Strategic commercial interventions: due diligence guidance

1. Rationale

1.1 Background

In recent years, the Scottish Government (SG) has intervened to assist businesses which are deemed to be of strategic national or regional importance. These interventions can and have taken several different forms; public ownership (Ferguson Marine), provision of a guarantee (Lochaber Aluminium Smelter) or loan funding (Burntisland Fabrications and Glasgow Prestwick Airport) and stretch across a range of sectors and geographic locations. These assets are now located in one division, Strategic Commercial Assets Division (SCAD) in the Directorate of Economic Development. By bringing the assets together into one division with a focus on commercial outcomes, separate from sectoral policy priorities, the structural conditions are in place to maximise the success of interventions.

When approaches are made to SG, from companies seeking financial support, they often require a quick turnaround time to secure a decision on the intervention (whether as a result of impending insolvency, sale etc of the business requesting support). Each case is unique and complex, and decisions therefore need to be undertaken at pace requiring advice and assistance both internally and externally (financial, technical, commercial and legal). In all circumstances steps should be taken to ensure that appropriate due diligence is undertaken.

To assist officials in these difficult circumstances this due diligence guidance has been developed. The guidance is intended to be specific and targeted to the needs of officials managing complex intervention cases and read in conjunction with other guidance such as the Business Investment Framework and HMT Green Book.

1.2 Purpose

The purpose of this guidance is to embed best practice on due diligence as part of a wider business case development process relating to large scale strategic commercial interventions. Typically, these types of intervention are not likely to fall into the strategies and associated investment portfolios of those promoted by enterprise bodies and other government departments and bodies, and so, will tend to be exceptional in nature and of particular significance to Scottish Ministers’ economic interests.

This due diligence guidance is intended to assist officials approach to the early stages of a potential intervention by:

• providing direction on how and when to carry out due diligence;
• signposting to what elements need to be considered;
• highlighting information that needs to be sought from a variety of sources;
• indicating who needs to be engaged (internally and externally); and
• setting out how this can all be used to inform the business case for intervention.

The information gathered and assessed will form a key part of the information required when drafting a business case for intervention as set out in the HM Treasury’s Green Book and the Scottish Public Finance Manual (SPFM). It is essential that the guidance is used in conjunction with these sources of information and in particular the Business Investment Framework section of the SPFM.

Although developed for SCAD, it is envisaged that this due diligence guidance will also be a useful reference for other SG policy areas & wider public sector. The guidance has been developed collaboratively between policy, finance, legal and economic specialists.