Deal structure of M&A DEALS

1.1 How are private and public M&A transactions typically structured in ISLE OF MAN?

The Isle of Man has two company law regimes, which operate in parallel. Companies can be incorporated under either the Companies Acts 1931-2004 (‘1931 act’) or the Companies Act 2006 (‘2006 act’). The legislation under which a company is incorporated will provide the legal framework for its operation in all areas, including in relation to mergers and acquisitions.

Private deals

Private M&A transactions are typically structured as:

  • share sales (which involve the transfer of ownership of the target, including all of its assets and liabilities, unless there is a pre-transaction carve-out of specific assets or the definitive transaction documents include express indemnities in respect of specific liabilities); or
  • asset sales (which involve the transfer of specific assets and rights, and often certain associated liabilities, relating to the target business).

Public deals

Public M&A transactions can be structured as schemes of arrangement, contractual takeover offers and, in certain circumstances, statutory mergers. Schemes of arrangement have been the most common structure for public-to-private transactions in recent years due to the advantages, which we consider in question 1.2.

The City Code on Takeovers and Mergers (‘Takeover Code’) applies in relation to takeovers of certain Isle of Man listed companies, whether structured as contractual offers or schemes of arrangement. The Takeover Code was amended with effect from 20 February 2023 to introduce new presumptions as to when parties are acting in concert under the Takeover Code. On 22 May 2023, several more amendments became effective in relation to, among other things, how the offer timetable applies in a competitive situation if:

  • separate bids are proceeding by way of a scheme of arrangement and contractual offer; and/or
  • a bid is subject to regulatory approval that cannot be satisfied within the normal 60-day timetable.

A small number of statutory mergers have taken place in recent years; but since they are relatively uncommon, we do not consider them further in this Q&A.

1.2 What are the key differences and potential advantages and disadvantages of the various structures?

Private deals

On a private transaction, a share sale is simpler to document and, from the seller’s perspective, involves the transfer of all of the target’s liabilities to the buyer.

An asset sale provides more flexibility over the choice of assets to be transferred and, from the buyer’s perspective, allows it not to assume liabilities that it would prefer to be retained by the seller.

Public deals

On a public transaction, the thresholds for a successful scheme takeover are often considered easier to achieve than for a contractual offer.

Under a contractual offer, the bidder requires more than 50% acceptances to obtain control of the target and more than 90% acceptances to obtain 100% of the target’s shares.

A scheme, on the other hand, need only be approved by a majority by number representing at least 75% in value of the target’s shareholders that vote at the relevant shareholders’ meeting. If, as often happens, a large number of shareholders do not vote at the relevant meeting, either in person or by proxy, a scheme can often be approved by substantially less than 75% of all shareholders. On the other hand, however, shareholders that are opposed to a scheme will need less support to be able to block a scheme than they would need to prevent a contractual offer becoming unconditional as to acceptances. Once a scheme becomes effective, the bidder will obtain 100% of the target’s shares, including the shares of shareholders that voted against the scheme and those that did not vote at all.

1.3 What factors commonly influence the choice of sale process/transaction structure?

The advantages and disadvantages listed in question 1.2, and tax considerations, tend to be most influential in terms of transaction structure. The choice of sale process is usually driven by commercial dynamics – most private M&A transactions involving Isle of Man targets tend to be conducted by bilateral negotiations, with auctions being reserved for higher-value targets.

Initial steps of an M&A transaction

2.1 What documents are typically entered into during the initial preparatory stage of an M&A transaction?

A non-disclosure agreement (NDA) will typically be entered into at the beginning of an M&A transaction requiring the parties to keep confidential the existence and terms of the negotiations, as well as any other confidential information that they receive from the other party as the negotiations progress. NDAs can include other restrictions, such as non-solicitation and exclusivity provisions.

On many transactions, the parties will also enter into a document setting out the headline terms of the proposed transaction. These documents (which are referred to by several different names, including ‘term sheets’, ‘letters of intent’ and ‘heads of terms’) are not intended to be legally binding, except in respect of specific provisions, such as exclusivity, confidentiality and costs.

