Frequent Questions Due Dilligence
What does Due Diligence mean?
A “Due Diligence” consists of a rigorous analysis of each and every one of the areas of a company for the purpose of providing accurate tools when making decisions in the Company.
Why embark on a due diligence?
The main purpose is to minimize any risks that may arise in connection with a transaction and provide the buyer of a company with objective and detailed information of all the areas in the organization
¿What does a “Due Diligence” cover?
It covers the following areas: Finance and accounting, commercial, corporate governance, technology aspects, tax, labor matters, environment, and any other the organization may deem advisable.
Frequent Questions Joint Venture
How can a company obtain fresh funding?
There are alternatives such as: Private Equity, bank debt, issuance of bonds and shares, and securitization processes, among others.
What does the accompaniment to obtain funds entail?
- Private Equity
- Preparation of work documents
- Contacts with Venture Capital/Private Equity Groups and Investors
- Strategic Investors
- Preparation of Due Diligence
- Detailed execution of process to obtain Capital: Experience in venture capital/private equity transactions
- Determine capital needs
- Financial Projections
- Determine credit capacity
- Contact credit entities
- Prepare Due Diligence
- Negotiate, structure, and close the transaction
Issuance of Bonds and Shares
- Determine strategic alternatives: Bonds versus Shares
- Prepare the Financial Forecasts
- Determine the value of the issue
- Contact financial entities for underwriting
- Prepare Due Diligence
- Accompaniment during the negotiation and close of transaction
- Determining the asset and the securitization value
- Securitization of credit
- Real State Securitization
- Securitization of Infrastructure Works and Public Utilities
- Securitization of Securities
- Securitization of income or cash flows
- Securitization of other goods or assets
Analysis of strategic alternatives
- Financial forecasts of issue
- Risk analysis
- Design of securities
- Market Study
- Definition of financial characteristics of issue
Accompaniment and coordination of participating parties – Originator
- Managing agent
Frequent Questions Sales and Acquisitions
What is the first step when buying or selling a company?
The right step is to hire an Investment Banking firm to be in charge of the technical and professional structuring of the deal.
What kind of services does an Investment Banking firm perform?
The first step is for a team of skilled professionals to conduct a company valuation.
Having produced the valuation, what is the next step?
It is necessary to perform a Due Diligence that will make it possible to learn about the true status of the company, mainly in its tax, financial, accounting, legal, and administrative aspects.
What is the next step?
Whether it’d be a purchase or a sale, the next step is the identification of potential buyers and an invitation to view the information.
How is a purchase of a sale closed?
That is where the importance of having a good Investment Banking firm lies. It is important to be clear on the tax implications of a sale. Likewise, good legal advise is key to a sound legal strategy that will prevent future complications. The Investment Banking firm will handle all that
Frequent Questions Project Finance
What does Project Finance mean?
It is a means to finance projects by which loans or funds obtained in the equities market are directly guaranteed, firstly, through the cash flow generated by the project.
When should Project Finance become an option?
It allows the promoter of a project, whether public or private, to access funds for the investment, when it should lack the means necessary or the financial muscle required to accomplish it.
What does consulting in Project Finance include?
Consulting includes the design of the operating structure of the business, the financial structuring, the financial assessment, as well as in obtaining the resources required to fund it.
Frequent Questions Privatization Processes
What is the privatization of a public entity?
Today, the privatization process has become an important means to modernize and make public utilities and the services they render more efficient, and also a means to access an important source of fresh funds to start the process (National, Regional or Local).
What activities take place in a privatization?
- Preparation of the Sale Program.
- Preparation of Financial Projections.
- Preparation of Sales Materials.
- Valuation of Entity.
- Preparation of Due Diligence.
- Transaction and Legal Documents
Frequent Questions Demerger Processes
What is a spin off?
A reform in the by-laws by which a company (divesting company) transfers part of its assets and/or liabilities, in a bloc, to one or several companies and become the so-called beneficiaries.
What happens to the rights of creditors?
Any creditor of companies that participate in a spin off, who may be holders of debts acquired prior to the spin off process, may demand satisfactory and sufficient guaranties for the payment of their credits.
What are the steps to carry out a Spin off process?
- Identification and analysis of the business.
- Financial forecasts
- Valuation and Pricing
- Preparation of Sales Materials
- Due Diligence.
