Presentation to Hong Kong Trade Development Council Delegation on - - PDF document

5/11/2012 1 Risk Solutions for a Complex World

Presentation to Hong Kong Trade Development Council Delegation

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Investigative Due Diligence in the PRC – Utilizing the Hong Kong Advantage

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Steve Vickers, CEO, Steve Vickers & Associates

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The contents of this presentation are the proprietary intellectual property of Steve Vickers and Associates Limited ("SVA") and should not be copied, circulated to other parties or otherwise used without SVA’s written permission.

• 1. Introduction
• 2. About SVA
• 3. Hong Kong as the Trusted Centre for Due

Diligence in PRC

• 4. Explanation of Investigative Due Diligence
• 5. Key Reference Points – IVDD
• 6. Basic Methodology
• 7. Questions & Answers

Outline of Presentation

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Risk Solutions for a Complex World

Introduction

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The contents of this presentation are the proprietary intellectual property of Steve Vickers and Associates Limited ("SVA") and should not be copied, circulated to other parties or otherwise used without SVA’s written permission.

Steve Vickers & Associates (“SVA”) is a specialist risk consulting company. The company serves corporations, stock exchanges, financial institutions, investment banks, high net-worth individuals and insurance companies around the world. The company is led by Steve Vickers who has 36 years hands-on experience in the: business intelligence, due diligence, IPO due diligence as well as kidnap and ransom and other specialist risk areas. SVA are specialists in both M&A and Pre-IPO due diligence services with a focus on operational, regulatory and reputational risk factors in support of investigative due diligence.

About SVA

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The contents of this presentation are the proprietary intellectual property of Steve Vickers and Associates Limited ("SVA") and should not be copied, circulated to other parties or otherwise used without SVA’s written permission.

Business Risk & Intelligence The Business Risk & Intelligence Group (“BRI”) of SVA has unique experience in supporting financial institutions, private equity funds, hedge funds, investment banks and others in conducting IPO Due Diligence, Investigative Due Diligence, Pre- Transactional Investigations, Political Risk Assessments and Employee Integrity and Screening.

Our Core Practice Areas

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The contents of this presentation are the proprietary intellectual property of Steve Vickers and Associates Limited ("SVA") and should not be copied, circulated to other parties or otherwise used without SVA’s written permission.

Corporate & Financial Investigations The Corporate & Financial Investigative Group (“CFI”) of SVA has deep experience in conducting internal Corporate Investigations, Fraud Investigations, Financial Investigations, Asset Searches and Litigation Support on behalf of corporations, financial institutions, law firms and governments.

Our Core Practice Areas

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The contents of this presentation are the proprietary intellectual property of Steve Vickers and Associates Limited ("SVA") and should not be copied, circulated to other parties or otherwise used without SVA’s written permission.

Security, Special Risk & Response The Security, Special Risk & Response Group (“SSR”) of SVA has an unparalleled track record in the discreet and effective handling of Corporate Security and Response Services. Our expertise encompasses Kidnap and Ransom Consulting, Response and Recovery services, Crisis Containment, Training/Contingency Planning, and Maritime Special Risk.

Our Core Practice Areas

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Risk Solutions for a Complex World

Hong Kong as the Trusted Centre for Due Diligence in PRC

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The contents of this presentation are the proprietary intellectual property of Steve Vickers and Associates Limited ("SVA") and should not be copied, circulated to other parties or otherwise used without SVA’s written permission.

• Many firms from Europe have the intention to make

PRC a major segment of business.

• The PRC and Europe are poles apart in legal,

cultural and practical terms.

• Hong Kong sits at the gateway to the PRC and

understands both sides of the Pacific.

• Hong Kong’s legal system, government and

communication hub makes dealing between Europe and the PRC much easier than a direct entry into mainland PRC.

• Hong Kong based advisors and consultants operate

to world class standards and are reliable and largely corruption free!

Hong Kong as the Trused Centre for Due Diligence in PRC

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Risk Solutions for a Complex World

Explanation of Investigative Due Diligence

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The contents of this presentation are the proprietary intellectual property of Steve Vickers and Associates Limited ("SVA") and should not be copied, circulated to other parties or otherwise used without SVA’s written permission.

Explanation of Investigative Due Diligence

What is Investigative Due Diligence? Not just examining spreadsheets, accounts and legal documentation BUT rather: closely examining people, and the reality of their organizations – a “real world” assessment.

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The contents of this presentation are the proprietary intellectual property of Steve Vickers and Associates Limited ("SVA") and should not be copied, circulated to other parties or otherwise used without SVA’s written permission.

• Investigative due diligence (“IVDD”) is a critical part
• f any major transaction but is especially important

in the PRC.

• A huge amount of material is generated in support
• f deal documentation but much of this is often

unverified, incomplete and on occasion downright misleading.

• My goal is to provide a detailed understanding of

the actual circumstances of a company and to highlight, at an early stage, any material or important issue, which might impact on a transaction.

Explanation of Investigative Due Diligence

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The contents of this presentation are the proprietary intellectual property of Steve Vickers and Associates Limited ("SVA") and should not be copied, circulated to other parties or otherwise used without SVA’s written permission.

• Experience has shown that whilst detailed efforts

are conducted by law firms and accountants into the information provided by companies, a wider, more holistic approach is beneficial in identifying practical or “off-balance sheet risk”.

• SVA’s efforts complement professional services

provided by lawyers and accountants and add a real world dimension.