2.2 Are break fees permitted in ISLE OF MAN (by a buyer and/or the target)? If so, under what conditions will they generally be payable? What restrictions and other considerations should be addressed in formulating break fees?

Isle of Man law does not prohibit a proposed buyer or the target from agreeing to pay break fees in appropriate circumstances, if the directors (of an Isle of Man buyer or the target) consider them to be appropriate and consistent with their fiduciary duties. However, break fees are not commonly used for private M&A transactions involving Isle of Man targets, and break fee agreements are generally prohibited for public M&A transactions that are subject to the Takeover Code.

2.3 What are the most commonly used methods of financing transactions in Isle of Man (debt/equity)?

The Isle of Man is no different in this regard from any other jurisdiction. Transactions can be funded entirely by cash, debt, equity or by a mix of them.

In certain transactions, such as management buyouts, the financing will consist of a mix of:

  • institutional and management equity;
  • debt financing (potentially including senior and subordinated debt); and
  • possibly also vendor loan notes if the parties agree to defer a portion of the purchase price (eg, if the purchase price is subject to an earn-out).

The choice of (and, where relevant, the split between different methods of) financing will vary from deal to deal, depending on:

  • the transaction structure;
  • the type of buyer (trade buyer or private equity);
  • the nature of the target and its underlying business; and
  • the relative cost of cash, debt and equity.

2.4 Which advisers and stakeholders should be involved in the initial preparatory stage of a transaction?

This will depend on the transaction structure (different considerations apply for private and public M&A transactions).

Private deals

Generally speaking, for a private M&A transaction, the buyer and the seller should engage with Isle of Man lawyers, as well as international legal advisers where appropriate. They may also wish to engage financial and tax advisers (and actuaries for certain transactions in the insurance industry).

Public deals

A larger range of advisers and other stakeholders will be involved in a public M&A transaction, including the directors of the target, any substantial shareholders, financial advisers, international and Isle of Man lawyers (for the target, the bidder and the financial advisers), brokers, sponsors, analysts, PR advisers, stock exchanges and registrars.

On a transaction that is subject to the Takeover Code, confidential information concerning the proposed transaction must be kept secret until announcement. The Takeover Code requires an announcement to be made when discussions relating to a possible bid are extended to more than a very restricted number of people, and this fundamental rule must always be borne in mind before engaging with advisers and stakeholders before such a transaction has been announced.

2.5 Can the target in a private M&A transaction pay adviser costs or is this limited by rules against financial assistance or similar?

Yes, this is permitted if the target is an Isle of Man company, and it is relatively common on a primary fund raising for the target to bear some or all of the subscriber’s adviser costs.

There is no prohibition against a private Isle of Man company providing financial assistance in connection with the acquisition of its own shares. However, the following company law principles continue to apply:

  • The provision of the financial assistance must be in the company’s best interests;
  • The provision of the financial assistance must not breach the Isle of Man law rules on distributions or otherwise constitute an unlawful reduction of capital; and
  • The provision of the financial assistance must not otherwise represent a fraud on the company’s creditors under Isle of Man insolvency laws.

M&A due diligence

3.1 Are there any jurisdiction-specific points relating to the following aspects of the target that a buyer should consider when conducting due diligence on the target?

  • Commercial/corporate
  • Financial
  • Litigation
  • Tax
  • Employment
  • Intellectual property/information technology
  • Data protection
  • Cybersecurity
  • Real estate

It is important for buyers to review each of the above aspects as part of their due diligence process together with their Isle of Man lawyers and their international legal advisers, if any. The precise considerations in each of these areas will depend more on the nature of the target’s underlying business than on any jurisdiction-specific issues.

One important jurisdiction-specific item to consider, which straddles corporate and tax, is whether the target is within the scope of the Isle of Man’s economic substance rules and, if so, whether it complies with those rules. The economic substance regime was introduced in 2019 and any in-scope companies that are non-compliant could be liable for significant financial penalties; if there is no realistic possibility of becoming compliant, they will be at risk of being struck off the companies register. It is increasingly important that buyers identify any economic substance issues during their due diligence.

