1. Deal structure
1.1 How are private and public M&A transactions typically structured in your jurisdiction?
Private M&A transactions are typically structured as either of the following:
- Share purchase of target: This involves the sale of the shares of the target where the seller(s) and the purchaser(s) agree to the terms of sale. The terms of sale will be recorded in a private contract; or
- Business and/or asset purchase: Certain assets of the target can be sold by way of a business purchase agreement between the purchaser and the target (as seller). Pursuant to the business purchase agreement, the purchaser acquires neither the target nor its liabilities (although it is open to the parties to agree that certain liabilities transfer to the purchaser).
Public M&A transactions are typically structured as one of the following:
- Takeover offer: This is a statutory process under Part 18 of the Companies (Jersey) Law 1991 (CJL) whereby a bidder makes an offer to the target’s shareholders to acquire their shares in the target. After the takeover is complete, the bidder and target remain separate companies and the target becomes a subsidiary of the bidder.
- Scheme of arrangement: This is a statutory process under Part 18A of the CJL, involving a compromise or arrangement between a company and its members. It results in the bidder holding all of the target’s shares. The offer from the bidder requires approval by a majority in number representing at least 75% of the voting rights of those target shareholders that vote on the scheme, in addition to the sanction of the court.
- Statutory merger: This is a statutory process under Part 18B of the CJL which could be utilised in both public and private M&A transactions.
1.2 What are the key differences and potential advantages and disadvantages of the various structures?
If the bidder makes an offer, it must obtain a 90% level of acceptances in order to be entitled to compulsorily acquire the shares in the target of any shareholder that does not accept the offer. In contrast, once a scheme of arrangement becomes effective, it binds all shareholders, whether or not they have voted in favour of the scheme. The bidder and the target can therefore be certain that if a scheme is approved by the shareholders and sanctioned by the court, the bidder will acquire a 100% shareholding in the target.
A 100% shareholding is likely to be acquired in a shorter timeframe under a scheme rather than under the compulsory acquisition procedure involved under an offer (see timetable at question 6.1).
The main advantage of a statutory merger in a public M&A context is that only shareholder approval (in addition to board approval) by way of special resolution is required in order to achieve 100% control of the target. A special resolution is a resolution passed by a two-thirds majority (or any higher threshold, as set out in the company’s constitutional documents). By way of contrast to the two processes outlined above:
- achieving 100% ownership by way of a takeover offer requires acceptance by at least 90% of the shares subject to the offer (so as to be entitled compulsorily to acquire the remaining shares); and
- in the context of a scheme of arrangement achieving 100% ownership requires the approval of a majority in number, representing at least 75% of the voting rights, of those target shareholders that vote on the scheme, in addition to the sanction of the court.
1.3 What factors commonly influence the choice of sale process/transaction structure?
A number of factors will determine what the most appropriate process or transaction structure is, including the following:
- in private M&A transactions, whether the asset which the purchaser seeks to acquire is easy to carve out from the company (eg, real estate) or whether it is more desirable to acquire the whole business (eg, to take advantage of accrued losses and to avoid stamp duty on the purchase of real estate);
- in public M&A transactions, the composition of the shareholder base, including the prevalence of single shareholders or groups of shareholders that may be against or in favour of any offer based on previous public statements or any other market intelligence; and
- in both private M&A transactions and public M&A transactions, timing (see question 6.1 for the typical timings of a scheme of arrangement compared with a takeover offer).
2. Initial steps
2.1 What documents are typically entered into during the initial preparatory stage of an M&A transaction?
This will depend on the nature of the transaction and, specifically, the sectors of the respective parties and their profiles, together with the proposed quantum involved in the transaction. It is common for the respective parties to enter into heads of terms setting out the key commercial terms of the transaction, which are often accompanied by a non-binding offer letter from the bidder. In addition, selling shareholders and/or target companies will be asked to enter into exclusivity arrangements with a potential purchaser. Likewise, non-disclosure agreements or similar confidentiality agreements are often entered into at the start of an M&A transaction in conjunction with exclusivity agreements. In public M&A deals, it is usual for an insider list to be maintained by the advisers of both the target and the bidder.
2.2 Are break fees permitted in your jurisdiction (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?
In private M&A transactions, break fees tend not to feature. In public M&A transactions, break fees were commonplace in larger cross-border transaction prior to 2011, when certain changes were made to the City Code on Takeovers and Mergers as issued by the UK Panel on Takeovers and Mergers.
As a result, the code prohibits the target and any other person acting in concert with it from entering into “any offer-related arrangement with either the offeror or any person acting in concert with it during an offer period or when an offer is reasonably in contemplation”. This includes inducement fees, as well as a number of other contractual protections familiar to bidders, such as information and matching rights. Derogations may be granted following a formal sale process, where the target is in serious financial difficulty or where the target is bringing in a ‘white knight’ to compete with a hostile bidder.
2.3 What are the most commonly used methods of financing transactions in your jurisdiction (debt/equity)?
In private M&A transactions, the most common form of consideration is cash from purchaser cash reserves or from existing or new credit lines. In public M&A transactions, this will be bespoke for each transaction. It is not uncommon for part of the cash consideration to be paid out of cash reserves of the target by way of special transaction-specific distributions. It is also common in public M&A transactions for a bidder to offer an equity alternative to the cash offer or a combination of both (see also question 6.7).
2.4 Which advisers and stakeholders should be involved in the initial preparatory stage of a transaction?
The legal and financial advisers of both the purchaser and the seller(s) in private M&A transactions, and the bidder and the target in public M&A transactions, should be involved at the earliest possible stage. Taking legal and financial advice as early as possible in the process should flush out what other advice may be necessary and stakeholders should be consulted on a confidential basis. For example, it is not uncommon for competition and other regulatory authorities to be consulted on a no-names basis to determine the scope and timings involved of any applications or consents that will be required in connection with the proposed transaction.
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?
There are no rules against financial assistance for Jersey companies, so theoretically this is possible. In practice, however, it is common for parties to bear their own adviser costs. If necessary, a purchaser can refinance all acquisition costs (including adviser fees) post-completion.
3. 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?
Typically, we see clients requiring a tailored approach to due diligence, depending on the nature of the target entity, the extent of its presence in Jersey and its regulatory footprint in Jersey.
Since 1 January 2019, certain Jersey tax resident entities have been subject to the requirements of the Taxation (Companies Economic Substance) (Jersey) Law 2019 (‘Economic Substance Law’). As a result, an entity (which could be an entity established or incorporated in Jersey or elsewhere) which is tax resident in Jersey, receives income and carries on a ‘relevant activity’ is subject to the requirements of the Economic Substance Law. ‘Relevant activities’ include:
- banking business;
- insurance business;
- fund management business;
- finance and leasing business (which, among other activities, includes the provision of finance to third parties or affiliates);
- headquarters business;
- shipping business;
- holding company business (covering, broadly, companies which hold controlling equity stakes in other companies, but undertake no other commercial activities);
- IP holding business; and
- distribution and service centre business (which, among other activities, includes the provision of services to affiliates).
An entity within the scope of the Economic Substance Law must, in respect of its relevant activity:
- be directed and managed in Jersey;
- conduct core income-generating activities in Jersey; and
- have adequate employees, expenditure and physical assets in Jersey.
Therefore, if the target is within scope of the Economic Substance Law, any due diligence exercise will have to include an audit of its compliance with the Economic Substance Law.
A further peculiarity of a due diligence exercise involving a Jersey target with employees in Jersey is to ensure compliance with the Control of Housing and Work (Jersey) Law 2012 (i.e. the main piece of legislation which sets what licences are required by businesses to employ different categories of people).
3.2 What public searches are commonly conducted as part of due diligence in your jurisdiction?
The following searches are usually undertaken as part of a Jersey due diligence exercise:
- a search against the target on the website of the registrar of companies in Jersey;
- an enquiry of the Viscount’s Department in Jersey as to the existence of a Jersey désastre (bankruptcy) declaration in respect of the target;
- an enquiry of the Judicial Greffe as to the existence of litigation in the Royal Court of Jersey involving the target; and
- an online search on the Jersey security interests register against the target and the selling entities and/or shareholders.
