M&A due diligence: are you overlooking immigration risk?

When buyers assess a target business, attention often focuses on financial performance, commercial contracts, employment liabilities and regulatory risk. Yet one area that frequently receives limited scrutiny is immigration compliance.

For businesses that rely on international talent, overlooking immigration issues can lead to significant financial exposure, operational disruption and post-completion compliance challenges. This is particularly true in sectors such as healthcare, social care, technology, engineering, logistics and manufacturing, where sponsored workers often form a critical part of the workforce.

As immigration enforcement and sponsor compliance obligations continue to intensify, businesses involved in mergers, acquisitions and corporate reorganisations should ensure immigration is considered from the outset of any transaction.

Why immigration matters in a transaction

A target company’s workforce can be one of its most valuable assets. However, where that workforce includes sponsored workers or overseas nationals, buyers should understand both the current compliance position and the future immigration requirements of key employees.

Immigration risks often fall into two broad categories:

Compliance with right to work legislation and the prevention of illegal working
Compliance with sponsor licence duties where the business sponsors overseas workers

Failure in either area can have serious consequences, including substantial civil penalties, sponsor licence sanctions, reputational damage and disruption to business operations.

Questions buyers should be asking during due diligence

Immigration due diligence should go beyond simply confirming whether a sponsor licence exists.

Is the workforce legally entitled to work in the UK?

One of the most important areas of review is whether the target company has conducted compliant right to work checks and retained evidence correctly.

Where checks have not been undertaken or have been completed incorrectly, the business may face significant penalties. Buyers should also consider whether right to work procedures have been applied consistently across the workforce to minimise potential discrimination risks.

A targeted review of personnel files can often identify weaknesses in existing processes before completion.

Does the business hold a sponsor licence?

If the target company sponsors overseas workers, buyers should obtain a clear understanding of:

The number of sponsored employees.
The roles they occupy and their business criticality.
Visa expiry dates and upcoming renewal requirements.
Any previous Home Office compliance activity.
The current Authorising Officer, Key Contact and Level 1 Users.
Whether key personnel are expected to remain following completion.

Particular care should be taken where sponsored workers occupy senior management, technical or specialist positions that are integral to the business.

Are immigration obligations reflected in employment documentation?

Employment contracts and policies should be reviewed to establish whether employees are required to:

Maintain permission to work in the UK.
Notify the employer of any change in immigration status.
Provide updated documentation when requested.

Strong contractual protections can assist employers in managing ongoing immigration compliance.

Using the transaction documents to allocate risk

Where immigration risks are identified, buyers should consider whether additional contractual protection is required.

Typical protections may include:

Warranties

The seller may be asked to confirm that:

All employees have valid permission to work in the UK.
Right to work checks have been completed and retained correctly.
Sponsor licence duties have been complied with.
No Home Office investigations, audits or enforcement action are ongoing.

Indemnities

Where specific concerns arise, buyers may seek indemnities covering losses associated with immigration non-compliance, including civil penalties or sponsor licence breaches.

Disclosures

Any known compliance concerns should be properly disclosed during the transaction process to ensure risks are identified and appropriately valued before completion.

Immigration considerations after completion

Completion is not the end of the immigration process.

In many transactions, the most important immigration obligations arise immediately afterwards.

Sponsor licence implications

A change in ownership, control or corporate structure can trigger Home Office reporting requirements and, in some circumstances, necessitate a new sponsor licence application.

One of the most common misconceptions in corporate transactions is that sponsor licences automatically transfer to a new owner. They do not.

The appropriate course of action will depend on the structure of the transaction and should be assessed at an early stage to avoid jeopardising the immigration status of sponsored workers.

Home Office reporting obligations

Following completion, organisations may be required to notify the Home Office of:

Changes in ownership or corporate structure.
TUPE transfers involving sponsored workers.
Changes to work locations.
Amendments to reporting lines or employment arrangements.

Strict reporting deadlines apply and non-compliance can place a sponsor licence at risk.

Reviewing right to work records

Many buyers choose to conduct fresh right to work checks post-completion to verify the accuracy and completeness of inherited records.

In an asset sale involving TUPE, buyers have 60 days following completion to undertake right to work checks and establish a statutory excuse against illegal working penalties. Although no equivalent statutory excuse is available in a share sale, reviewing right to work records remains an important due diligence and compliance exercise. This is particularly important where a large workforce is transferring.

Future workforce planning

Buyers should also ensure there are systems in place to:

Monitor visa expiry dates.
Track sponsored worker activity.
Maintain immigration records.
Meet ongoing sponsor licence obligations.

This is particularly important where workforce continuity forms part of the value of the transaction.

Immigration as a value-protection exercise

Immigration compliance is no longer a peripheral issue in corporate transactions. For many businesses, particularly those operating in sectors facing ongoing skills shortages, sponsored workers are central to operational success and future growth.

Early identification of immigration issues can help buyers avoid unexpected liabilities, protect deal value and ensure a smoother integration process following completion.

For sellers, addressing immigration issues before a transaction begins can reduce delays, minimise negotiation points and increase buyer confidence.

Immigration should therefore be viewed as a core element of transaction planning, not an afterthought.

Our Corporate Immigration team work closely together to advise buyers, sellers and investors on immigration issues arising during mergers, acquisitions, disposals and corporate restructurings.

If you are considering a transaction and would like to understand the potential impact on your workforce, sponsor licence or compliance obligations, our team would be pleased to help.