3.2 What public searches are commonly conducted as part of due diligence in Isle of Man?

Searches of the target’s file at the Isle of Man Companies Registry, as well as searches against the entries and filings shown and available for inspection in respect of the target at the Rolls Office of the Isle of Man High Court of Justice.

It is also advisable to search the Isle of Man Financial Services Authority’s register to ascertain whether the target holds any financial services licences, authorisations or registrations.

Depending on the industry in which the target conducts its business and what the due diligence reveals, certain other searches might also be advisable, including:

  • searches of the Isle of Man Gambling Supervision Commission’s register; and
  • searches of the Isle of Man Deeds Registry or Land Registry.

3.3 Is pre-sale vendor legal due diligence common in Isle of Man? If so, do the relevant forms typically give reliance and with what liability cap?

Financial vendor due diligence tends to be more common than legal vendor due diligence on Isle of Man M&A transactions, although legal vendor due diligence is becoming more common, especially on auction sales and sales by private equity investors.

If legal vendor due diligence is carried out, it is customary for the report to be provided to bidders on a non-reliance basis as part of the auction process. The successful bidder will often be permitted to rely on the report by signing a reliance letter at the same time as the definitive transaction documents, but subject to customary limitations, including a cap on the report provider’s liability. Isle of Man lawyers tend to be guided by UK market practice and to set the level of the cap by reference to the deal value.

Regulatory framework

4.1 What kinds of (sector-specific and non-sector specific) regulatory approvals must be obtained before a transaction can close in Isle of Man?

There are no compulsory non-sector specific regulatory approvals in the Isle of Man.

Sector-specific regulatory approvals apply to transactions in certain sectors. For example, the Isle of Man Financial Services Authority must consent to changes of control of financial services licence holders, authorised insurers and certain other entities; and the Isle of Man Gambling Supervision Commission must consent to changes of control of certain businesses in the gambling/betting sectors.

Transactions involving companies in the telecommunications sector are generally subject to notification only, rather than requiring prior regulatory approval.

For each transaction, advice should be obtained from Isle of Man lawyers as early as possible in the process to ensure that the necessary consents are obtained and, where necessary, that appropriate conditions precedent are included in the definitive transaction documents.

4.2 Which bodies are responsible for supervising M&A activity in Isle of Man? What powers do they have?

This will depend on the sector in which the target conducts business. For both public and private M&A transactions, certain sector-specific regulatory approvals might be required (see question 4.1).

It will also depend on the transaction structure. The Takeover Panel is responsible for supervising all transactions that are subject to the Takeover Code.

Transactions that are structured as schemes of arrangement must be sanctioned by the Isle of Man High Court of Justice. The role of the court in relation to a scheme of arrangement is not limited to rubber-stamping the scheme once it has been approved by the requisite majorities of shareholders. The court has a duty to ensure, among other things, that:

  • the approval of the scheme is reasonable;
  • each class of shareholders was fairly represented and acted in good faith; and
  • the scheme of arrangement was proposed and approved in accordance with the statutory procedure.

So long as the scheme appears fair and reasonable, the court will be unlikely to judge its commercial merits. Although the court’s role in a scheme is not a mere formality, on a takeover scheme, the court tends to take a great degree of comfort from the fact that:

  • independent financial advisers have advised on the fairness of the scheme; and
  • the requisite majorities of shareholders have approved the scheme.

4.3 What transfer taxes apply and who typically bears them?

No stamp duty is payable in the Isle of Man on the transfer of shares in an Isle of Man company. For this reason, it is common to include the delivery of an updated register of members as a completion deliverable, meaning that it is not necessary to include a power of attorney in the definitive transaction documents.

