Due Diligence (Pre-Investment and Post-Deal)
Investors need to know how a business is led, organised and controlled, before they sign and while they own it. Companies getting ready to be backed or sold need the same answers before investors or buyers ask.
Before the investor commits, James gives the deal team a senior view of how the target is run in practice, next to the financial and legal work. After one of the biggest takeovers in banking, he headed audit of the Credit Suisse UK investment banking entities for UBS, with responsibility delegated under the Chief Auditor, and saw from the inside what a buyer inherits.
The findings come back in the terms a deal is decided on: what putting each one right is likely to involve, how urgent it is and what cannot be fixed before completion. After completion, operating partners and incoming chairs can bring him in to turn the diligence findings, whoever produced them, into the first 100 days of work.
Purpose
What due diligence is for
“Due diligence, done well, is an independent eye that gives an investor conviction before the deal and a clear agenda once it completes.”
James Walker, Founder, Lightning Oak
The question underneath it is how an organisation actually behaves rather than how it describes itself.
To answer it, James tests whether the people, the processes and the way risk is managed will carry the plan the investment rests on: the work deal teams call operational and leadership due diligence. He looks at leadership through decision rights, the people the business depends on and who could step up. He works beside the financial and sector specialists on the deal.
When it helps
From exclusivity to exit
A deal passes through several moments where a senior, independent view is worth having, from the day the data room opens to the run-up to an exit. A problem found before signing can still change the terms.
01
Data room opens
The data room is open, and management has described how the business runs and how it is controlled. Before going further, the deal team needs to know whether the business works that way in practice, and where it does not.
02
Investment paper falls due
The paper asking for approval to invest is due, whether it goes to an investment committee, a family office or a board. Its section on how the business is run still rests on what management says about itself, with no independent evidence beside it.
03
Completion day arrives
The findings were written for the people deciding whether to invest. Now the operating partner, the investment lead for a family investing directly, or the incoming chair has to turn them into a plan the management team will own, with the first board meeting only weeks away.
04
Key person leaves
The finance director resigns, or someone else the business cannot easily replace. The investor needs to know quickly what else depended on them: the decisions they took, the controls they ran and the knowledge nobody else holds.
05
Portfolio company falls behind
The plan agreed at completion is slipping and the next board is close. The operating partner needs to know before then whether this is a poor quarter or a sign that the team or the operating model will not deliver it.
06
Investment or an exit ahead
Outside investment or an exit is in sight for a business that has never been through diligence itself. The founder, the owners and the board want to know what investors or buyers will find before they find it, and to put it right first.
Preparation
Getting a business deal-ready
Founder-led, owner-managed and family businesses can reach their first institutional investor, and portfolio companies a sale, before their governance has caught up with their growth. Getting ready means putting monthly management information, a financial control framework and clear board and decision rights in place before a transaction.
James brings the same knowledge he uses in diligence, this time working for the company. For a business getting ready to be backed or sold, the date that matters is the day its books open to investors or buyers. The business is ready for the questions an investor or buyer will ask, and the deal keeps moving.
- What the company receives
- A clear view of the business as an investor or buyer will see it, with the gaps that matter and a plan to close them before the data room opens.
The work
Before the investment decision
The businesses investors buy are often unregulated, so the operating question comes first and regulatory depth is added where a target carries it. Either way, the work is scoped to what matters to the investment case.
An unregulated target
James looks at whether the operating model will scale, and at the leadership team: its capability, its succession and the people the business relies on most. He tests how management information is produced and used by the board, while the figures themselves stay with the financial diligence. He tests the controls that protect value, the governance of technology, data and cyber risk, and the resilience of operations and suppliers. He interviews the chief executive, finance director and operations leads, and where the plan leans on a few customers or contracts, looks at who holds those relationships and what depends on them. He also tests decision rights and the information the board receives.
A regulated target
Where the target is authorised by the Financial Conduct Authority, or by the Prudential Regulation Authority as a dual-regulated firm, James looks at the change in control the way the regulator will. He checks whether the people approved to run the firm, and the systems and controls behind them, will satisfy that regulator under new owners. The depth comes from working directly with both UK banking regulators, and the work goes only as deep as the target needs. For a target regulated in another sector, he says so when the work is scoped and brings in a specialist in that regime.
