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Why due diligence is needed. Financial statements show what the company wants to show. Due diligence is needed to see what did not make it into the statements: hidden liabilities, affiliated-party transactions and litigation risks.
What to look at first. The ownership structure and history of changes of owners, whether major transactions of the past three years were real and on market terms, and the presence of unresolved court disputes and orders from supervisory authorities.
A typical mistake. Limiting the work to a financial audit and skipping legal review of the corporate structure: that is where the risks that surface only after closing most often hide.
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What a comprehensive review covers
A review is not limited to a single document. A full due diligence splits into several parallel workstreams, and missing any one creates a blind spot where problems are most often found after signing.
Main areas of review:
Warning signs
A change of director or auditor shortly before the deal. If a key person responsible for financial reporting leaves the company a few months before it is put up for sale, there is reason to look into the causes separately: coincidence is rare.
Transactions with affiliated parties on non-market terms. Lease, supply or loan agreements with companies linked to the owner distort the real picture of the business’s profitability and, after the deal, may be challenged or terminated by the new counterparty.
Court disputes grouped just below the disclosure threshold. The seller must disclose material disputes, but several formally separate claims for similar amounts against the same counterparty are a reason to ask directly rather than rely on the formal completeness of disclosure.
Key contracts with a change-of-control clause. A counterparty’s right to terminate on a change of owner can destroy the value of the very assets the deal is meant to acquire: a major client, a premises lease, a licence or a franchise.
Special features of review in deals with a foreign element
The beneficiary structure is rarely visible from a single register. If the target’s shares are held by a holding company in another jurisdiction, reconstructing the real chain of ownership means pulling the registers of each intermediate company separately; in some jurisdictions this information is not public and requires formal requests.
Currency control and restrictions on controlled persons. Before structuring payments for the deal, we check whether either party falls under restrictions that would make it impossible to transfer the money or register the transfer of rights after the contract is signed.
Legalisation of foreign documents. Corporate documents, extracts and opinions obtained abroad often require an apostille, consular legalisation and a notarised translation; without these neither a court nor a registration authority in Russia will accept them.
Several legal systems in one review. Due diligence on a target with assets in two or three countries requires separate local opinions for each jurisdiction; conclusions under Russian law do not cover risks governed by foreign law.
How a due diligence engagement runs
Below is the typical internal logic of a review, not a universal template: the set of steps and their depth always depend on the sector and the structure of the target company.
Preliminary analysis
We pull open sources, including the Unified State Register of Legal Entities (USRLE), the commercial court case index and the bankruptcy register, before the NDA is signed and internal documents are requested. Timeframe: 2-3 days.
Preparing the request and data room access
The list of requested documents is prepared for the specific deal and sector, not from a standard template. Timeframe: 3-7 days to arrange access.
Document analysis and management interviews
The legal, tax and financial tracks run in parallel, and discrepancies are clarified directly with management and the owners. Timeframe: 2-4 weeks.
Risk matrix and deal recommendations
Each risk found is turned into a concrete proposal on deal terms: a price reduction, a separate seller warranty, an escrow for a specific amount. Timeframe: 3-5 days for the final report.
Counterparty checks go beyond M&A
Buying foreign property or a stake in a private business. Before a large personal investment, check not only the asset but the seller: its history of disputes, encumbrances, and the authority of the person signing the contract on its behalf.
Entering a partner’s business as a private investor. Due diligence is also needed when the matter is not buying a whole company but taking a stake: the risks of affiliated transactions and hidden liabilities affect a minority shareholder no less than a controlling one.
Checks before taking up a post with personal liability. A director or board member answers with their own property for the company’s decisions. Before accepting an offer, it makes sense to check the company’s financial condition and litigation risks as carefully as a buyer does before a deal.
Vetting a counterparty before a large personal loan or guarantee. Arrangements for financial help to a partner’s or relative’s business are often made as a guarantee. Without a basic check of the counterparty’s solvency and assets, such a guarantee becomes a personal risk that shows up years later.
Due diligence in numbers
Experience in this area specifically, not in the firm’s practice as a whole.
Frequently asked questions
How much does due diligence before a deal cost?+
It depends on the scale of the deal and the depth of the review, and is discussed individually after an initial look at the target’s structure.
Can I carry out due diligence myself, without lawyers?+
Technically yes, but legal review of the corporate structure and litigation risks is exactly what non-professionals most often miss.
Planning a deal and want to commission due diligence?+
Leave a request, and the partner in the corporate practice will contact you within one working day.