Treatment of seller liability in M&A transactions

5.1 What are customary representations and warranties? What are the consequences of breaching them?

It is not customary for the seller to give representations on an Isle of Man M&A transaction. The established market practice is for the seller to give warranties only. Generally speaking, the warranties are given only at signing.

As is the case in any other jurisdiction, the exact scope of the warranties will depend on a number of things, including:

  • the transaction structure (warranties being more comprehensive for a private transaction and typically more comprehensive on a bilateral negotiation than an auction sale);
  • the nature of the target’s underlying business; and
  • the relative bargaining power of the parties.

The customary warranties on an Isle of Man M&A transaction are no different from those in other jurisdictions and will typically cover, among other things:

  • title/capacity/authority;
  • accounts;
  • assets;
  • real estate;
  • material contracts;
  • IP/IT;
  • employment/pensions;
  • insurance;
  • environmental;
  • compliance with law/litigation;
  • solvency;
  • data protection;
  • anti-bribery; and
  • corruption and anti-money laundering.

If a warranty is inaccurate, the warrantor will typically be liable for damages in an amount necessary to place the buyer in the position that it would have been had the warranty been accurate. It is uncommon for warranties to be provided on an indemnity basis, but buyers may seek to include specific indemnities for ‘known risks’ identified during due diligence.

5.2 What Limitations to liabilities under transaction documents (including for representations, warranties and specific indemnities) which typically apply to M&A transactions in Isle of Man?

The seller will typically include limitations as to:

  • quantum (de minimis, threshold (which can be tipping or deductible) and cap);
  • time (survival period and requirement for prompt notification upon discovery);
  • disclosure (public records, data room, and disclosure letter); and
  • knowledge (actual and, in certain instances, constructive and imputed).

It is common on private M&A transactions involving Isle of Man targets for the seller’s liability to be capped at £1 and the buyer’s exclusive recourse to be against a buy-side warranty and indemnity (W&I) insurance policy (see question 5.3).

5.3 What are the trends observed in respect of buyers seeking to obtain warranty and indemnity insurance in Isle of Man?

W&I insurance is common for private M&A transactions involving Isle of Man targets.

Sellers often ask buyers to limit the seller’s liability at £1 and to obtain a W&I insurance policy including an express subrogation waiver (ie, a waiver of the insurer’s right to pursue the seller to recover amounts paid out on a successful claim, except in the case of fraud). Even if not requested by the seller, a buyer in a competitive situation can make its offer more attractive by proposing such an arrangement.

The pricing of policies for transactions involving Isle of Man targets tends to be broadly the same as for transactions involving UK targets.

W&I insurance underwriters tend to propose a number of exclusions in policies relating to Isle of Man targets. It is often possible to address their concerns by focusing on the relevant areas during due diligence, in which case the underwriters can be persuaded to remove the relevant exclusions. Buyers should ask their Isle of Man lawyers to advise on what the relevant exclusions are likely to be and how they can be addressed.

5.4 What is the usual approach taken in Isle of Man to ensure that a seller has sufficient substance to meet any claims by a buyer?

The first and most obvious step is to ask for evidence of the seller’s creditworthiness in the form of a recent set of financial statements.

If the buyer has any reason to doubt the seller’s creditworthiness, it will often ask for a guarantee from a group entity with greater substance. Other options include the buyer retaining a part of the purchase price or paying it into escrow with an independent escrow agent.

If the payment of any portion of the consideration is deferred, another option is to insert provisions in the definitive transaction documents allowing the buyer to offset any claims against the deferred payments.

W&I insurance can also be used to address concerns about the seller’s creditworthiness (see question 5.3).

5.5 Do sellers in Isle of Man often give restrictive covenants in sale and purchase agreements? What timeframes are generally thought to be enforceable?

Yes, restrictive covenants are often requested by buyers in private M&A transactions involving Isle of Man targets. The scope and duration of such covenants are matters for negotiation and will differ from one transaction to another.

The Isle of Man High Court of Justice will generally enforce longer restrictive covenants in sale and purchase agreements than in an employment context in view of the buyer’s legitimate expectation that, having paid the seller for the target’s business, the seller will not set up a competing business for a period of time after completion.

