In many cases investors also want scrutiny of their existing portfolio companies, investigators said.
Virtually all M&A deals are taking longer time to conclude mainly because investigators have been asked to include Russian connection in the due diligence process, say insiders
“Many PE and VC firms are also getting due diligence done on the Indian promoters to check if they have any connection to Russia or Russian entities that may be owned by oligarchs, especially SDNs (specially designated persons). Investigators are required to get even financial diligence to check if the target entities have directly or indirectly ever dealt with any sanctioned entities, either directly or through obfuscating techniques such as layering,” said Amit Jaju, senior managing director at advisory firm Ankura.
Investigations are also being conducted around supply chains and whether mechanisms are in place to camouflage or suppress the origin of goods, services or money trails and the conduct of business through illegitimate channels.
Insiders say that M&A by firms including Sequoia, Bain Capital, Advent International and Baring Asia have been impacted due to scrutiny over Russian connection.
“We are already seeing heightened concerns by US and Europe-based investors on their investments in the subcontinent. They are increasingly asking investee companies to accelerate institution of policies and procedures related to sanctions compliance, immediately commence or accelerate third party diligence and assess and map supply chains to ensure that these are not susceptible to risks related to routing of business from sanctioned entities,” said Gaganpreet Puri, leader – risk and regulatory, A&M India.
Take the case of a fintech start-up that was looking to raise millions in a second round of funding. A large VC firm put the deal on the back burner after it was found that the company had mentioned Russia, among other countries, in its plan for future expansion.
Many large US multinationals exploring M&As have asked investigators to look at Russian links. Some of the American and European companies also want screening of their vendors.
In many cases PE and VC firms have been conducting investigations to soothe the nerves of their investors or limited partner (LPs).
PE firms are going so far as to check on not just the Indian companies, but also entities they deal with that may have a Russian link.
Take the case of a large US PE firm. The firm had asked one of the big four firms to get a scrutiny of their entire existing portfolio and found something suspicious in an Indian infrastructure company.
“The mandate was clear. We were asked to check any connection to Russia. We found that the Indian company was regularly dealing with a Chinese entity registered in a tax haven, which in turn, had a joint venture with a Russian company,” one investigator close to the development, told ET.