M&A: Mergers and Acquisitions

Tax due diligence is a comprehensive analysis of the target's tax position to identify any hidden tax liabilities, risks of additional assessments and any factors directly affecting transaction price and terms. It is performed alongside the financial due diligence and is a mandatory buyer protection component regardless of the transaction structure. 

Key areas within the scope: 

• Tax reports and compliance: Confirmation of the completeness and timely submission of tax returns. Analysis of compliance in terms of value added tax (“VAT”), corporate profit tax and other charges. 
• Tax history: Analysis of the findings of previous tax audits, any non-compliance identified and ways to address it. Evaluation of the statute of limitations for each risk identified to determine the realistic probability of additional assessments. 
• Status of payables to the budget: Identification of any outstanding tax liabilities, penalties or overpaid balances. Evaluation of the present status of payables to the budget and their impact on the transaction's net debt. 
• Tax loss carryforwards: Analysis of tax loss carryforwards in terms of their size, utilisation years and restrictions following the change of control over the company. Tax loss carryforwards may either be a significant asset to the transaction or, conversely, expire after the closure. 
• Transfer pricing: Analysis of the arm's length basis of transactions with related parties. Quality assessment of TP documentation, identification of the risks of additional assessments resulting from controlled intragroup transactions. 
• Permanent establishments: Analysis of potential undeclared permanent establishment risks across jurisdictions in which the group operates — a critical consideration for multinational companies with distributed operating models. 
• Indirect taxes: Confirmation of appropriate VAT rates, recovery models, analysis of supply chain risks. Assessment of the validity of input VAT recovery claims, taking into account the status of counterparties. 
• Counterparties: Analysis of the tax status of key suppliers and customers. Screening of counterparties against registers of high-risk taxpayers, assessment of the impact on the sustainability of business relationships and entitlement to VAT credits. 
• Impact on the transaction value: Quantification of the tax risks identified and their reflection in the transaction price. The findings of the tax due diligence represent inputs into the financial due diligence as outstanding tax liabilities are included in the net debt or classified as contingent liabilities. 

✓ Deliverable

A report with a list of quantified tax risks (amount of potential additional assessments), expiry timing and recommended impact on the transaction price, structuring of tax guarantees and reimbursements in the SPA.

Legal due diligence represents a comprehensive legal check of the target to identify any legal risks, impediments and hidden liabilities that may affect the price, structure or enforceability of the transaction. It protects the investor from acquiring assets with hidden legal issues and forms an objective basis for definition of protective clauses in the contract.

Key areas within the scope:

• Corporate structure and governance: Analysis of statutory documents, registration, ownership structure and the ultimate owner chain. Review of corporate decisions, management authorities and compliance with corporate procedures. 
• Title and intellectual property rights: Confirmation of rights to real estate properties, equipment, brands, patents, trademarks. Identification of any encumbrances, licensing restrictions and risks of breaching third party rights.
• Contractual commitments: Review of key contracts with customers, suppliers and partners for any risks, restrictions and clauses that may change or become unenforceable following the change of ownership. 
• Disputes and legal risks: Analysis of any current and pending litigation and third-party claims. Quantification of impact on the financial position and operations of the company.
• Employment relationships: Review of employment contracts of key personnel, social commitments, compliance with labour law. 
• Currency regulations: Analysis of compliance with currency requirements, review of foreign currency denominated transactions, evaluation of the impact of currency restrictions on the company’s business and the transaction structure.
• Antimonopoly restrictions: Analysis of potential antimonopoly risks, assessments of any required merger control and/or concerted practices clearance permits, identification of any restrictions resulting from the transaction's impact on competition. 
• Regulatory and environmental compliance: Assessment of compliance with industry regulations. Confirmation of existence of the required licences, permits, environmental certificates, etc.
• Impact on the transaction value: Assessment of the impact of the identified legal risks and liabilities on the transaction structure, price and closing terms.

