Minimising investment risks through the due diligence processes

Background

Our client was considering the acquisition of a large port. The due diligence conducted revealed the risks previously unknown to the potential buyer, as follows:

1) the port area appeared to include a facility controlled by the Emergencies Ministry of Russia which operates it as a fire station. Since the title to that property is registered in third party’s name, it cannot be included in the transaction;

2) existence of several civil defense and emergency facilities limits the intended use of the estate. Such facilities also involve maintenance costs which the owner would be obliged to assume responsibility for as a matter of law.

The Case

Our client received an in-depth understanding of the proposed transaction subject, associated risks and the enhanced perspective of potential investment project costs. As a sequence, the business plan and transaction value were accordingly adjusted.

Why is it of importance?

Unfortunately, the due diligence process is neglected by purchasers of cost-taking commercial properties in many cases. This results in increase of running maintenance costs, risk of claims from regulatory authorities and reputation risks. CG helps its partners to receive full and correct information on transaction subjects, as well as save costs and avoid unanticipated losses.