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May 2, 2007 John MacKessy Managing Director, Investigations & Forensic Accounting

Investigative Due Diligence Applications for Private Equity Hofstra University Annual Conference Private Equity: A New Force for Value Creation. May 2, 2007 John MacKessy Managing Director, Investigations & Forensic Accounting FTI Consulting, Inc.

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May 2, 2007 John MacKessy Managing Director, Investigations & Forensic Accounting

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  1. Investigative Due DiligenceApplications for Private EquityHofstra University Annual ConferencePrivate Equity: A New Force for Value Creation May 2, 2007 John MacKessy Managing Director, Investigations & Forensic Accounting FTI Consulting, Inc.

  2. Investigative Due Diligence: What is it & Why? • Due Diligence - the process of investigation carried on usually by a disinterested third party on behalf of a party contemplating a business transaction for the purpose of providing information with which to evaluate the advantages and risks involved • source: Merriam-Webster's Dictionary of Law • Two Primary Types of Activity • Mergers, acquisitions, and equity investments • Business relationships, including joint ventures, strategic alliances, supplier / distribution agreements, and license / franchise agreements

  3. “Life is a trap for logicians. It looks just a little more mathematical and regular than it is; its exactitude is obvious, but its inexactitude is hidden; its wildness lies in wait.” G.K. Chesterton

  4. Who is performing Investigative Due Diligence • A 2006 survey of 565 investing executives shows that: • 67% conduct background/integrity checks all of the time; • 57% have restructured or renegotiated as a result of information uncovered; • Smaller firms are less likely than large firms to conduct thorough investigations; and • 49% always conduct investigations before entering into international business relationships. • Source: Deloitte FAS 2nd Annual Business Intelligence Survey

  5. Four Questions to Ask About Every Deal • • Who are these people, really? • • What am I not being told? • • What does the record show? • • Do all the dots connect?

  6. Who are these people, really?

  7. What am I not being told?

  8. What am I not being told?

  9. Do all the dots connect?

  10. “Life is the art of drawing sufficient conclusions from insufficient premises.” Samuel Butler

  11. Investigative Due Diligence: When to Conduct • Consider staging the Investigative Due Diligence investigation. This will identify issues to be addressed before a commitment to invest financial and managerial resources is made. • The following are the four common stages of investigative due diligence: • Data mining of publicly available material; • In-depth and discreet field inquiries; • Review and analysis of Non-Disclosure Agreement information; • Detailed report and analysis

  12. International Due Diligence: Special Considerations • Standards of Corporate Governance • Accounting Standards • Auditor Independence • Disclosure Practices • Availability of Public Record Information • Relations with Government Officials

  13. Before FCPA

  14. After FCPA: Recent Corruption Cases

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