✓ Deliverable

A due diligence report listing the quantified risks identified and recommendations to mitigate or reflect these risks in the terms and conditions of the sale and purchase agreement.

Antimonopoly due diligence represents a specialised analysis of the proposed transaction for compliance with competition law in order to assess whether any merger control and/or concerted practices clearance permits are required, predict the position of antimonopoly agencies and identify any risks that may block, defer or significantly alter the structure of the transaction.

It protects the parties from the risk of implementing a concentration without the required permit, the risk of the transaction being characterised as anti-competitive concerted practices and potential fines, while also establishing a realistic timeline for transaction closing.

Key areas within the scope: 

• Qualification of the transaction and required permits:
  • Analysis of the proposed transaction for indicators of concentration and/or concerted practices in accordance with the Law of Ukraine on Protection of Economic Competition. 
  • Evaluation of the transaction structure through the form of control acquisition. General analysis of the parties’ financial performance to identify whether an AMCU permit is required. 
  • Identification of relevant commodity and geographic risks, estimation of the total market share of each party at the time of the AMCU application and after the deal closure, identification of the risks of strengthening the monopoly (dominating) position. 
  • For transactions funded through the support of the state or local authorities, identification of the state assistance indicators requiring mandatory notification. 
• Identification of a list of other jurisdictions with potential concentration permits required. 
• Preliminary prediction of the approval scenarios and the history of interactions with the regulator: 
  • Assessment of the likelihood of the concentration permit being granted: using a simplified process, on general grounds, a permit subject to regulatory covenants or concentration approval declined. 
  • Screening for any previously granted permits or AMCU resolutions applicable to the company/group or any previous charges for competition law violations.  
• Impact on the transaction timeline, structure and terms: 
  • Determining the impact of the approval process (simplified or in-depth processing) on the transaction closing date and any conditions precedent required to be incorporated into the terms.
  • Assessment of any regulatory covenants required to be included in the sale and purchase agreement, the allocation of the risk of potential approval declined by the regulator, hell-or-high-water clauses and break-up fee in case the transaction is not closed for regulatory reasons. 

✓ Deliverable

A report containing an assessment of any required merger and/or concerted practices approvals in Ukraine, an analysis of market shares and the impact of the proposed transaction on competition in the Ukrainian market, anticipated likely scenarios of the approval process (simplified/general, permit granted / granted subject to covenants / declined), assessment of impact on the closing timeline and recommendations on structuring the protective clauses in the sale and purchase agreement (conditions precedent, allocation of regulatory risk, break-up fee in case of the inability to close the transaction. 

Commercial due diligence represents an independent review of the target’s market position, competitive power and commercial capability to validate the transaction’s business case and confirm how realistic management forecasts are. It helps avoid overpaying for the asset and secures a final confirmation of the rationale behind the investment decision.

Key areas within the scope:

• Market and competitive environment analysis: Market size and trends, demand drivers, competitive force analysis, market share of the target, barriers to entry and exit. Assessment of the competitive position sustainability over the medium-term horizon.
• Product strategy and pricing: Analysis of the product portfolio and development pipeline, product lifecycle stages, margins and commercial potential.
• Customer base and demand review: Analysis of revenue concentration by customer, assessment of customer loyalty and churn risk, sales channels effectiveness. Assessment of the resilience of key customer contracts in the event of a change in ownership.
• Commercial assumption stress testing: Confirmation that the expected growth rates are realistic vs. the market realities. Adverse scenario modelling: market contraction, loss of key customers, increased competitive pressure, etc.
• Operating model and scalability: Evaluation of operating processes in terms of their capability to support the expected growth. Identification of bottlenecks that may limit the implementation of the investment thesis.

✓ Deliverable

A report with an independent assessment of the company’s market position, verification of management's commercial forecasts, identified risks and recommendations to reflect their impact on the transaction price and terms.

Integrity due diligence represents a comprehensive analysis of information about the target, its management, owners and key counterparties to identify potential reputational, sanction and corruption risks that may affect investment or business decisions.

