Due Diligence is a term that is used to denote the process of collecting comprehensive information on the company’s in financial, legal, labor, tax, environment and market/commercial state. The findings are handed over to a prospective investor or acquirer in order to assist them to decide whether they benefit from the prospective deal.

Based on internal information, regulations, and details available from competitors and/or partners, Due Diligence is carried out for the following purposes:

·          to verify whether financial, legal, technical or any other internal information is true;

·          to find evidence for data and targets of a business plan;

·          to assess what short-term and long-term corporate strategies could be implemented;

·          to verify whether all documents are duly executed and meet applicable laws and corporate regulations;

·          to make sure tax and statistic reports are duly submitted to the relevant authorities;

·          to evaluate the company’s competitive advantages in the market;

·          to make sure the corporate management is competent enough to achieve business targets.  

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Timing of the merger and acquisition process comprising the period from initial engagement to closing, can vary widely from several weeks to many months depending on the state of the M&A market, the specific product category and target market, the complexity of products and related technology, the number and type of prospective buyers or targets, buyer review processes and approval cycles, the style and experience of each party's lawyers and accountants, the nature and scope of due diligence issues.

It ordinarily takes from three to eight months from the inception of the process until an LOI is signed, and another two to four months before the signing of definitive agreements and closing.

The sale or purchase of every private business is aunique event, yet some elements are common toalmost all M&A transactions. Here is a step-by-step overview of our typical approach:

Buy-side process:

·          Formulate and clarify acquisition strategy and acquisition parameters;

·          Create Information Memorandum;

·          Identify and contact acquisition candidates;

·          Evaluate and qualify acquisition candidates;

·          Value acquisition target;

·          Negotiate purchase price and Letter of Intent;

·          Due Diligence coordination;

·          Contract drafting facilitation.

Sell-side process:

·          Acquire information and develop strategy;

·          Develop offering Information Memorandum and build on-line data room;

·         Contact potential buyers and distribute information materials;

·          Evaluate level of interest and begin preliminary negotiations;

·          Negotiate price and structure the transaction;

·          Facilitate Letter of Intent, Due Diligence and Closing.

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The main expenses incurred by the bond issuer include:

·          Issue registration fee charged at 0.1% rate of the issue nominal value;

·          ISIN (international securities identification number) fee – UAH 1,888.00 irrespective of the issue nominal value;

·          Announcement of the bond issue in official printed media of the State Commission for Securities and Stock Market charged at the applicable rate;

·          Auditor’s services charged at the rate of the audit firm;

·          MFS Depository fee charged at the applicable rate;

·          Underwriter’s fee charged at up to 1%;

·          Payment agent’s fee charged at the applicable rate;

·          PFTS listing fee including one-time fee of UAH 2,000 and an annual fee of UAH 1,000.

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Our company acts as a lead-manager and an underwriter in transactions of corporate and/or municipal bond issues with a volume no less than UAH 10mln.

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The process of a business valuation is often new and challenging to first-time clients, so we provide an overview of the steps necessary to prepare an independent valuation.

Preparation Phase.Upon signing a contract we send a comprehensive checklist request for information which include the company’s historical financial statements and detailed operating and structural information about the business, and the market in which it operates. This phase of the valuation can be accomplished by telephone and personal visits to the company and its professional advisors, as required.

The Valuation Phase.Upon receiving a response to the checklist request for information, we begin our preliminary analysis of the company, including research and review of the appropriate industry background. Upon review of the checklist and industry information, we schedule an on-site appointment with management to discuss the operations of the business.

Following the company visit, the analysis is completed. Specific documented adjustments are made after being discussed with management, in context with more subjective conclusions, e.g. the weighing of some factors more than others.

Valuation Results. The valuation results are explained in our comprehensive and customized, professional valuation reports. These reports provide a transparent, clearly documented rationale for the valuation results.

Once our preliminary analysis is complete, we send the client an executive draft report with the findings. The client’s review of our draft report is an important element in the process.

