The Objective

Foreign investor decided to purchase the gold mining company in Kazakhstan and perform the financial and tax due diligence prior the purchase. The goal was to ensure that future stakeholders associated with a financial endeavor have the information they need to assess risk accurately. We were asked to provide a full and comprehensive picture of the company outlining the financial and tax risks despite any materiality.

The Approach

We have conducted a detailed assessment of business model risks. This approach was supported by:

• Developing comprehensive work plans that delivered an insightful quality of earnings result as well as reconciliations of free cash flows
• Assessing a target’s working capital components in detail with the intent of supporting the working capital peg calculations
• Preparing bridge analyses of sales and earnings with each step supported by underlying analysis
• Thoroughly analyzing profitability by business segment, customer, product, or service
• Focused attention on reserves and accruals on the balance sheet. Understanding all liabilities, on and off the balance sheet, as well as the quality of the assets
• Identifying potential tax benefits and losses that are not being claimed/envisaged by the target
• Reviewing all tax returns – including income tax, withholding, and sales tax – for the past five years
• Reviewing information relating to past tax audits of the target
• Reviewing the documentation related to NOL (net operating loss) and unused credit carryforwards of deductions and tax credits
• Reviewing the calculation of taxes to identify the under-reporting of taxes
• Verifying the status of any tax-related case of the target pending with the tax authorities.

The Result

SAN Partners’ team prepared report that highlighted the findings from the financial and tax due diligence. We have identified financial and tax risks for more than 500,000 USD. As a result investor was able to decrease the acquisition price during the negotiations.