Key areas within the scope:

• Company background: Collection and analysis of background information about the company, including its registration details, type of business, key assets, and establishing the structure of ownership and ultimate beneficial owners (“UBO”) based on state registers and publicly available sources. 
• Sanction risks: Screening of the company, its owners and key individuals against sanction lists (the Council of National Security and Defence of Ukraine, OFAC, EU, UK, UN and others). 
• Reputational risks: Media lookup by keyword, including negative mentions, investigative journalism features, collusion tendering and other mentions in public sources, as well as an analysis of the company’s and its key individuals’ business reputation based on the available information. 
• Politically exposed persons (PEP): Identification of direct and indirect ties with politically exposed persons (“PEPs”), related party analysis, analysis of public declarations and potential risks related to political influence and interactions with state agencies. 
• Judicial and criminal risks: Analysis of court and criminal cases featuring the company and/or its related parties taking into account the nature of disputes and their potential regulatory or reputational impact. 
• Property encumbrances and assets: Analysis of available information about any encumbrances affecting the company and its related parties, including any assets pledged as collateral, seized and subject to other restrictions, as well as a review of available information about movable and real estate properties. 

✓ Deliverable

As a result of the due diligence, the client will receive a structured report on the target and its related parties including a description of key findings, detailed findings by key area citing facts and sources and, where appropriate, recommendations on the next steps, including e.g. additional investigation required.

IT Due Diligence is a technical assessment of a target company's information systems, cybersecurity posture, and digital assets, designed to uncover critical vulnerabilities, technical debt, and hidden modernization costs. It helps determine the true value of technology assets and identify the scope of investment required after deal closing.

Key areas within the scope:

1. IT solution landscape and architecture 

• An analysis of the overall IT system landscape of the Target (core IT system, remote IT systems, call centre, CRM, etc.);
• Technology overview of the Platform (website, mobile apps, related software and applications) from the perspective of the overall architecture, the use of modern vs. outdated technologies, microservice architecture, level of documentation, product strategy, development backlog;
• Analysis of the architecture and the integration capabilities of the system;
• Identification of architectural limitations (scalability potential, bottlenecks).

2. Business continuity and disaster recovery

• Analysis of business continuity and disaster recovery plans, testing results, if any);
• Assessment of infrastructure backup arrangements;
• Analysis of the resilience of information systems and IT infrastructure;
• Assessment of the capacity management process.

3. IT security

• Analysis of the organisational arrangements made to ensure the appropriate security level;
• Assessment and analysis of the operational IT rules and security policies;
• Assessment and analysis of the relevant security aspects in the standard processes of the Target’s IT operations (user management, access and authentication management, issue management), as well as service and support models;
• Analysis of the certification details provided (e.g. ISO27001).

4. Software development process

• Analysis of the software development methodology used;
• Assessment of the change management process and configuration management process;
• Assessment of the release and rollout process management;
• Assessment of the system testing process (performance testing, integration testing and user acceptance testing);
• Analysis of the change management request prioritisation process, assessment of the tasks completed, analysis of the KPIs used;
• Assessment of the system documentation.

5. Human resources (IT)

• Analysis of the IT department organisation structure;
• Analysis of dependency on key IT personnel, dependency on the holding company IT personnel;
• Analysis of dependency on outsourcers in the development and support of systems and infrastructure. 
• Assessment of in-house IT competencies;
• Employment status of key IT personnel (e.g. Diia City special tax regime), remuneration policy.

6. Software and IT asset management

• Identification of potential risks of breaching vendor licensing policies;
• Analysis of intellectual property rights to in-house developed software solutions;
• Analysis of IT operating expenditure (OPEX: servicing, licensing, lease, IT costs, consulting fees), IT capital expenditure (CAPEX: IT equipment purchased and IT projects, with supporting contractual documentation and comments on changes in expense reporting). Analysis of key trends and significant short-term and medium-term IT capital investment requirements.

