Background
A Norwegian private equity firm planned to sell one of its portfolio companies. It operated worldwide as a supplier and spare parts supplier to the aerospace industry. Many employees of the investment company would find it difficult to separate from the parent company since, over the years, they had put a lot of heart and soul into the company. Not only was it now profitable, but some newly developed components were even used on projects to Mars.
Experts gave the company’s products and engineers the highest accolades, and the aim was to use this buoyant assessment to attract fresh investment and further growth. Before the company was actively offered to the market, the company wanted to ensure that no problematic facts would arise during any review by prospective buyers that might have a negative influence on the purchase price, or even become a deal-breaker.
A professional compliance management system (CMS) had not yet been implemented in the company. However, the company was considering investing in organisational changes in order to increase interest in the business, especially from sustainable and value-orientated investors.
Task
For this reason, REMARKABLE Compliance was commissioned to prepare a comprehensive analysis and assessment of the potential compliance to which the company might be exposed. Based on this risk matrix, more detailed checks of particularly risky areas, regions, employees and business partners would be carried out.
Findings
As part of a compliance risk assessment, numerous business-typical risks were identified and evaluated. The majority of the company's customers and clients were state-owned or state-affiliated companies from countries with limited rule-of-law structures. However, none of the business partners were listed on sanctions or warning lists. Extensive research in publicly accessible sources did not reveal any abnormalities in business relationships which, for example, might point to incidences of corruption or bribery. More in-depth investigations were therefore not carried out at first, due to a lack of evidence.
Based on further special criteria, some suspicious business partners were finally identified and subjected to a more detailed examination. This review revealed, among other things, that a small group of senior executives had concluded numerous overpriced service contracts with decoy companies owned by family members or friends. This practice continued for many years and the cumulative damage amounted to several million Euros.
Based on the results of the investigation, the employees associated with this practice were dismissed immediately, and their employment contracts were terminated. In the following quarter there was a significant improvement in profitability in the affected areas. Criminal charges were waived, however severance payments were not made.
Results
An effective CMS was implemented very quickly, using the findings of the audit. The proactive proof, an independent compliance audit, and the elimination of business-damaging processes in the company made an extremely positive impression on prospective buyers, leading to a more profitable and expedient exit for the Norwegian client.