- Negotiation and Structuring of Transaction
- Financing Alternatives
- Integration of Transaction
When is a spin off perfected?
The spin off agreement will be evidenced in a public writ, with the by-laws of the new companies or reforms being introduced to the by-laws of any existing companies. Said writ must be recorded with the Chamber of Commerce.
Frequent Questions Capital Restructuring
What is capital restructuring?
It is a mechanism that allows the company to find the appropriate formula to establish the amount of liabilities as well as to maintain them in the best condition.
Why embark on a capital restructuring?
It is important to learn suggestions of financing sources and to establish the optimal mix of Liabilities and Assets to achieve an appropriate level of leverage.
How is a restructuring accomplished?
It may be the consolidation debt, credits, and other company liability. All must be part of a comprehensive Financial Restructuring to prevent a company from going bankrupt.
What are the steps involved in a capital restructuring?
- Determining the structure of capital
- Analysis of sources and uses of the funds.
- Suggestions for sources of financing.
- Optimal mix of the Liability/Net worth ratio.
- Financial leverage and payment capacity.
When is a capital restructuring required?
Any moment is good to embark in a capital restructuring process, as long as the conditions of the liabilities are susceptible of improvement. It is of course, absolutely necessary when entering into a default and the intention would be to avoid the company from becoming financially insolvent.
What are the tools used in capital restructuring processes?
The tools that are generally employed in Financial Restructuring processes are usually the following: Extension of credit terms; reduction of interest rates; prepayment of obligations from the sale of assets; accord and satisfaction; capitalization by shareholders; among other.
Frequent Questions Investment Bank
What can an Investment Bank do?
These are specialized financial services that are rendered to those who need resources for their companies and/or project and those who have them available to invest.
What does valuation of a company mean?
The valuation is a model used to calculate a range of values in which a price of a company can be found.
What methods exist to value a company?
The 6 methods most used are: (i) Balance-based method (net worth value). (ii) “Duplication” value or cost to create a new analogous organization. (iii) Current market value of shares listed in the stock exchange. (iv) Multiples-based method. (v) Discounted Free Cash Flow. (vi) Creation of Value (EVA).
When should Project Finance become an option?
It advisable when the cash flow generated by the project may make it possible to guarantee a long-term debt.
Why embark on a capital restructuring?
It is important to learn suggestions of financing sources and to establish the optimal mix of Liabilities and Assets to achieve an appropriate level of Financial leverage.
How can fresh funds be obtained for the company?
There are alternatives, such as: Private Equity, bank debt, issuance of bonds and shares, and securitization processes, among other.
What is a Joint Venture?
It is an investment agreement without which the creation of a new company, involves a ‘joint business adventure’ or a project between two people with a shared risk. Also referred to as «strategic alliance» and «commercial alliance »
What is a corporate Spin off?
It is a reform in the by-laws by which a company (divesting company) transfers part of its assets and/or liabilities, in a bloc, to one or several companies and become the so-called.
When should an Investment Bank be sought?
Always seek specialized help when the intention is to value, sell, purchase a business, structure a project, transform your company and, in general, when you seek to start a business.
Frequent Questions Public Finances
What is the Fiscal Balance of the Consolidated Public Sector CPS?
The result obtained, whether a deficit or a surplus, of the difference between all the revenue in the public sector less its expenses.
What is the Fiscal Balance of the Non-Financial Public Sector?
The result obtained, whether a deficit or a surplus, of the difference between all the revenue in the NFPS less its expenses.
What is the Fiscal Balance of the Central National Government CNG?
The result obtained, whether a deficit or a surplus, of the difference between all the revenues and expenses, taking into account the net credits and floating debt.
What are Effective Treasury Operations?
It is a methodology to analyze public finances that reflect the movement of revenues, expenses (payments), intra public sector loans (net loan), and the financing of the deficit or the use of the surplus.
What is the Financial Plan?
It is a planning and financial management tool in the public sector, forecasts of revenues, expenses, deficit, and its financing compatible with the Annual Treasury Plan and the Exchange and Monetary Policy.
What is the Fiscal Close?
The Fiscal Close is a document to follow-up on the fiscal results of the Public Sector. It explains the behavior as observed in each component of the balance.
What is a Contingency by projects undertaken by APP´s?