Optional modules

7. Technical cybersecurity overview

•  Analysis of network architecture and infrastructure (including an overview of network topology, segmentation, firewall rules, network device configurations, etc.);
• Technical security* testing of high-risk applications (may include solution architecture overview, secure configuration overview, black-box testing, automated vulnerability scanning, manual penetration testing using valid user credentials simulating an insider threat, etc.);
• Monitoring of public sources and the dark web for compromised company and customer data, including leaked trade secrets, user credentials, financial information, personal data, etc.

8. Confidentiality and data protection overview 

•  A high-level assessment of records of processing activities, data inventories and data flow maps;
• Data Protection impact assessment;
• High-level overview and assessment of data protection documentation (e.g. data breach documentation and plans, privacy policy, terms of business, etc.);
• Review of selected technical and organisational GDPR compliance activities;
• Analysis of processes, procedures and technologies, particularly on the transferability of data and rights of data subjects;
• Analysis of the data breach notification process and incident and breach response.

9. Source code review 

• Source code and infrastructure code assessment. Includes advice on the architecture, integration and remediation roadmaps;

• Technical debt deep dive:

  • Supportability;
  • Functional suitability;
  • Security;
  • Reliability;
  • Performance;
  • Portability.

10. DevOps Scan 

• Focus on the development processes within the organisation in terms of capability and effectiveness in achieving the defined future goals;
• Deep dive into the working methods:
  • Requirement processes;
  • Operating processes;
  • Selection of tools;
  • Release processes;
  • Change management processes;
  • Development processes.

11. Open-source licences

• Open-source licence scanning can provide visibility into the usage, versions and security implications of open-source libraries;
• Deep dive into:
  • Libraries and releases used;
  • Operating risk;
  • Licensing risk;
  • Security risk.

✓ Deliverable

A report with an assessment of the company’s technology maturity and a list of critical risks. It typically covers the following elements:

•  
• Bill of materials: an overview of what is included in the code and all external dependencies (i.e. a full list of the integrated third party libraries).;
• Licence overview: an inventory of licences (both open-source and commercial) for each integrated library and software component used. 
• Product architecture: an overview and analysis of the product architecture, design principles and specifications. This helps evaluate compatibility with the target integration platform;
• Technical debt: a list of key areas of non-compliance with programming good practices (i.e. defects, overlapping code, excessively complex code structures);
• Vulnerabilities and risks: a list of identified vulnerabilities and mitigating controls;
• Work approaches: an analysis of the processes and tools used by development/ops teams.

ESG due diligence is a comprehensive assessment of the environmental, social and governance (ESG) risks of the target, aimed at identifying hidden liabilities, evaluating exposure to non-compliance with EU regulatory requirements and assessing the impact of ESG factors on business value and access to sustainable finance. 

Key areas within the scope:

• Environmental risks and climate-related obligations: Environmental impact assessments, greenhouse gas emissions assessments (Scope 1, Scope 2 and Scope 3) and reviews of compliance with environmental regulations 
• Social and employment: Assessm                                                                        ent of compliance with labour standards, diversity and inclusion policies, occupational health and safety requirements and engagement with local communities. 
• Corporate governance and ethics: Assessment of the governance structure, reporting transparency, shareholder right protection. The ESG dimension focuses on the quality of governance system and transparency. 
• ESG compliance: Assessment of readiness for compliance with the EU Taxonomy, the Corporate Sustainability Reporting Directive (CSRD), reviews of compliance with international reporting standards (GRI, SASB and TCFD). 
• Supply chains and partners: Assessment of ESG risks relevant to suppliers and subcontractors, analysis of responsible supply policies. 
• ESG reporting and disclosures: Quality assessment f the existing non-financial reports, assessment of readiness for mandatory ESG disclosures. 
• Financial impact of ESG: Quantification of potential fines, compliance costs, impact on access to finance and cost of capital. 