After receiving feedback from the client, we finalize assumptions, re-run the valuation analysis to get the final results and prepare a report fully documenting the findings.

Final observation. We believe that our job is not just to prepare a comprehensive valuation that accurately reflects the value of the business and to arrive at a number, but to make sure our client understands where these figures came from and what assumptions were made to arrive at that conclusion. So after completing the Valuation Report, we present the results and, most importantly, make sure the client understands the underlying facts and figures.

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From the moment of approving issue-related documentation to actual bond placing and money transfer, it normally takes from 7 to 8 weeks required for registering an offering memorandum and taking some marketing steps (road shows etc).

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High profitability is the main benefit of investment funds. Although investment companies do not guarantee high-profit investments, the interest rate is normally higher than that of bank deposits. For example, average profitability of open and interval investment funds was three to five times higher in 2007 than the average deposit yield at commercial banks, while closed-end funds that are normally exposed to greater risk showed more than 100% rise in year-end profit. 

Sound liquidity (investor’s ability to promptly sell its certificate (share) without any loss) is the second benefit. Certificates of open-end investment funds can be easily bought back on a daily basis with no negative yield applicable, while termination of a fixed-term deposit normally cuts down an interest rate by a multiple of three to four. Interval funds allow investors to withdraw their investments on a specific date (that usually falls on the first business day of every month). Although closed-end funds, unlike bank deposits, have no benefits in terms of liquidity, some companies may, subject to an agreement with a customer, buy back shares and certificates of such closed-end funds upon customer demand before the fund is closed.

Prompt profit reinvestment is the third benefit. An investment fund reinvests income on a daily basis making every hryvnia earned work longer for the investor’s benefit unlike the majority of bank deposits that offer only monthly interest income capitalization (if any) at best.

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Corporate pension funds (CPFs) are now considered to be the most efficient staff incentive programs allowing an employer to show its commitment to social guarantees and promote an image of a socially responsible employer. Furthermore, pension payments do not bring an additional tax burden for the employer as payments made as 15% of an employee’s salary and are ascribed to gross expenses which reduce the tax base.

The employer saves UAH 0.25 in withheld income tax per UAH 1 through CRFs, while a salary raised by UAH 1 would increase an employer’s expenses by UAH 1.53. The employer could save approximately UAH 0.78 through redistribution of funds intended for staff incentives and benefits and pension schemes.

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Closed-end investment funds normally require higher contributions. While open-end and interval investment offer individuals the opportunity to invest more than UAH 1,000 thousand, the average minimum contribution to the closed-end fund exceeds UAH 10,000.

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To make the right decision regarding the volume and direction of an investment, it is necessary to learn a fund’s Offering Memorandum.One should purchase a fund’s certificates and shares only when there are no doubts or hesitations about the fund’s investment strategy.

Funds’certificates (shares) purchase procedures are different for corporate clients and individuals.

To enter an investment fund, an individual investor should do the following:

1)       Sign an application for purchasing shares (certificates);

2)       Sign a certificate ownership application;

3)      Submit a notarized spouse’s agreement for purchasing shares (certificates) in case of his/her unavailability when signing the share purchase agreement;

4)       Submit a passport and ID certificate;

5)       Sign a share purchase agreement;

6)       Pay the shares’ (certificates) value within an indicated period.

To enter an investment fund, a corporate investor should do the following:

1)       Sign an application for purchasing shares (certificates);

2)       Sign a certificate ownership application;

3)      Submit the following documents (originals or notarized copies): the Company Charter and Articles of Incorporation, Minutes of Shareholders’ Meeting, State Registration Certificate, UAH account details, Tax Payer Certificate, SSMSC Certificate (if available), and an authorized person’s passport;

4)       Sign a share purchase agreement;

5)       Pay the shares’ (certificates) value within an indicated period.

Ifshares (certificates) are issued in a non-documentary form, an investor should open a securities account at the relevant bank.

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