Country Risk for M&A
Corisk supports clients throughout the M&A process in demanding markets. We can assist in process design, market scanning and analysis, Due Diligence, choice of jurisdiction, risk reporting and risk mitigation before or after deal closure. With the client, we are eager to develop a solid and cost-effective Due Diligence process. If further niche competence is needed, we will support the vendor sourcing and negotiation process to ensure that the client procures only key services at minimal cost.
Our services include:
- Due Diligence Risk Scan – a first risk picture to pinpoint particular risk areas for the further Due Diligence process.
- Country Risk Deep-dive – Mapping, verification, and reporting of the market’s country risk.
- –Red Flag Reporting – discussion, verification, and reporting of the market’s “red flags”.
- Integrity Due Diligence – background check of customers, partners, owners, and politically exposed persons against sanctions and business practices. Performed with external partners.
- Country Risk Premium – country risk rate for Cost of Capital.
- Support the sourcing of niche expertise.
- Support the choice of jurisdiction of registry.
- Support the production of documents to management and board.
- Support the mitigation of risks before and after closing.
By need of further niche expertise, we support the client’s sourcing and negotiation with external vendors to ensure that the clients procures critical expertise at the right price.
Country Risk in the total process
In a more comprehensive M&A process, we will normally integrate Country Risk and Integrity Risk (IDD) as indicated in blue colour in the table below. The initial Due Diligence Risk Scan will be performed in the first “Scanning” phase, giving direction to analysis in later phases:
Dark blue colour in the table above indicates full service offers by Corisk and partners, including the Country Risk Premium service for estimating Internal Rate of Return or Cost of Capital. Light blue colour indicates areas where Corisk can give qualified assistance to the process delivery or analysis.
A more detailed presentation of how Country Risk and Integrity Risk is integrated in the process, is presented below where Corisk can support every phase of the process:
Corisk has developed a comprehensive manual for Country Risk and Integrity Risk analysis (dark blue) in M&A processes. This manual is based on best practice from large enterprises, and assumes that the client performs a thorough and relatively detailed Due Diligence of target company, individual, and country risk.
Corisk recomends that risk analysis, Due Diligence and IDD be performed and scaled according to the risk profile of the project. This will first of all depend on which market/s the transaction/s cover. Corisk scales M&A services into Green, Yellow, and Red Scope according to the transaction risk profile:
- Green scope indicates a moderate analysis if the target market is a member of the EEA, and scores better than 3.5 on all country risks. Alternatively, the market is not a member of the EEA, but scores better than 2.5 on 10 critical country risks, and on average across all risks.
- Yellow Scope indicates a thorough analysis if the target market is not a member of the EEA, but scores better than 3.5 on 10 critical country risks, and on average across all risks.
- Red scope indicates a deep analysis if the market is not a member of the EEA, and scores worse than 3.5 on one or more of the 10 critical country risks, and on average across all risks.
In a comprehensive M&A process, the timeline of project phases can run over 6 months or more, according to the risk level, deal complexity, and communication between the two parties. The following illustration indicates time requirements for Country Risk and Integrity Risk analysis when the transaction covers a demanding market under Red Scope: