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PKF Australia

Accountants and Business Advisers

Do you 'really' know who you are doing business with?

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Milind Sheth

Manager

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Do you 'really' know who you are doing business with?

Due diligence is critical in today’s business environment as regulator, shareholder and public scrutiny is greater than ever. At PKF, our business intelligence offering is designed to provide our clients with the necessary information to minimise the risks associated with a variety of commercial transactions including mergers and acquisitions, appointment of channel partners, procurement and/or pre-approval of contractors, appointment of senior executives and many more. 

Recently, PKF was engaged to conduct due diligence enquiries in relation to four directors whom collectively were investing US$10 million – through a joint venture agreement - into our client’s manufacturing plant. We were provided with a Mergers and Acquisitions due diligence report by a third party and there were no indications to suggest the deal should not go through. Our client was looking to grow and required the funding. The four directors saw value in the proposition and were eager to invest. On paper, everything looked positive, the directors were very successful business owners and investors. They had significant assets, positive cash flows and low debt. More often than not, clients are happy to continue with the transaction.  

In this instance, though, there were red flags associated with all four directors. We looked beyond the traditional financial metrics and conducted background searches on all four directors including (but not limited to):

  • Social media;
  • Third party enquiries;
  • Asset searches;
  • Criminal checks;
  • Civil litigation;
  • Bankruptcy/insolvency;
  • Regulatory review; and
  • Global compliance checks including major international online sanctions, enforcements and world-check proprietary suite of risk and compliance databases.

Our findings revealed, amongst others:

  • One director had been indicted for corrupt behaviour of bribing a police officer and was imprisoned;
  • One director had a close relationship with one of the wealthiest individuals in China and this individual did not have a good reputation amongst his peers;
  • One director was involved in a lawsuit in which they were a defendant to a contract dispute; and
  • One director was identified to be a politically exposed person as they were a current member of a power political party.

Our findings allowed our client to make an informed decision on the joint venture. In some instances, clients may walk away following the identification of these red flags, as the risk of reputational damage may outweigh the considered benefits to the company.  However, in other instances, companies may be willing to take on this added risk and use the findings to negotiate more favourable contractual agreements with the other party.

Our business intelligence service can help minimise your organisation’s risk. In addition to fundamental financial, legal and operational due diligence it is increasingly imperative to conduct the 4th arm of due diligence – reputational or business intelligence. Accurate and up-to-date intelligence is a key component in your decision-making process. Let PKF be your trusted advisers in providing you with this information.


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