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Critical nature of pre-transactional due diligence

Haeyoeun Seo
Haeyoeun Seo
Client Consultant, Enhanced Due Diligence, Refinitiv

The reputational risk posed by IPOs, M&A activity or the Belt and Road Initiative makes rigorous pre-transactional due diligence critical for investment banks. How are Refinitiv risk intelligence tools helping to pinpoint the dangers with confidence?


  1. Investment banks should seek to understand and manage risk with confidence, with pre-transactional due diligence critical ahead of any IPO or M&A activity.
  2. IPO due diligence focuses on both the compliance and reputational track record of the subject, while seeking to uncover any potential links to financial crime.
  3. Enhanced due diligence reports from Refinitiv are able to deliver detailed and targeted information on any entity or individual anywhere in the world.

While risk and reward go hand-in-hand, not fully understanding the nature and extent of potential risk can be a costly mistake.

Regulatory and financial risks aside, the reputational risk of inadvertently transacting with an individual or entity with links to financial crime – for example modern slavery, environmental crime or human trafficking – can be devastating.

Here are some examples where rigorous pre-transactional due diligence is essential:

1. Pre-IPO due diligence

The IPO arena is fraught with potential legal and financial pitfalls, but in recent years reputational risk has become a key – and growing – concern.

Refinitiv’s pre-IPO due diligence focuses on both the compliance and reputational track record of the subject, and seeks to uncover any potential links to financial crime – including, for example, unfair labor practices, breaches of environmental ethics, bribery and corruption, money laundering, or cyber crime.

We also provide a detailed background market analysis, as well as cover the sustainability of the subject’s business model, and offer insights into future viability.

The growth of the IPO market — in the APAC region and in Hong Kong in particular — has been significant and Refinitiv has been instrumental in supporting this growth.

In 2018, we conducted over 120 IPO due diligence projects in Hong Kong alone, using our unique methodology to gather and analyze all necessary information in the correct format to satisfy strict regional requirements.

Regulatory and financial risks aside, the reputational risk of inadvertently transacting with an individual or entity with links to financial crime can be devastating. The critical nature of pre-transactional due diligence

2. Pre-M&A activity

Thorough M&A due diligence into investment targets is crucial before any meaningful decisions are made, but a lack of readily-available information can quickly become a stumbling block.

In 2018, Refinitiv assisted a Japanese private equity firm with discreet enquiries into an M&A target whose public profile was limited and both media and industry research delivered few results.

We accessed our extensive network of local, on-the-ground experts and tasked them with conducting on-site visits to confirm not only the existence, but also the operational status of the target.

Following enquiries with individuals with known links to the target, we were able to provide significant insight into the company’s reputation. We further delivered our findings in Japanese, enabling the client to make an informed and confident M&A decision with speed and ease.

3. Belt and Road Initiative

According to the World Bank, the Belt and Road Initiative (BRI) “aims to strengthen infrastructure, trade, and investment links between China and some 65 other countries that account collectively for over 30 percent of global GDP, 62 percent of population, and 75 percent of known energy reserves”.

While the BRI offers almost unprecedented opportunity for all stakeholders, developing an international footprint means that organizations must ensure compliance with all relevant legal requirements and actively seek to reduce exposure to a wider range of risks.

The BRI has led to the formation of larger and more geographically diverse third-party networks that must be thoroughly screened for potential links to corruption. While screening alone can never hope to eliminate all risk, it remains our best tool for pinpointing potential risk early in the game.

Once again, the need for thorough pre-transactional due diligence before deciding on any BRI-related investments or associations cannot be over-emphasized.

At a recent Refinitiv forum on BRI held in Singapore, the delegates made an important conclusion that “quality of information is key to bringing all parties together”.

They added that access to timely and accurate information is needed to realize international collaboration and connectivity. This can only be achieved through transparent, consistent and trusted information; independent and objective media coverage; and global benchmarks and standards.

While risk and reward go hand-in-hand, not fully understanding the nature and extent of potential risk can be a costly mistake. Haeyoeun Seo Quote. The critical nature of pre-transactional due diligence

Knowledge is power

These are just some examples of typical investment banking opportunities where potential risk can be significant and timely access to the right information can make the difference between avoiding or embracing the opportunity on offer.

With a lengthy track record in partnering with fund managers and investment houses to identify key risk in possible opportunities across the globe, and an extensive network of local experts able to make on-the-ground enquiries and deliver local intelligence, Refinitiv is well-placed to support these sensitive decision-making processes.

The unrivaled breadth and depth of our risk intelligence data is backed by the expertise of over 450 highly trained analysts, speaking more than 65 languages, who always ensure the integrity, confidentiality and security of the sensitive data they acquire in the course of research.

Where heightened risk is suspected, our Enhanced Due Diligence reports can deliver detailed and targeted information on any entity or individual anywhere in the world.

The ability to access this critical intelligence empowers organizations to make informed decisions with speed and accuracy.

Every opportunity has an associated risk, but not all risk should be avoided. Rather, organizations should seek to understand and manage risk with confidence so that they can make informed decisions about all available investment opportunities.

Learn how Enhanced Due Diligence enables a business to help safeguard its reputation and comply with regulatory requirements