Any that by virtue of which the State Entity contractually stipulates, in favor of the contractor, guaranties due to the occurrence of a future and uncertain event assumed by the contractor.
What is a certificate of budgetary availability CDP?
A financial and budgetary document that provides certainty about the existence of an appropriation that is available and free from encumbrance to assume a commitment.
What is a budgetary appropriation?
It is the highest authorization of an expense to be committed during the respective fiscal period of effect.
Frequent Questions Company Valuation
What does value a company mean?
The valuation is a model used to calculate the range of values where there may be found the price of the company as an ongoing economic entity.
Why is a company valued?
There can be several reasons: i) To learn the price at which it may be purchased or sold. ii) To learn its position vis-à-vis the competition. iii) To define an expansion plan. iv) To learn about the actual net worth of owners, among other
How is a company valued?
The valuation exercise requires two fundamental elements: Common sense and experience. From that base, financial and commercial forecasts are combined with the Company’s long-term strategy.
What is the best method to value companies?
All existing methods to value a company are valid. It all depends on the specific conditions of each Company. The Discounted Free Cash Flow is one of the most common.
Can a company be sold at the price its valuation yields?
The valuation generally yields a range of value.
Is the Company’s General Balance sufficient to learn its value?
Usually, the accounting value of assets does not correspond to their actual value. Likewise, company forecasts are a determining factor to establish its value. Therefore, the General Balance is no a valid reference to establish the value of the Company.
Frequent Question Business Consulting
What is Financial Planning?
It is the correct projection of income, investment, costs, and expenses of a company, to learn what will be the future profits within the framework of the company strategy.
What should I bear in mind when starting a company?
You must have a clear Idea of the Business. What is it about? – what is it? – this good to be produced or service to be rendered. A clear market and financial planning.
When should I seek advise to undertake a business?
The most advisable is to always seen specialized help when you want to start a business.
What is financial engineering?
It is a set of financial tools and techniques to estimate, control, and reduce the risk of losses in business.
What is tax planning?
It consists of the planning and forecast exercises with a view to optimize the payment of taxes, all within the law.
What does a financial diagnosis of a company entail?
It is a financial analysis of the company through the use of financial indicators and reasoning. Just like humans go to see a specialist, companies must have updated diagnosis.
What is a Strategic Alliance?
Its associations among people and/or people, wherein each member contributes its best capacities and advantages to achieve a common goal. EBITDA Earnings Before Interests, Taxes, Depreciation, and Amortization.
What does EVA mean?
Economic Value Added: that is, the creation of value which occurred in a company over any given period of time.
Frequent Questions Structuring Investment Projects
What does project structuring consist of?
It consists of preparing and ordering all the technical, legal, administrative, market, and financial information in a technical and professional manner.
What is the first step to structure a project?
It must have a clear Business Idea. What does it consist of, what is it, a good to be produced or a service to be rendered. It has to have a clear market and precise financial planning.
What does legal structuring mean?
It is an analysis of all the legislation affecting the project. Risk and future threats to the project must be established, all according to law.
What does administrative structuring involve?
The preparation of all the administrative construct of the project, quantifying human and physical resources as required for the task.
What does a technical component of a project contain?
It contains the technical and accurate information on the production, setting up and implementation of the project.
What does a commercial structuring mean?
It basically means to be clear on the market study for the project: Demand, Supply, Price, Place, Promotion, and Product. Commercialization.
What does financial structuring contemplate?
Budgeting of income, investments, costs, expenses, P&L forecast, Cash Flow, Balances, and Financial Evaluation.
What is a financial evaluation?
The analysis of the financial feasibility of a project, using to that end tools such as VPN, TIR, and TIO, among others.
What determines whether a project is feasible?
When the TIR is greater than the Cost of Capital and the VPN is positive. There are multiple ways to determine the financial feasibility.
Frequent Questions Strategic Planning
What is Strategic Planning used for?
To have advanced clarity on what to do, how to do it, when to do it, and who will do it.
Why is strategic planning necessary?
Without a precise strategy you neither know how to get there nor why you want to get there.
When does one need to undertake a process of strategic planning?
Every company requires having a strategy and a plan in place to achieve its goals. Not having them means to move without bearing.
How often should this process be carried out?
The company must have a Strategy, at least for the next three years and it should be reviewed and updated during every period.
Who should participate in the definition of the Company’s strategy?
