Background check

A background check is a pre-transaction investigation into the professional, financial, legal and reputational history of a natural person or entity. In M&A, it is conducted on key individuals — founders, directors, controlling shareholders — as a complement to financial due diligence. It aims to detect criminal records, personal bankruptcies, regulatory sanctions, undisclosed conflicts of interest and reputational issues that could affect transaction value or expose the buyer to liability. In Switzerland, background checks must be conducted in compliance with data protection law (nFADP) and applicable jurisdictional restrictions.

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Example: before acquiring a Swiss distribution group for CHF 28.0 million, the buyer mandates a specialist firm to conduct background checks on the three founding shareholders. The investigation surfaces an ongoing judicial procedure in a foreign jurisdiction involving one founder — leading the buyer to strengthen the warranty provisions in the SPA and require a CHF 1.5 million escrow retention at closing.

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At Hectelion, we systematically recommend background checks as part of our due diligence framework for all material acquisitions.