GLG is back in China as Beijing focuses on due diligence firms

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Specialist network consulting company Gerson Lehrman Group has become the latest due diligence firm to cut jobs in China as Beijing ramps up scrutiny of the sector on national security grounds.

US-based GLG, which maintains a network of experts that global investors can use to conduct due diligence on transactions, began laying off staff in China last month, said multiple people familiar with the matter.

The layoffs come as Beijing placed restrictions on foreign consultations this year, worrying international investors at a time of rising tensions between the US and China. The drive has made it more difficult for foreign companies to operate in China, which rely on the adversaries to help propel the world’s second-largest economy.

GLG declined to comment. But a source close to the company said that in May, GLG cut its global workforce by about 3.5 percent to better align its business with customer needs, drive efficiency and accelerate its investments in other areas. .

The company announced last week that it had hired Gemma Postlethwaite, former chief executive of business information company Arigent, to replace its former chief executive, Paul Todd.

A source close to the company said the workforce cuts in China are in line with global cuts.

Although GLG initially planned to expand into China earlier this year, the company moved staff to a new office in Shanghai and hired new employees, a person with knowledge of the situation said.

“GLG was bullish in March, and said business was booming. They were hiring and had recently moved to bigger offices,” said the person.

GLG has ramped up compliance checks in recent weeks following the raids, the person said, adding that clients are nervous about using China-based experts.

Due diligence experts for foreign companies, Network Group and other consultants have come under pressure in China after state media revealed in May that police raided several offices of Capvision, a company with extensive operations in China, for national security reasons.

According to Chinese state media, CapVision was accused of tapping people in the government to provide sensitive information to foreign customers, including military-related data.

The CapVision raid was part of a series of investigations into foreign consultancies in China this year, including Bain & Co and Due Diligence Group Mintz, whose five local employees were detained in March.

The Financial Times reported last month that US tech-focused conglomerate Forrester Research is cutting jobs in response to increasing restrictions on foreign businesses operating in China. The company said it is closing its China office as part of a previously announced global restructuring.

Investors and foreign multinationals say the action has made it difficult to conduct due diligence for investment and purchase contracts with Chinese partners and suppliers.

GLG said in a prospectus for an initial public offering filed in the US in 2021 that its “Greater China business unit”, comprising mainland China, Hong Kong and Taiwan, accounted for 6.8 per cent of its total revenue in the first half. Year. It later pulled out of the IPO.

The prospectus warned that “the Chinese government may intervene or influence our operations at any time, which could result in material changes to our operations”.

“Rules and regulations in China and their implementation can change quickly with little advance notice,” the IPO prospectus said.