✓ Deliverable

An ESG report containing an assessment of the company’s current maturity, identified non-compliance risks and their financial impact, recommendations to address any gaps and the strategy for preparing for the EU regulatory requirements. 

Transactional financial modelling involves designing analytical models that quantify financial implications of the transaction for the buyer, i.e. the impact on profitability, cash flows, capital structure and the value of the integrated business. It is used to support the maximum acquisition price, assess potential synergies and support the final investment decision.

We provide support across the following areas:

• Transactional financial modelling: Design of financial models tailored to the client-specific and industry-specific needs. Models are developed working closely with the client’s team and using financial modelling best practices.
• Merger modelling: Design of a post-transaction consolidated financial model of the merged company. This involves:
  • Estimation of the impact of merger on the buyer’s financial performance - determining whether profitability of the business will increase following the merger or temporarily decline (accretion/dilution analysis — analysis of changes in earnings per share);
  • Quantification of the economic effect from the merger - estimation of the expected cost saving and additional income driven by synergy;
  • Forecasted financial statements of the merged company as a basis for the investment decision (pro-forma financial statements - financial statements "if the transaction is completed").
• Preparation of business plans and feasibility studies: Development of financial forecasts and feasibility studies to support investment decisions and attract finance.
• Scenario analysis: Modelling alternative development scenarios to support decisions made as part of the transaction - baseline, optimistic and pessimistic scenarios with quantified impact on business value..

✓ Deliverable

A financial model of the transaction with the forecasted financial statements of the merged company, quantified synergies, scenario analysis and estimated impact of the transaction on the buyer's financial performance.

Legal structuring involves designing a legal architecture of the deal that enables the client to meet the commercial goals in compliance with the law of applicable jurisdictions and supports appropriate allocation of rights, liabilities and risks between the parties to the transaction. This involves:

• Deal format selection - comparative analysis of a share deal vs. an asset deal taking into account the legal, tax and commercial implications for both parties;
• Corporate reorganisation planning - development of a plan for merger, acquisition, demerger, spin-off or conversion to optimise the transaction structure prior to closing;
• Carve-out (carve-out of a separate business unit for sale) - a legal and operational restructuring of separate business units or assets to prepare them for a sale;
• Joint venture structuring - development of a corporate structure, partnership agreements and governance and decision-making mechanisms in a joint venture;
• Cross-border transaction structuring - planning transactions involving Ukrainian assets in an international context, e.g. currency regulation, selection of a jurisdiction for a holding structure, coordination of legal matters in the respective jurisdictions;
• Corporate governance structuring - allocation of powers between shareholders and management, establishment of governance bodies of the merged company and decision-making arrangements following the closing of the transaction.

✓ Deliverable

The optimal legal structure of the deal with mitigated legal risks and effective corporate governance arrangements.

Pricing mechanisms represent a set of contractual instruments defining the procedure for calculating and adjusting the deal price (such as locked box, completion accounts, earnout, escrow) to ensure a fair allocation of financial risks between the buyer and the seller during the period between signing the agreement and closing the transaction. This involves: 

• Selection of the pricing mechanism - comparative analysis of the two main approaches: a fixed price on the signing date with restrictions on actions by the parties until the transaction is closed (locked-box) vs. a price adjustment on the closing date based on the actual financial performance (completion accounts). The mechanism chosen has a significant impact on the allocation of financial risks between the buyer and the seller between the signing and closing of the deal;
• Working capital normalisation - determination of normalised working capital as a basis for fair price adjustments; agreeing the composition and estimation methodology between the parties to the transaction;
• Earnout structuring - design of a mechanism providing additional consideration to the seller based on the future financial or operational performance indicators achieved, including protective clauses for the seller restricting any actions by the buyer that may affect the achievement of these targets;
• Escrow structuring - design of an escrow arrangement under which a portion of the transaction consideration is held in escrow to secure the parties’ obligations and provide a source of recovery for potential post-closing claims;
• External risk protection — structuring of Material Adverse Change (MAC) clauses, break-up fee provisions and mechanisms to mitigate foreign exchange and inflation risks.

