Investing in a UK business? What to investigate?

Lawyers for investing in a UK company

So, you have found:

  • a UK entity you want to buy assets from;
  • an exciting new UK company you want to join forces with;
  • a new UK investor who has promised to inject much needed cash into your business; or
  • you are that investor and you have found a UK business you want to invest in.

We look at how you can conduct due diligence on UK businesses from outside the UK.  We draw on our experience of working with businesses based all around the world looking to do business in the UK.

The key focus areas we explain for you are using our knowledge on the mix of UK law, custom and practice include:

  • What goes into the UK due diligence process; and
  • What information do you have to provide to the UK authorities when you have bought a UK business?

How to carry out due diligence on a UK business

The first step is to deal with heads of terms. From a practical perspective due diligence does not usually start until the heads of terms have been agreed – for more information on UK heads of terms.

There are no rules in the UK as to when you can start the UK due diligence or what information you can ask for and in what order.  We do set up data rooms to help co-ordinate the flow of information.

The next step is to prepare the UK due diligence questionnaire.  The due diligence questionnaire is essentially a list of key questions designed to assess the UK business you are looking at.  It is an investigation into finances, defects, risks, opportunities plus anything else likely to be material.

During the course of due diligence a great deal of potentially highly sensitive confidential information about the company and its business relations is exchanged. In order to cater for the interests of both sides, the parties generally enter into a non-disclosure agreement.

Due diligence questionnaires  streamline the gathering and receiving of vital facts and data about an entity swiftly and effectively; whether that is concerning its financial stability, matters concerning employees, outstanding disputes, compliance issues or even cyber security. Due diligence questionnaires are used across all industries.  In the normal order of events once the initial due diligence has been considered the details of the sale purchase agreement is negotiated.

What questions should be asked about the business pre-investment or purchase?

You will get more value out of a targeted report.  We tailor the questions to what you really need to know.  To be effective, what we capture for you is enough detail to empower you to positively decide to move forward or not. Each questionnaire is different, depending on the kind of project.

For example:

Corporate

  • What is the organisational structure?
  • Are all Companies House filings up to date?
  • Who are the key players? What are their roles and since when?

Finance

  • What are the operating costs and accounting policies?
  • What if any debts are there?
  • What existing financial agreements are in place?

Employees

  • What do the employee contracts look like?
  • How many employees are there and what is their length of service?
  • What are the benefit plans?

Legal

  • What types of permits, third party consents and licenses are required?
  • Are there any contracts that restricting the company’s ability to do business?
  • Have it been involved in any litigation?

Consumers

  • Does the business deal with consumers? If so, different laws and statutory protections apply.
  • Who are the top ten customers for the last 12 months?
  • Can you provide details about the products/services they buy and the length/nature of those relationships?

Intellectual Property

  • Is there any registered intellectual property e.g. trademarks and patents?
  • What websites and domains does the company own?
  • Does it have any intellectual property owned by a third party?

Physical Assets

  • Does the company own any properties or land?
  • What plant and machinery does the business own?
  • Does it own or have any leases or licences on property, land or equipment?

Data 

Particular care is needed around framing the enquiries relating to data protection.  Post Brexit the UK has its own GDPR regime which is not identical to the rest of Europe.  If there is a data breach the UK authorities can go back many years after the foreign investor or purchaser has acquired a UK business and long after the indemnities have expired.  Foreign investors and purchasers have been caught out and forced to pay very large fines.  More details are set out here.

Mergers, acquisitions and joint ventures with UK companies

From the outset the buyer or party joining forces will need to be confident their investment is going to be sound.

Questions usually focus on corporate records, employees and contractors, accounts and finances, contractual responsibilities and other legal issues as well as industry specific risks designed to unearth any skeletons which may be hiding in the closet.

Investment due diligence

Questions from, for example, an investor perspective usually focus on founders, client and supplier information, intellectual property and competitors.

Public corporate records

There are public records in the UK available to foreign investors and foreign companies accessible to all for checking out the UK business and its directors.  For example:

  • Credit checks
  • Company, partnership and director check
  • Internet based checks

Tax aspects of buying a UK business

We work with non-UK based investors and parent companies acquiring UK businesses who ask us to help them comply with the UK rules around registering ownership of the business acquired.

The transfer of shares to buyers will often be subject to stamp duty. To establish legal ownership of shares and assets you do need to have paid your tax to HM Revenue and Customs.  Stamp duty is assessed on the consideration payable as shown on the stock transfer form.  Consideration includes deferred consideration.  We make sure your HMRC reporting in correct.

There are other matters that will need attending to after acquisition of a UK business by foreign investors and parent companies.  For example, the appointment of new directors have to be registered at Companies House.  Often the articles of association change along with a host of other matters.  This is all quite complex for people operating outside the UK. We demystify the tangles.

Please do call us to talk over your requirements or concerns. We can help guide you through the process and provide tailored solutions.

Jennifer Wall

A master at turning what looks to be a tricky problem at the start with lots of dark alley ways into a workable commercial outcome.

Let us take it from here

Call us on 020 7438 1060 or complete the form and one of our team will be in touch.