Due diligence important for foreign investment
Pre-transactional due diligence and seller diligence are key to the influx of foreign investment, according to a risk solutions firm.
Kroll said the China-Australia Free Trade Agreement (ChAFTA) had opened the floodgates to increased Chinese investment and due diligence conducted on a potential buyer has become even more relevant.
The firm said China has overtaken the US as Australia's top foreign investor at US$19.7 billion ($28.1 billion) in 2014, up 75 per cent from the year before. The US totalled US$12.5 billion in approved proposals in 2014, down from US$14.7 billion in 2013.
Australian business community there is a sense of not knowing who one is dealing with when greeted with potential investment proposals from foreign investors, it said.
Commenting, Kroll managing director, Richard Dailly, said pre-transactional due diligence is not the prerogative of the buyer, but should be conducted on both sides.
"[It is] vital to achieving an alignment of interest between the different parties, enabling each side to become more aware of who they are really dealing with and to make astute, better-informed decisions in the interests of a sustainable, risk-managed transaction and relationship," he said.
Kroll's senior managing director, Violet Ho, said seller diligence on the acquirer is an indispensable stage of deal-making itself.
"[It is] an invaluable window of opportunity for the sell-side to verify and validate what it considers attractive in the potential deal, such as the financial standing of the buyer, certain clauses in the contract, or the ability of the buyer to pay the consideration," she said.
ChAFTA has raised the screening threshold for private Chinese investment in non-sensitive sectors from $252 million to $1.09 billion.
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