✓ Deliverable

Balanced pricing mechanisms with an effective risk allocation between the parties to the transaction.

Formulating and agreeing key protective mechanisms:

• seller representations and warranties;
• indemnification obligations;
• limitations of the parties' liability.

Ensuring that risks identified during the due diligence process are properly reflected in the documentation.

• Preparation of pre-closing obligation checklists and monitoring of their fulfilment;
• Ensuring the required corporate approvals, powers of attorney and notarisation of documents are in place;
• Advising on conditions that must be satisfied for the deal to close (conditions precedent);
• Coordination of simultaneous or split signing and closing.

Even a carefully structured transaction does not rule out disputes after closing — concerning the fulfilment of warranties, price calculation or the parties' performance of their obligations. We provide independent professional support to protect the client's interests in such situations. In particular:

• Warranty & indemnity claims - support in post-closing disputes relating to breaches of seller warranties and indemnity obligations;
• Pricing adjustment dispute resolution - independent financial expert analysis for disagreements over the calculation of working capital, net debt or earnout payments.

Operational integration involves aligning business processes, accounting systems, corporate structures and IT infrastructures of the two companies into a single operating model, eliminating any overlaps and achieving the target operating model.

We provide support across the following areas:

• Process and system integration involves aligning operational processes, accounting policies, financial reporting systems and corporate governance mechanisms of the acquired business. 
• Corporate structure improvement involves consolidating legal entities, eliminating overlapping corporate structures and improving the legal architecture of the merged group; 
• Structuring of Transition Service Agreements (TSA) - drafting and supporting transition service agreements between the seller and the buyer in the post-closing period; 
• Stranded cost management - identification and management of costs retained by the seller companies after the sale of a business unit, designing an elimination or reallocation plan; 
• Purchase Price Allocation (PPA) - allocation of the purchase price between the assets and liabilities of the purchased company for the purpose of IFRS reporting.

✓ Deliverable

An integrated operating model with consolidated processes, a single financial reporting system and an improved corporate structure, ensuring post-deal business continuity and operating efficient.

Synergy realisation is a targeted process designed to achieve the expected financial and operating benefits from the integration of the two businesses (cost savings, growth of revenues, strengthened market position), requiring specific planning, progress tracking and management discipline. We assist our client in transforming the expected merger benefits into specific results, including professional support in the following areas:

• Identification and assessment of potential synergies - a detailed analysis of all synergy sources, from cost savings to the revenue growth, with a quantified impact of each source taking into account the achievement costs and realisation timeline; 
• Design of a Value Capture Plan - development of a specific synergy realisation action plan: identification of responsible individuals, timing, required resources and progress tracking metrics; 
• Design of progress tracking and adjustment reports - assistance in setting up a system of periodic reporting to monitor the progress against the synergy realisation plan: tracking key metrics, timely identification of variances and preparing recommendations to address the variances.

✓ Deliverable

A detailed Value Capture Plan with quantitative targets, individuals responsible for each initiative, implementation timeline and a periodic reporting system to monitor progress.

Integration of people and culture involves managing the organisational changes arising as a result of integration, including a new organisational structure design, key talent retention, building a single corporate culture and minimising uncertainty among the personnel during the transitional period.

We provide support across the following areas:

• Organisational planning and team integration - design of the organisational structure of the merged company, identification of key talent and managing uncertainty among the personnel during the transitional period; 
• Design of retention and incentive programmes - design of talent retention and incentive programmes linked to integration targets; 
• Cultural gap management - evaluation of the culture gaps between the organisations and design of approaches to building a single corporate culture.

✓ Deliverable

An approved organisational structure of the merged company with talent retention programmes, incentive system linked to integration targets and the cultural gap management plan.