M&A Due Diligence: Protecting Value in High-Risk UK Transactions

Distressed M&A transactions can offer compelling opportunities—but they demand fast, focused and legally robust due diligence. In these deals, time is limited and access to information is often restricted. The key is knowing where to look and what really matters.

What Buyers Must Prioritise

A critical first step is understanding why the business is in financial distress. This may involve cash flow issues, failed financing, operational weaknesses or wider market disruption.

Buyers should also assess:

• The impact of recent economic and pandemic-related pressures

• Supply chain and workforce risks

• Ongoing contractual and regulatory exposures

The legal focus will depend on the deal structure:

• Share purchases

Review change-of-control clauses, financing arrangements, restrictive covenants and tax risks.

•  Asset purchases

Identify which contracts, leases and liabilities transfer, and check for any security registered over the assets.

Across all deals, careful attention should be given to employees, insurance, IT systems (including data protection and cybersecurity), and risks from historic transactions.

Essential Searches and Legal Checks

Public searches are especially important in distressed transactions. These typically include:

• Companies House filings, accounts and creditor information

• Companies Court searches to identify winding-up petitions

• Relevant IP and property searches, where applicable

These checks help confirm solvency status, ownership, and potential enforcement risks before committing to the deal.

Managing Risk Where Warranties Are Limited

In distressed sales, buyers often receive limited or no warranties, particularly where insolvency practitioners are involved.

To manage this risk, buyers may:

• Adjust pricing to reflect uncertainty

• Use retention or deferred consideration structures

• Explore warranty and indemnity insurance, including synthetic warranties

• Seek termination rights if material adverse events occur before completion

Early legal input is essential to structure these protections effectively.

How Our Corporate & Commercial Team Can Help

Our experienced corporate and commercial solicitors advise buyers, sellers and investors on distressed M&A transactions across the UK.

We provide:

• Tailored risk-focused due diligence

• Clear advice on deal structure and liability exposure

• Practical solutions to protect value and improve deal certainty

If you are considering a distressed acquisition or disposal, speak to our corporate & commercial team early. Timely legal advice can be the difference between securing an opportunity and inheriting unexpected risk.