The conclusion of a UK merger deal usually occurs after due diligence (DD) of the target enterprise. It is extremely important in such transactions, as well as in the acquisition of expensive real estate, to ensure the legal purity of the transaction, the absence of negative consequences after the investment has been done, and the compliance of the object with the goals of the buyer. DD is of particular importance in times of crisis when investments are needed to stabilize the company's financial position. Today's blog post will guide you through the process of due diligence in the United Kingdom
In the course of due diligence of a British company, a whole range of measures is carried out, including an assessment of the reliability of information about the company's financial condition, compliance with the tax requirements, an assessment of the degree of implementation of strategic and current plans and the effectiveness of the management system, an analysis of the appropriateness of the company's policies, and the search for competitive advantages.
The UK company legal DD usually confirms:
- ownership of a company or business;
- legal structure;
- ownership and use of IT and real estate;
- IP protection in Britain;
- physical assets;
- labor contracts;
- disputes that have affected the target in the past, or ongoing UK dispute resolution processes.
As a rule, both parties are interested in carrying out the procedure - both the buyer and the target company. It allows the buyer to assess in detail the prospects of the business he is interested in and the compliance of the object with the buyer's goals, to ensure the legal purity of the transaction and the absence of negative consequences after the acquisition, and the seller confirms his own good faith, which gives him the opportunity to get more attractive offers.
There are several other situations in which a UK company due diligence procedure may be necessary:
- Equity participation of the new owner in the company activities.
- Changes in the management team.
- Getting sponsorship.
- Loss of intellectual property.
- Decline in competitive positions.
- Decrease in the firm’s efficiency .
- Legal proceedings, seizure of firm assets.
- Violations found during a tax audit.
- Labor disputes, and some other.
The submission of DD reports of British companies by vendors is a standard procedure in the controlled company sales process in Great Britain as it allows the owner to speed up the process of selling a company in the UK and minimize violations or errors.
According to the law, the seller may be held liable for misrepresentation before the transaction. However, if you intend to conduct a merger in the UK, please note that sales contracts generally limit the seller's liability to claims for breach of contract (unless deliberately misrepresenting facts).
Publicly available information
Conducting DD of corporate transactions in the UK is not complete without analyzing publicly available information.
Where you can get it
on the property ownership;
on mortgage loans
in the Land Register of Her Majesty and local authorities
on IP registration in the UK
with the IP Office
on licensing financial activities in Britain
in the online register of the Financial Conduct Authority
English companies must file a list of documents with the Corporate Registry that anyone can find on the Internet.
The duration of the DD procedure in Britain depends on the size of the business, the scope of the study and can take from several weeks to several months, and in some cases, up to one year. Due diligence can be carried out either by using the company's own resources or with the assistance of independent specialists.
What are the advantages of doing it yourself?
- Cost reduction;
- Knowledge of your own specialists in the field of the firm's main activities;
- The ability to formulate conclusions more accurately in relation to the firm’s specificity.
However, independent due diligence in Great Britain is only possible in small companies since a comprehensive analysis of a large business requires not only highly qualified specialists but also much time.
When acquiring a business from a sphere that is not related to the main activity of the company, independent due diligence of a British company will also be difficult. But the most important thing is that the procedure should be independent, unbiased, and bring a vision of the business from the outside, from potential or real investors.
Usually, large banks, corporations and professional investors invite third-party legal consultants, as this allows for detailed, unbiased, comprehensive research.
If you need a qualified assistance in conducting due diligence of a British company or you still have questions on this topic, reach out to us in a convenient way. Experienced IQ Decision UK specialists will provide detailed information as part of the UK M&A regulation consultation. To obtain consulting and accompanying services, please fill out the special form below or use the Contacts section.