The precise timeframe will vary from one transaction to another and input should be obtained from experienced Isle of Man lawyers. As a general rule of thumb, a covenant in a sale and purchase agreement with a duration of two or three years will generally be thought to be enforceable in the Isle of Man High Court of Justice if the buyer has paid the seller for the goodwill in the target.

5.6 Where there is a gap between signing and closing, is it common to have conditions to closing, such as no material adverse change (MAC) and bring-down of warranties?

Conditions precedent are a common feature of M&A transactions involving Isle of Man targets, but the Isle of Man tends to follow English market practice in this regard, meaning that MAC conditions or conditions relating to the continued accuracy of the warranties are less common than on the other side of the Atlantic (as noted at question 5.1, warranties are typically only given at signing).

Instead, conditions tend to relate to specific items arising from the buyer’s due diligence that must be addressed before completion. These can include regulatory and antitrust approvals, where required, and any required third-party consents.

If a buyer manages to negotiate the inclusion of a warranty bring-down condition precedent, the seller will typically look to include a materiality qualifier to prevent minor warranty breaches from scuppering the deal.

Deal process in a public M&A transaction

6.1 What is the typical timetable for an offer? What are the key milestones in this timetable?

As the Isle of Man does not have its own stock exchange, all of the responses in question 6 assume that the transaction is subject to the Takeover Code.

Isle of Man companies are listed on many of the world’s major stock exchanges so, if an Isle of Man target is listed in a jurisdiction outside the British Isles, local advice should be obtained in respect of the requirements of applicable stock exchange rules.

The following discussion assumes that the bid is recommended.

Scheme

As noted at question 1.1, schemes of arrangement have been the most common structure for public-to-private transactions in recent years, so we consider these first.

Once the bidder has completed its due diligence, it will formally announce the bid. Within 28 days, the target must send the formal scheme circular. The shareholders’ meetings will be held at least three weeks after the scheme circular is posted, and the Isle of Man High Court of Justice hearing to sanction the scheme can be held as soon as two business days after the shareholders’ meetings. The scheme becomes effective upon the court order and various ancillary documents being filed at the Isle of Man Companies Registry, which typically takes place within one or two business days after the sanction hearing.

The consideration must be paid to the shareholders of the target within 14 days after the scheme becomes effective (unless that period is extended with the consent of the Takeover Panel).

Contractual offer

Once the bidder has completed its due diligence, it will formally announce its bid, including a high-level description of the terms. The bidder must send the offer document within 28 days after the announcement, provided that the offer document can only be sent within the first 14 days with the consent of the target’s board. The earliest first closing date for acceptances is three weeks after the offer document is posted, and the offer must be declared unconditional as to acceptances before midnight on the day falling 60 days after the offer document is posted (unless that period is extended with the consent of the Takeover Panel).

The consideration must be paid to the shareholders of the target within 14 days after the offer becomes unconditional in all respects (unless that period is extended with the consent of the Takeover Panel).

6.2 Can a buyer build up a stake in the target before and/or during the transaction process? What disclosure obligations apply in this regard?

Subject to anything to the contrary in the Isle of Man target’s constitutional documents, there is generally no restriction on stake-building under Isle of Man law, although care must be taken to ensure that any dealings do not constitute an offence under Isle of Man insider dealing legislation.

Separately, the Takeover Code restricts dealings in the target’s shares by:

  • any person (other than the bidder) that has confidential price-sensitive information about the bid or contemplated bid after there is reason to suppose that a bid is contemplated and before the bid being announced; and
  • the bidder and its concert parties during the offer period.

There are no specific requirements in the Isle of Man for public disclosure during the transaction process, but the Takeover Code requires the bidder to make a public disclosure after the announcement that first identifies it as a bidder and during the offer period if it deals in any shares of the target.

Isle of Man counsel should work closely with UK counsel in respect of the above matters, and UK counsel should also be consulted about whether purchases before or during the offer period could constitute offences under UK insider dealing or market abuse legislation.

