The Skeletons They Found Before Buying the House
Private Equity Firm
At a Glance
Private equity acquisitions move fast, and compliance due diligence often gets reduced to a checkbox exercise: a quick review of the target's policies, a conversation with their general counsel, and a prayer that nothing surfaces post-close. For this PE firm, that approach had burned them before.
The firm needed to know, before signing, whether a target company was sitting on a compliance disaster. Financial audits could reveal accounting irregularities, but they could not surface the operational realities of a compliance program: whether anti-bribery controls existed in high-risk regions, whether employees felt safe reporting concerns, or whether the compliance function was anything more than a policy binder gathering dust.
The PE firm deployed Ethico's Risk Assessment tool directly to the target company's management team as part of the due diligence process. The assessment used a standardized framework covering anti-bribery controls, reporting culture, policy distribution, training effectiveness, and regulatory preparedness across every geography where the target operated.
The results were aggregated into a risk profile that the PE firm's deal team could evaluate alongside financial due diligence. Rather than relying on the target company's self-reported compliance narrative, the assessment provided independent, structured data on the actual state of the program.
The assessment uncovered a critical gap: the target company's Asia division had virtually no anti-bribery controls in place. Local management had operated with minimal oversight, and the compliance infrastructure that existed on paper had never been operationalized in the field. The estimated regulatory exposure was $2M.
Armed with this data, the PE firm renegotiated the deal terms. The acquisition still proceeded, but at an adjusted price that accounted for the cost of building out the compliance infrastructure that should have already existed. The target company's management could not dispute the findings because they had provided the assessment data themselves.
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