Due diligence for UK companies

What is due diligence?

A due diligence check is an investigation to identify, evaluate and verify all available information about a potential trading partner, acquisition or new venture.

Since UK companies no longer trade in isolation, they are usually part of a large supply chain crossing international boundaries with overseas partners. Consequently, they are exposed to greater risks.

It is essential for UK companies to have accurate business intelligence to prevent exposure to risk from regulatory non-compliance and to ensure that business transactions are legitimate.

The benefits of due diligence for UK companies

Due to the increased risk of corruption internationally, it’s important to conduct due diligence checks on a global scale.

As a result of due diligence, UK companies can:

  • gain insight into customers, employees and vendors
  • minimise the exposure to reputational, financial and regulatory risks
  • increase productivity and profitability
  • improve decision-making

The due diligence processes

Although the due diligence process will vary from industry to industry, in the event of a potential sale, acquisition or new trading partner, documentation and information will be requested for verification and assessment.

Typical due diligence checks include:

  1. Legal due diligence

This assesses the potential legal risks of a business transaction and involves the review of any contracts, loans, securities, intellectual property, and pending litigation involved in the transaction. It also includes an analysis and assessment of the potential exposure of the company to corruption, legal and regulatory risk.

  1. Operational due diligence

This considers the operations of the company in order to assess the risks and benefits. It will also assess the viability of any business plans and any associated risks involved, taking into consideration the positioning of the company within the market place.

  1. Financial due diligence

In this the financial information and trading performance is assessed. This includes an assessment of earnings, assets, liabilities, cash flow, debt and management, both historically and based on future forecasts.

  1. Market due diligence

This involves an evaluation of the current and future potential of the company/trading partner by means of third party information.

  1. IT due diligence

This considers whether the IT systems are efficient, cost-effective and secure enough to support an organisation’s growth.

  1. Intellectual due diligence

This focuses on the intellectual capital of a company and includes the advantage a company has over its competitors.

  1. Human due diligence

This considers the value of a company’s employees in terms of skills, education, experience, creativity, and other social attributes such as willingness to co-operate.

Outsourcing due diligence

Given the complex nature of international trading, outsourcing due diligence can be an attractive option for UK companies, especially as they may not have the necessary expertise and resources to conduct it themselves or in-house.

The benefit of outsourcing due diligence is that it can offer access to enhanced global due diligence checks and global compliance monitoring services. It allows individuals and companies to be screened without diverting resources from other areas of the business.