6.3 Are there provisions for the squeeze-out of any remaining minority shareholders (and the ability for minority shareholders to ‘sell out’)? What kind of minority shareholders rights are typical in Isle of Man?

Yes. Both the 1931 act and the 2006 act permit the compulsory acquisition of shares from minority shareholders if the bid is approved within a specified period by at least 90% in value of the shares affected. The relevant provisions do not expressly exclude any shares owned by the bidder or its affiliates from being taken into account when determining whether this threshold is met.

The precise rights of minority shareholders in an Isle of Man company will depend on whether it is incorporated under the 1931 act or the 2006 act, and what protections (if any) are included in its articles.

As a general protection, a shareholder in an Isle of Man company may apply to court for an appropriate order if:

  • in the case of a 1931 act company, the affairs of the company are being conducted or the powers of the directors are being exercised in a manner that is oppressive to, or that disregards the proper interests of, that shareholder or some part of the shareholders (including that shareholder); or
  • in the case of a 2006 act company, the affairs of the company have been, are being or are likely to be conducted in a manner that is, or any act or acts of the company have been or are likely to be, oppressive or unfairly prejudicial to that shareholder in its capacity as such.

6.4 How does a bidder demonstrate that it has committed financing for the transaction?

The Takeover Code requires the bidder’s financial adviser to confirm that the bidder has access to sufficient cash resources to satisfy full acceptance of the bid.

Before giving such a confirmation, the bidder’s financial adviser will conduct due diligence together with its own legal advisers to ensure that, whatever the source of financing, the bidder has sufficient funds committed to it to enable it to satisfy the consideration under the bid. Where relevant, this will include a review of any commitment letters from, or other agreements with, the providers of any debt or equity financing to the bidder, which must be legally binding with strictly limited conditions.

The extent of this due diligence exercise will depend on the value of the transaction, the bidder’s financial position and the financial adviser’s familiarity with the bidder.

The bidder will also be required to give various confirmations to its financial adviser regarding any existing or new debt facilities that it will use to finance the bid.

6.5 What threshold/level of acceptances is required to delist a company?

Assuming that the bidder, or a controlling shareholder that is a bidder, is interested in 50% or less of the voting rights in the target before announcing the bid, the bidder must acquire or agree to acquire, by virtue of its shareholdings and acceptances of the bid, shares carrying at least 75% of the voting rights of the target in order to cancel the listing.

6.6 Is ‘bumpitrage’ a common feature in public takeovers in Isle of Man?

Although the threat of so-called ‘bumpitrage’ (where an activist shareholder buys a stake in the target following the announcement of a bid with a view to forcing the bidder to improve the terms of its offer) is perceived to be on the rise in Europe generally, there have been no major instances of bumpitrage in the context of an Isle of Man public M&A transaction to date.

That said, however, Isle of Man targets are as susceptible to shareholder activism as companies in other jurisdictions. As noted at question 1.1, schemes of arrangement have been the most common structure for public-to-private transactions in recent years. The procedure to implement an Isle of Man scheme of arrangement is broadly the same as that for UK companies, so the tactics that bumpitraging activists have developed in the context of UK takeover schemes could easily be replicated for takeover schemes involving Isle of Man companies. For this reason, on recent takeover schemes involving Isle of Man companies, the parties have carefully monitored movements in the shareholder base during the offer period with a view to detecting potential activists as soon as possible.

6.7 Is there any minimum level of consideration that a buyer must pay on a takeover bid (eg, by reference to shares acquired in the market or to a volume-weighted average over a period of time)?

If the bidder acquires interests in shares within three months before the offer period, or between the start of the offer period and the announcement of the bid, the offer price must be at least as high as the highest price paid for any such purchase.

In addition, if the bidder acquires an interest in shares at above the offer price during the offer period, it must increase its offer price to at least the highest price paid for any such purchase.

6.8 In public takeovers, to what extent are bidders permitted to invoke MAC conditions (whether target or market-related)?

