SCOPE OF APPLICATION

This Guideline applies to Patria Oyj and its subsidiaries in Finland and abroad.

Patria is committed to conducting its business transparently, ethically and in compliance with laws and regulations in all markets where we operate. Any incidents of bribery and corruption involving or relating to Patria will damage its reputation and potentially threaten the ability to continue to do business.
All employees and directors have a personal responsibility for protecting Patria’s reputation and living up to its values. Patria has zero tolerance approach to bribery and corruption as stated in the Ethical Code of Conduct.

This Guideline sets requirements for Compliance Due Diligence on Joint ventures, Mergers and Acquisitions. Due Diligence for Business Partners is specified in the Business Partner process.

When Patria wishes to engage in new business opportunities, there are the following options to collaborate with other companies. Patria may engage a Business Partner (such as consultant, market representative, agent, teaming partner), enter into a strategic partnership where the companies keep their separate identities, or join up with one or more partners to establish a third entity, a joint venture company or partnership (contractual or an equity arrangement). Alternatively, Patria may acquire an existing company partially (merger) or wholly (acquisition) (jointly referred to as M&A).

Whatever the form of planned transaction or collaboration is, it is of essential importance for Patria to ensure that it only does business with reliable parties whose business conduct is sufficient according to Patria’s high standards. Due to the risks, the corruption index/level of the country where Patria considers entering into will also be evaluated and considered and risks mitigated by all means.

STEPS OF DUE DILIGENCE

The due diligence is generally conducted in two steps:  General due diligence in the early stages of the potential transaction and a more thorough due diligence when the structure of the transaction has been considered further, to focus on the specific areas of needed due diligence. The information acquired through documentation should be supplemented and verified through other sources where available (such as independent company investigations firms in the specific country, embassies, business associations).

In addition to documentation based due diligence, the process will also include meetings and discussions between Patria, its legal, financial and tax advisors with management and key persons of the target company or potential partner company. The main purpose of such meetings is to go through the due diligence requirements together and explain Patria´s expectations on e.g. ethics and compliance standards and the purpose of the ethics and compliance due diligence and to gather further explanations from the target company or potential partner.

SPECIFIC ITEMS OF DUE DILIGENCE REGARDING ETHICS AND COMPLIANCE

What comes to due diligence on issues related to ethics and compliance, especially corruption and anti-bribery, the purpose is to determine whether or not the entity´s ethical standard is acceptable. To determine if there are any previous compliance issues, the following factors are reviewed, screened and evaluated:

1) The party´s industry/sector; 2) the party´s location (based on e.g. Transparency International Corruption Perceptions Index; 3) the party public adverse media risk profile and compliance program; 4) reputational issues, history of previous compliance issues, anti-corruption and compliance system; 5) corporate, civil and criminal documents, investigations, litigation, administrative proceedings, court filings, government authority decisions or orders; 6) company structures, ownership (especial focus on ultimate beneficial owners), directors, management and key persons; 7) potentially vulnerable corporate relationships; 8) third party controls and financial records; 9) involvement of PEPs, related third parties such as political associates; 10) anti-trust and competition law, GDPR etc. legislative compliance.

BASIC SCOPE OF FINANCIAL, TAX AND OTHER AREAS OF DUE DILIGENCE

In the financial and tax due diligence bookkeeping, accounts and records shall be reviewed, and a due diligence shall be conducted on the financial and reporting related processes, tax issues, financial performance and standing and other finance related issues and compliance. The focus is also on possible irregularities in financial statements, irregular client accounts, expense accounts, expense policy/reimbursement of expenses, etc. which are circumstances that may provide clues to irregular or illegal practices and would therefore need to be considered.

Other areas of due diligence include general information about the target company, assets, material contracts, labour and social insurance issues, intellectual property right and technology transfer, financial position, taxation and other matters (such as product liability, environmental issues, foreign exchange control, export licenses, legal proceedings, antitrust and competition law, etc.). The areas of due diligence need to cover all areas that are important for the transaction as well as post transaction integration of the target.

AFTER COMPLETION OF TRANSACTION

After due diligence and as the transaction progresses, and in the strategic partnership agreement or shareholders agreement Patria requires terms and conditions granting Patria the right to implement and expect further development of first-class corporate governance, ethics and compliance processes and policies in the target or partner company.

After the merger, acquisition or strategic partnership is concluded and the transaction completed, Patria uses the due diligence materials, findings and the information acquired in the management discussions for the purposes of integration of the target company or potential partner with Patria. A critical focus in integration of any merged or acquired company is in ensuring that the corporate governance, ethics and compliance processes and policies are in line with the Patria standards.  Patria implements its processes, policies and principles in the target company or partner company and develops those further as ongoing business is conducted.

CONCLUSION

Sometimes the deal may fail when the due diligence reveals high risks connected to the transaction or partnering and subsequent operations. Sometimes such risks cannot be overcome by the agreement, warranty, indemnification or other legal safeguard. Patria´s policy is to always ensure there is always a closing condition and an exit mechanism due to hidden flaws or risks discovered during the process or thereafter especially in case of corruption or bribery which has not been discovered earlier in the process.