Scope
Where this sits in the diligence
The work James does sits alongside the financial, legal, commercial, tax and technology diligence, and covers how the business is governed and managed. He reports to the deal team on its timetable and keeps the lead advisor informed, and every question in the diligence has one clear owner. Where a target needs specialist depth, in cyber security for example, James says so when the work is scoped and brings in someone suited to it.
Findings
What the investor receives
Each finding is set against the investment case, so the investor can see which could still change the terms and which belong in the first 100 days.
It is written in plain words, with the evidence beside it, in the order a committee reads. The deal lead can forward it as it stands to the deal team and those deciding on the investment. Anyone else, such as a lender or co-investor, can rely on it only under a separate reliance letter agreed in writing. James can take those deciding on the investment through the findings and answer their questions.
Post-deal
The first 100 days after completion
After completion the question changes from whether to invest to what needs building first, and who will own it.
Where a finance, risk or board function does not yet exist, or the board has never been properly formed, James scopes that work as its own engagement. Where another firm ran the pre-deal diligence, he starts from its findings and sorts them into what must be fixed before the next reporting cycle and what can wait. Nothing the investor has already paid for goes to waste.
When a finance director or another key person leaves, James can review what they held while it is still fresh: the decisions they took, the controls and reconciliations that depended on them, the approvals in their name, and who covers each until a successor starts.
What James does
Brought in after completion, he works with the incoming chair and the finance director to set out in writing who may decide what, tighten the controls over cash and payments, and shape a board pack the board can decide from, keeping governance proportionate to the business, without overcomplicating it. He turns the diligence findings into an action list for the board, with a name and a date against each, so the business stays ready for its next financing event or exit.
What the operating partner receives
A governance plan for the first 100 days, ordered by what matters most to value.
Longer term
Beyond the first 100 days
Later in the life of the investment, the operating partner or the board can bring James in. He can look at why a portfolio company has fallen behind its plan and what would put it back on course, or help the business get ready for buyers as an exit nears.
A seat on the board of the business is a separate appointment for the investor to make. On any one deal, James works for one side only, and any conflict is dealt with when the work is scoped. The findings stand on their own whichever way the investor decides.
Experience
Seen from inside the business
James has found that a bank builds a control before it needs one, while a growing business meets the risk first and builds the control afterwards. Having audited inside banks, and chairing a growing company now, he knows which controls a business needs at its present stage and which can sensibly wait. He has tested other people’s diligence before: at Investec he audited the credit decisions behind aircraft, windfarm and football transfer lending, and the due diligence they rested on.
Inside an acquired business
Through the takeover of a global bank, he held the audit programme together with shorter, sharper work done in real time. Afterwards, working for the buyer, he oversaw delivery of the worldwide audit plan for the portfolio being wound down.
Governance down to the desk
He ran the Supervision and Governance programme across the global audit function of a bank, looking at governance at every layer down to individual trading desks. The programme influenced how the wider group approached supervision and governance.
The company side of a capital raise
As chair of a growth company in nature markets that is raising outside investment, he is building out its board and governance beyond the founding directors. He knows at first hand what it is like to be the business that investors examine.
“His thoughtful presence, fairness and good people skills make him someone you can rely on in tough situations.”
Timing
Start early enough to act on what James finds
On a live deal, James sets the work around the dates the deal already has, so the findings arrive while they can still change the decision or the terms. After completion, the date that matters is often the next board meeting or reporting cycle. An investor with deals in the pipeline can keep James on its bench, so that when the next data room opens, the first conversation has already happened.
Questions
Due diligence
A deal team has to see where this work fits beside its other workstreams, and operating partners and founders need to know what it covers. With a live deal, timing matters as much as scope, and a regulator can change both.
How does operational and leadership due diligence differ from financial and legal due diligence?