The Takeover Code generally prevents bidders from invoking any conditions unless the circumstances are of material significance to the bidder in the context of the bid. After a bid has been announced, bidders must use all reasonable efforts to ensure that any conditions are satisfied.

Although MAC conditions are frequently included in announcements and offer documents relating to public M&A transactions involving Isle of Man targets, the reality is that the bar for a bidder to invoke such a condition is very high. The bidder will need to demonstrate that circumstances have arisen that are of very considerable significance, striking at the heart of the purpose of the transaction.

The Takeover Panel has clarified that, although this is a high standard, the test does not require the bidder to demonstrate frustration in the legal sense.

6.9 Are shareholder irrevocable undertakings (to accept the takeover offer) customary in Isle of Man?

Yes, bidders may, and frequently do, seek irrevocable undertakings from key shareholders and directors who are also shareholders to accept the bid or, in the case of a scheme of arrangement, to vote in favour of the relevant resolutions.

Hostile bids

7.1 Are hostile bids permitted in Isle of MAn in public M&A transactions? If so, how are they typically implemented?

Yes, hostile bids are permitted.

A hostile bid will most likely be implemented using a contractual offer, since contractual offers are proposed directly by the bidder to the shareholders of the target. Schemes of arrangement, on the other hand, are proposed to the shareholders by the target itself. Because schemes of arrangement require the cooperation of the target’s board, no hostile takeover of an Isle of Man company has yet been implemented by way of a scheme of arrangement.

7.2 Must hostile bids be publicised?

The provisions of the Takeover Code that dictate the circumstances in which an announcement is required do not distinguish between recommended and hostile situations. Before formally announcing a bid, the bidder must notify the target’s board, and an announcement is required when the board is so notified as to whether the board recommends the bid.

For this reason, when a bidder is contemplating a hostile bid, it will often notify the board only moments before the announcement is released, to give the target as little time as possible to prepare a defence (see question 7.3).

7.3 What defences are available to a target board against a hostile bid?

Listed Isle of Man companies can take several steps even before learning of a hostile bid to put them in the best position to respond (especially in view of the short notice that will often be given – see question 7.2).

First, they should maintain an up-to-date defence strategy. This is especially important if the board believes that the company is undervalued. A company should also monitor changes in its shareholder base and ensure that any suspicious movements are notified to the board immediately.

Second, a company might identify a potential ‘white knight’ (ie, a friendly bidder that might be prepared to offer a fair value in the event of a hostile bid).

Practically speaking, a company might have a spokesperson appointed and key advisers on standby, as well as ensuring that it can establish an internet microsite quickly if needed to publish documents/announcements in connection with a possible hostile bid.

The use of US-style ‘poison pills’ (also known as a shareholder rights plan) by London-listed Isle of Man companies is rare. This is partly a reflection of the Takeover Code restrictions on frustrating action. But even if a bid is not imminent, so the restrictions on frustrating action do not apply, the adoption of a poison pill will usually require shareholder approval; and since UK institutional investors have historically opposed anti-takeover defences, it will be difficult to obtain such approval.

Undervalued companies may consider repurchasing shares as a defensive measure designed to:

  • concentrate the shareholder base;
  • increase the price of the shares; and
  • ultimately, make the company less attractive to an opportunistic hostile bidder.

M&A trends and predictions

8.1 How would you describe the current M&A landscape and prevailing trends in Isle of Man? What significant deals took place in the last 12 months?

The Isle of Man life insurance sector has continued to see a lot of M&A activity in the last 12 months. We have also seen significant interest in growth-stage technology businesses, property holding companies, and non-life insurance businesses based on the Isle of Man.

As in other jurisdictions, deal activity in the Isle of Man has softened as a result of the uncertainty caused by global macroeconomic factors.  In particular, high interest rates have led to a number of deals falling over due to an inability to bridge the valuation gap between buyer and seller. That said, lucrative opportunities still abound for investors with strong balance sheets and the appetite to make investments during a period of uncertainty.

