Due diligence is what must be done to protect against loss, as well as from civil suits for negligent actions. It is the fulfillment of the obligation to offer protection if there would be risk should actual circumstances differ from the anticipated.Financial due diligence is the verification of representations and claims made by one party to another in an economic transaction. It is a process whereby we perform an extensive background research or financial investigation into a company or an individual, and compares the results of the research or investigation with the facts, expectations, and representations made by the company or individual. The process is simply to gather, check, discover, and verify. This requires the experience and judgment to know when, where, and how to explore further to uncover what hasn't been disclosed.
Financial due diligence is particularly important in business transactions in emerging markets, since there is a much higher risk of misrepresentation, fraud, corruption, and criminal activity. Complicating matters for most organizations, this financial due diligence must be exercised in an environment where they often understand neither the language, nor the culture, nor the laws, and are ignorant of local financial and business practices. In addition, there is a tendency for Westerners to look at and trust accounting records, without physically examining either the actual facilities or the political, corporate, and economic relationships of the owners. The reality is that business practices, legal procedures, and infrastructure are still in transition in many areas, with many pitfalls and problems associated with less-developed economies.
Financial due diligence is not a pass-or-fail process. It calls for experience and judgement to know when to explore further, as well as how and where. Additionally, the financial due diligence process is not just verifying facts that have been disclosed, but uncovering those that have not. The LUBRINCO Group has worked to develop the same strong investigative capabilities in Central and Eastern Europe, Japan, China, Latin America, and the offshore financial centers that we have in North America. Our staff is equally knowledgeable about both local regions and Western needs and business practices. This helps reduce loss from misrepresentation and fraud, and liability from failure to exercise appropriate financial due diligence in these environments.
The LUBRINCO Group can help assure that you have approached all transactions with appropriate due diligence, thereby reducing the loss (as well as the often-considerable liability for failure to exercise due diligence) that occurs as the result of misrepresentation, fraud, and poor choice of strategic partners. While the greater portion of our clients are contemplating investments in the tens of millions of dollars, any business relationship whose failure would stress your organization should trigger the appropriate exercise of financial due diligence.
The LUBRINCO Group can also help you with strategic partner location, a process sometimes called reverse due diligence. We can work with you, using the same tools and skills used in conventional due diligence investigations, to help you isolate countries and companies which meet your needs as strategic partners; help you qualify them; and help you negotiate through the final signing of the contract.
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