Explanation of Investigative Due Diligence

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The contents of this presentation are the proprietary intellectual property of Steve Vickers and Associates Limited ("SVA") and should not be copied, circulated to other parties or otherwise used without SVA’s written permission.

• IVDD conducted early in the process can save

time, money and potential embarrassment, in that the investigative process will swiftly throw up key issues or potential “show stoppers”.

• This can either facilitate a complete

disengagement from the deal or help resolve these matters before they adversely impact the transaction.

Explanation of Investigative Due Diligence

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The contents of this presentation are the proprietary intellectual property of Steve Vickers and Associates Limited ("SVA") and should not be copied, circulated to other parties or otherwise used without SVA’s written permission.

• The primary risk to a successful transaction is a

failure to provide complete and full disclosure.

• This is especially true in the PRC and other

emerging markets.

• Recent problems in the US with US-listed

mainland firms, arise largely as a consequence

• f poor, or “in the box” due diligence leading to

subsequent serious problems.

Explanation of Investigative Due Diligence

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Risk Solutions for a Complex World

Key Reference Points – IVDD

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The contents of this presentation are the proprietary intellectual property of Steve Vickers and Associates Limited ("SVA") and should not be copied, circulated to other parties or otherwise used without SVA’s written permission.

Every transaction is slightly different in nature but in our experience the following aspects must be carefully studied in the IVDD exercise; especially in the PRC:

• The “real” corporate structure, as distinct from that

which may be listed in documentation

• A snap shot of the operations on the ground and the

business’ actual day-to-day activities

• Comment from former employees, distributors,

vendors and others

• Industry reputation
• The background of directors, managers and key

advisors

Key Reference Points – IVDD

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The contents of this presentation are the proprietary intellectual property of Steve Vickers and Associates Limited ("SVA") and should not be copied, circulated to other parties or otherwise used without SVA’s written permission.

• The integrity of key stakeholders
• The litigation history of all the entities concerned
• Relevant political issues – local and national
• Labour or other social issues which might have

potential impact on the transaction

• Potential exposure under anti-corruption

statutes, both international and local

• Quality of accounting, governance and reporting
• Key relationships

Key Reference Points – IVDD

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Risk Solutions for a Complex World

Basic Methodology

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The contents of this presentation are the proprietary intellectual property of Steve Vickers and Associates Limited ("SVA") and should not be copied, circulated to other parties or otherwise used without SVA’s written permission.

• All available sources of information – media,

public records, available tax records, industry, trade associations and relevant publications. These expose future lines of inquiry and identify “obvious deal killers”.

• Verification of company registration, civil litigation,

property and regulatory checks.

• Other checks which are not easily available in the

PRC.

Basic Methodology Analysis & Research

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The contents of this presentation are the proprietary intellectual property of Steve Vickers and Associates Limited ("SVA") and should not be copied, circulated to other parties or otherwise used without SVA’s written permission.

• Research at the State Administration for Industry

and Commerce (SAIC) – government body responsible for the registration of businesses in China.

• Comparison with various official records and with

the prospectus documents submitted referring to these.

• Rigorous inquiries to verify the actual corporate

structure, legal representatives, company officers, shareholders and the full scope of the candidate

• Research into possible problems with the PRC

tax authorities.

Basic Methodology Analysis & Research

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The contents of this presentation are the proprietary intellectual property of Steve Vickers and Associates Limited ("SVA") and should not be copied, circulated to other parties or otherwise used without SVA’s written permission.

Our research and analysis exercise will identify “key sign posts” and specific individuals who have knowledge which is material to the target. Specifically we will identify and interview live sources who can cast light on:

• Other credible and independent sources.
• Actual information on the background,

reputation and key relationships of important individuals and entities.

Basic Methodology Investigative Field Inquiries

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The contents of this presentation are the proprietary intellectual property of Steve Vickers and Associates Limited ("SVA") and should not be copied, circulated to other parties or otherwise used without SVA’s written permission.

• Obvious, ‘red flags’ and information, not reflected

in the prospectus, including:

• civil actions
• environmental fines
• criminal convictions
• tax evasion issues
• current labour dispute
• utstanding debts
• connections with triad societies or the

criminal under world

Basic Methodology Investigative Field Inquiries

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The contents of this presentation are the proprietary intellectual property of Steve Vickers and Associates Limited ("SVA") and should not be copied, circulated to other parties or otherwise used without SVA’s written permission.

• Analysis and conclusions.
• Most times an “amber light” will be identified

requiring future work.

• Conducting investigative due diligence early in

the process will leave time to deal with problematic issues before they become a threat to the transaction.

• Negative information is not necessarily a deal

killer – it facilitates the opportunity to avoid future embarrassment and expense / loss of reputation.

Basic Methodology

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The contents of this presentation are the proprietary intellectual property of Steve Vickers and Associates Limited ("SVA") and should not be copied, circulated to other parties or otherwise used without SVA’s written permission.

Not just examining spreadsheets, accounts and legal documentation BUT rather: closely examining people, and the reality of their organizations – a “real world” assessment.

Wrap Up

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The contents of this presentation are the proprietary intellectual property of Steve Vickers and Associates Limited ("SVA") and should not be copied, circulated to other parties or otherwise used without SVA’s written permission.

Questions & Answers

Wrap Up

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The contents of this presentation are the proprietary intellectual property of Steve Vickers and Associates Limited ("SVA") and should not be copied, circulated to other parties or otherwise used without SVA’s written permission.

Thank You for Your Attention!

Wrap Up

Risk Solutions for a Complex World

24-Hour Crisis Response Hotline (852) 9196-2350 www.stevevickersassociates.com