Significant deals included:

  • the sale by Zurich International Life Limited (Isle of Man incorporated an authorised insurer) of its closed book of long-term life insurance business to Monument International Life Insurance Company Limited, part of the Monument Re Group;
  • the court-sanctioned scheme of transfer by Utmost Limited (‘Utmost’) of its entire book of long-term insurance business to Utmost International Isle of Man Limited (‘Utmost International’) as part of the ongoing integration programme pursuant to Utmost’s acquisition of Utmost International from Quilter Plc in 2021;
  • the c. £1.2 billion business combination between Alvarium Investments, Tiedemann Group and SPAC Cartesian Growth Corporation (now trading on the NASDAQ as Alvarium Tiedemann Holdings, Inc.);
  • the c. £1 billion acquisition by KKR of a 25% interest in Northumbrian Water Group (one of the largest water supply and sewerage utilities in the UK with an Isle of Man captive insurer);
  • the c. £1 billion business combination between Lifezone Metals Limited (a leading developer of cleaner metals for electric vehicle batteries) and New York Stock Exchange (NYSE) listed GoGreen Investments Corporation, in the first ever listing of an Isle of Man company on the NYSE through a deSPAC business combination;
  • the court-sanctioned scheme of transfer by Nordben Life and Pension Insurance Co. Limited (a Guernsey insurer) of its entire book of long-term insurance business to Monument International Life Assurance Company Limited;
  • the c. £190 million recommended consortium offer by Thunderball Investments Limited for London Stock Exchange listed Lamprell Plc; and
  • the acquisition by international private equity firm Cinven of a majority interest in International Financial Group Limited, the owner of the RL360, Friends Provident International and Ardan brands.

8.2 Are any new developments anticipated in the next 12 months, including any proposed legislative reforms? In particular, are you anticipating greater levels of foreign direct investment scrutiny?

Sanctions regulations in the Isle of Man, which were published in response to the geopolitical unrest in Eastern Europe and mirror those published in the United Kingdom, are likely to remain in force during the next 12 months. As a consequence, we anticipate a continuation of the trend of enhanced due diligence and more comprehensive warranties related to contracting parties’ compliance with applicable sanctions regulations.

On 1 April 2023, the Isle of Man Financial Services Authority implemented a new, predominantly industry-funded, fee model under which the cost of regulation is primarily incurred by certain entities regulated by the Isle of Man Financial Services Authority (‘Regulated Entities’). This development will affect those looking to establish or acquire Regulated Entities. The new model introduces, among other things, transaction fees payable in relation to a change of control of a Regulated Entity.

The Competition Act 2021 received royal assent on 18 October 2021 and was announced in Tynwald (the Parliament of the Isle of Man) the following day. The act will introduce a merger control regime into Isle of Man law for the first time, and there will be a public consultation regarding the applicable notification thresholds before the relevant provisions become effective. Based on statements that were made during the passage of the legislation, we expect the notification threshold to be set at £20 million of locally derived revenue for both the buyer and the target. At the time of writing, the operative provisions of the act have not come into effect.

M&A tips and traps

The best piece of advice that we can give is to engage with experienced Isle of Man lawyers (who are often instructed in conjunction with international counsel) as early as possible in the process. Similarly, if a transaction is tax driven, the contracting parties should facilitate engagement between tax advisers and Isle of Man lawyers as early as possible as to ensure that any tax requirements are reflected in the transaction documents.

Many Isle of Man companies will have a local registered agent, which will be a regulated entity subject to comprehensive anti-money laundering rules. The registered agent will usually be responsible for maintaining the target’s register of members and will need to complete its own know-your-customer (KYC) checks on any new major shareholder before it will update the register. So it always advisable for a buyer to ask to be introduced to the target’s registered agent as soon as possible in the sale process to ensure that it satisfies the registered agent’s KYC requirements before completion.

Originally provided for Mondaq’s Comparative Guide to Mergers & Acquisitions, 2023.

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