The difference is the subject. Financial and legal due diligence look at the figures and the agreements. Operational and leadership due diligence looks at how the business is led, governed and run, testing leadership, decision rights, board information and whether the controls described work in practice. On a deal it runs as one of several workstreams to the deal timetable, and James agrees where its boundaries sit with the other providers at the start.
Why does an internal audit background suit due diligence?
Internal audit and due diligence ask the same thing of a business: whether it works the way it is described. James, a Fellow of the Association of Chartered Certified Accountants and a Chartered Internal Auditor, has asked it inside global banks throughout his executive career, across risk, governance, strategy, control and culture. On a deal, that habit is pointed at the investment case, with each finding ranked by what it means for value and how urgent it is. Perceptive, curious and receptive, he unlocks insight through honest dialogue, reveals risks and blind spots, and navigates ambiguity by deconstructing complexity.
Does an unregulated target need governance and controls diligence?
An unregulated target often does need governance and controls diligence. An unregulated business still has decision rights, board information, controls and key people, and any of them can move the investment case. For an unregulated target James scopes the work to what affects value, and adds regulatory depth only where a regulator is involved.
What should a founder put in place before investors look at the business?
Start with anything that depends on the founder alone. Deal teams often look closely at how far a business relies on one or two people, so decisions, knowledge and relationships held by one person are worth sharing and writing down early. They will also test whether the figures the board sees are accurate, and whether the controls work when the founder is not in the room. James can look at how the business runs, as they will, and help close the gaps before the data room opens.
How does the work fit the timetable of a live deal?
The work is timed to the date of the decision, such as an investment committee meeting. Before work starts, James agrees the start date, the scope and the points at which the deal team will hear from him. The findings are then in hand before the investment paper is written.
What should the governance part of a 100-day plan cover?
A 100-day plan should give the business a board with the right people and the right information, and written reserved matters and delegated authorities. James builds the governance part around the diligence findings that matter most to value, and gives each one an owner and a date. He also adds controls that protect cash and reporting. In a business authorised by the Financial Conduct Authority, a new appointment to a senior management function needs approval from the regulator first, which can set the timetable for the whole plan.
What does an independent review cover when a portfolio company falls behind its plan?
The review covers why the plan has slipped and the course correction that would recover it. James looks at whether the management information showed the problem in time, and whether the leadership team and the key people have what they need to deliver. He also checks whether the operating model and the controls that protect value are working as the plan assumed. The findings are ranked by what they mean for value and how urgent they are, so the operating partner can take them to the next board and steer the business back on course while there is still time.
What does the Financial Conduct Authority assess in a change in control?
A buyer needs approval from the Financial Conduct Authority, or the Prudential Regulation Authority for a dual-regulated firm, before completion. Among other things, the regulator assesses the reputation and financial soundness of the buyer, the people who will direct the business and whether the firm will still meet its prudential requirements. The regulator has 60 working days from acknowledging a complete notification, and can pause the clock once to ask for more information. The briefing on what a buyer should check in the governance of an FCA-authorised firm goes into more detail.
Insights
Governance on either side of completion
Whatever kind of business has been bought, the order in which governance and controls go in shapes how soon the board can rely on its own numbers. The pieces here answer questions that investors and boards face on either side of completion, including what changes when the business answers to a regulator.
Which governance and controls come first in a 100-day plan?
For the operating partner or incoming chair: what the board puts in place first after completion, and how to tell by day 100 that it is working.
What should a buyer check in an FCA-authorised firm’s governance?
A deal team buying a regulated firm should look at how long the firm leaves its own audit and compliance findings open, and what reaches its board. The regulator weighs the same governance before it approves.
Call James at any stage of a deal
Deal teams and family offices can bring James the deal, its timetable and whatever is worrying them. Operating partners can call after completion or when a plan starts to slip, founders while they get ready to be backed or sold, and advisors on a deal can introduce him to their client. A first call settles whether this work would help, how soon it would need to begin and whether James can start in time. The business need not be named on that call, and James can sign a confidentiality agreement first if one is required. A fund can also agree terms with James once, then call him in across its portfolio as needs arise.