In principle, the entire management team of the organization should be involved. But the purpose should be to involve all the staff in the company.
Can this be done directly by the Company’s staff?
It is important to have the accompaniment of a consulting firm with the experience in this type of work.
What is the SWOT matrix?
By its initials, it means: Strengths, Weaknesses, Opportunities, and Threats. Identifying them is essential in the definition of the Strategy
What is the Strategy?
t is the set of methods designed to achieve goals, objectives or a given end
What is the Mission?
It is an organization’s reason for being, the motive. It explains what it does, what it offers, and describes the type of client it intends to cater.
Frequent Questions Marketing
What does corporate Branding mean?
It is the management of the corporate brand. The notion of branding allows one to refer to the process of constructing a brand and its corresponding logotype or symbol.
What does corporate identity mean?
It is the company’s DNA, its personality given by the behavior of the organization.
What is the corporate image?
It the way in which society views the company from the stand point of its aspirations, perceptions, experiences, and opinions of value.
What does the term ‘marketing’ mean?
Today marketing is understood as a system that seeks to relate the company and the products and/or services with its customers, to achieve mutual benefits.
What are the most important factors to generate customer satisfaction?
Quality, Service, and Value.
What is the 4 Ps Strategy?
Product, Price, Place, and Promotion.
What must a Marketing Plan contain?
It must contain a situational analysis, definition of the objective, strategies, tactics, drafting of the budget, and control periods.
Frequent Questions Foreign Investment Management
What type of foreign investment can be made in Colombia?
The Colombian legislation contemplates two types of foreign investment: direct foreign investment and portfolio investment.
What is direct foreign investment?
For example: the acquisition of shares in companies, the creation of new companies, the acquisition of real state, investment in branch offices organized in Colombia.
What is portfolio investment?
It is the type made through foreign capital investment funds in shares and other negotiable instruments in the public securities market.
Are taxes assessed to repatriate profits from Colombia?
The Colombian legislation currently does not assess any tax on the repatriation of profits.
What type of partnership or company can be created?
A Branch Office of the Foreign Company may be opened; an affiliate with over 50% of the capital stock or a new company.
What is the income tax bracket for companies in Colombia?
The tax bracket is 33%.
How is money introduced in Colombia?
The Colombian legislation has provided for it to be channeled through the Colombian Central Bank (Banco de la República)
Does Colombia have treaties to avoid double taxation?
Yes. There are in effect treaties with the United Sates, Panama, Brazil, Argentina, Chile, Spain, Germany, and Italy. The contents vary depending to the country.
What document does a foreigner need to work in Colombia?
The worker requires a Worker’s Visa expedited with the consulate and then obtain a foreigner’s identification card with the Colombian authorities.
Frequent Questions APP Public Private Associations
What is an APP?
It is a business between a public entity and a private party, wherein the private party makes a public investment, realizes a profit, and returns it to the state in a given period of time.
Who should have the initiative for an APP?
Either the public entity or the private individual; conditions will depend on which takes the initiative.
What is a public-initiative APP?
In this case, the idea arises from a Public Entity, who should structure it and call a bid to find the private party to develop it.
What is a private-initiative APP?
The private party structures the idea, submits it to the Public Entity who will evaluate it and offer it to the general public to determine whether anyone should improve the conditions, with the originator having the opportunity to adjust.
How long can an APP be entered into?
They will have a maximum duration of thirty (30) years, including any extension. But if there were a prior favorable opinion by the National Council on Economic and Social Policy, CONPES, it may be longer.
Is there a minimum amount to enter into an APP?
Law 1508 of 2012, provides that projects may only be executed under Public-Private Association schemes when the amount to be invested is higher than six thousand (6.000) smmlv (legal minimum monthly salaries in effect)
When does one know whether an APP is more convenient or if instead the public entity should execute the works for its own account and risk?
Before entering into an APP, the Public Entity will compare the costs of directly executing the project against the costs of executing it under an APP.
Are there limits inasmuch as the type of project that can fall under an APP?
There is no limitation. Any project that provides public goods can be considered for an APP. Energy, Ports, Roads, Airports, Tourism, Sanitation, Jails, Telecommunications, and real state, among others.
What is the legal framework of the APPs?
Law 1508 of 2012 and national decrees 1467 of 2012, 100 of 2013, and 301 of 2014.