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.

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

“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

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 2 nd Annual Business Intelligence Survey

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?

Who are these people, really?

What am I not being told?

Do all the dots connect?

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

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: 1.Data mining of publicly available material; 2.In-depth and discreet field inquiries; 3.Review and analysis of Non-Disclosure Agreement information; 4.Detailed report and analysis

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

Before FCPA

After FCPA: Recent Corruption Cases