problems have been resolved. Representatives of investors come to the company accompanied by a group of specialists, including: auditors, lawyers and technologists and business analysts in order to get acquainted with the company on the spot. This step is called Due Diligence. Before making an investment decision, any professional investor should:
• verify the accuracy of the financial and other information provided;
• find confirmation of the assumptions inherent in the business plan;
• make sure that all the necessary documents are correctly executed, including for their compliance with applicable law;
• make sure that the leaders of the company are those people who are able to implement the strategy and ensure the achievement of goals.
Unfortunately, during the audit process, investors are faced with many problems. In most cases, these problems are not the result of the desire of the initiators to hide or distort information. As a rule, the reasons are much simpler: low efficiency of the procedures for collecting, recording and storing information or the lack of an elementary order in company documents. It is no secret that for many initiators, the task of presenting information on the sales volume of a particular type of product, its cost price and cost structure is an insurmountable problem. Moreover, even the information available to the company is often in an unstructured and fragmented form. At the same time, the availability of complete and correct information about the activities of the company is a necessary and extremely important condition for ensuring effective management. It should also be taken into account that after investors have acquired the shares of the enterprise or have become part of the founders, they should be able to receive comprehensive information on the results of the company’s activities and plans for its development on a regular basis or upon request.
Alfa Resonance Capital Ltd offers investors a thorough verification of the initiator – a potential partner in 2 main forms of work – stationary and field. In this case, the main sources of research will be the following initial information data:
1. Organizational and legal documents:
• Statutory and registration documents, subject to changes and additions;
• The register of shareholders and information on operations with the issuer’s shares and regarding further actions with share capital;
• Information on shares of subsidiaries and affiliates.
2. Property rights:
• Lists and descriptions of real estate, equipment and other property, as well as documents confirming the cost, property rights or orders;
• Mortgages or accounts regarding equipment or inventories (raw materials, materials, blanks and finished products);
• The list and documents confirming ownership or disposal rights, as well as a description of registered patents, trademarks and industrial designs;
• A list and description of inventories, property and stocks (type, unit and storage location).
3. Debt obligations:
• Credit agreements, obligations (bills) issued or received by the company, guarantees (of the company and personnel);
• Statements (or other documents) notifying of default;
• Verbal agreements regarding further actions with assets.
4. Licenses and permissions:
• Licenses and permits of local, regional and federal authorities for the placement or conduct of this type of activity;
• Certificates and licenses for compliance with health and safety requirements, as well as for compliance with environmental requirements;
• Correspondence (correspondence) with the state bodies that control the activities of the enterprise.
5. Contracts:
• Licensing, patent, agency, distribution, trade and other agreements;
• Contracts for deliveries, for the purchase / sale of assets, contracts, for the provision of consulting services and other existing agreements;
• Employment agreements.
6. Litigation and Arbitration:
• Claims brought against the company and at the initiative of the company;
• Correspondence (correspondence) regarding these claims;
• Judicial documents;
• Documents on deprivation (loss) of rights;
• Collection orders received anti-dumping letters;
• Documents related to bankruptcy proceedings.
7. Finance and taxes:
• Reports on the payment of local, regional and federal taxes;
• Correspondence regarding taxation issues;
• Level and procedure of taxation;
• Financial statements for the last three years;
• Audit reports and correspondence;
• Report on operations on all bank accounts for 6 months;
• Primary financial information (ledgers and accounts), including information in automated accounting systems:
• chart of accounts;
• A list of suppliers and dealers of the company, with a description of payables and receivables, as well as deferred payments;
  1. Securities:
  • Permits for the issue of securities and their registration;
  • Registration documents, placement information, prospectus documents;
  • Correspondence with the Federal Securities Commission.
  1. General questions:
  • Provided power of attorney (correspondence) on behalf of the company and in relation to the company;
  • Insurance policy, including obligations and insurance policy in relation to employees;
  • Detailed information about key managers: name, address, age, experience, position, description of job responsibilities in the company, salary and incentive system;
  • General information about employees: number (full-time and freelance), working hours and wages, incentive system;
  • History of strikes;
  • Materials on the rules and procedures adopted by the company, materials and documents for hiring employees, policies in the field of advanced training;
  • A complete organizational chart of the company, a detailed description of the internal operating structures, taking into account the following: who plans, monitors, performs functions, analyzes their results, as well as what management decisions and actions are usually taken;
  • Past and present business plans of the company;
  • Certain marketing details, sales structures, methods and programs, including the functions of sales personnel, special and special actions to promote products;
  • Description of the process.