3.3 Is pre-sale vendor legal due diligence common in your jurisdiction? If so, do the relevant forms typically give reliance and with what liability cap?
Typically, due diligence is undertaken on the buy side; though in certain instances (eg, an auction process or a distressed sale), the process can be vendor led. However, this is usually a more limited exercise. Reliance and liability caps on vendor-led due diligence reports vary from deal to deal and as this is much less common, there is no discernible market norm.
4. Regulatory framework
4.1 What kinds of (sector-specific and non-sector specific) regulatory approvals must be obtained before a transaction can close in your jurisdiction?
Whether regulatory approvals are required will depend on the nature of the Jersey target and the market(s) in which it operates.
Following the enactment of the Companies (Takeovers and Mergers Panel) (Jersey) Law 2009, the City Code on Takeovers and Mergers applies to offers made for public companies incorporated in Jersey if either:
- their shares are listed on a regulated market in the United Kingdom, the Channel Islands or the Isle of Man; or
- they are considered by the Takeover Panel to have their place of central management and control in the United Kingdom, the Channel Islands or the Isle of Man.
Application to private companies is also possible in limited circumstances.
Jersey companies with equity listings on other exchanges (eg, the Toronto Stock Exchange, the New York Stock Exchange or NASDAQ) may also be subject to the code if the panel considers that the company’s management and control is in the United Kingdom, Jersey, Guernsey or the Isle of Man.
If the Jersey target is regulated or otherwise subject to the supervision of the Jersey Financial Services Commission (JFSC), the bidder or the Jersey target may require the JFSC’s prior approval or consent to the acquisition and certain governance changes that may flow from the acquisition (eg, the appointment of new directors to the boards of regulated entities).
The Jersey Competition Regulatory Authority (JCRA) may also have jurisdiction over an acquisition of a Jersey company if the thresholds for a notifiable transaction are met (in Jersey, this is a share of supply or purchase test). In addition to the JCRA’s general powers (eg, to levy financial remedies), notifiable transactions relating to the change in ownership of a Jersey target are rendered void as a matter of law if the JCRA has not approved the transaction prior to completion.
4.2 Which bodies are responsible for supervising M&A activity in your jurisdiction? What powers do they have?
See question 4.1.
4.3 What transfer taxes apply and who typically bears them?
There is no capital gains tax (or any analogous transfer charged) levied in Jersey on the transfer of shares in a Jersey company.
5. TREATMENT OF SELLER LIABILITY
5.1. What are customary representations and warranties? What are the consequences of breaching them?
Warranties and indemnities will be tailored to suit the underlying Jersey target and any issues that may have arisen during due diligence. It is typical for a purchaser to seek warranties and representations on:
- the capacity of the seller(s);
- the target shares and the shares in any group entities;
- the solvency of the target;
- financial accounts and records;
- changes since the accounting date;
- litigation and other proceedings;
- trading and material contracts;
- IT systems;
- company records;
- data protection;
- environmental and health and safety issues; and
- change of control provisions.
If the acquisition is proceeding through an auction process, a narrower scope of warranties will be expected.
5.2 Limitations to liabilities under transaction documents (including for representations, warranties and specific indemnities) which typically apply to M&A transactions in your jurisdiction?
As with the extent of warranties and representations given by the parties in the sale and purchase agreement, the extent to which such warranties and representations are qualified is equally a matter of negotiation.
As a starting point, warranties and representations are usually qualified by way of specific matters set out in the disclosure letter. In the sale and purchase agreement, parties will seek to negotiate:
- the time periods by which a claim can be made for a breach of warranty or representation;
- the minimum value of a warranty claim before a claim can be made;
- the process for the conduct of a dispute that may arise relating to a breach of warranty and a third-party claim; and
- the extent of a general obligation to mitigate loss suffered.
Other general restrictions on warranties that a seller may seek could include:
- preventing double recovery;
- requiring the purchaser to exhaust all rights against insurers and other relevant third parties;
- excluding seller liability for contingent claims (until they become actual);
- limiting the purchaser’s right to recovery by way of its knowledge; and
- qualifying warranties within the knowledge of certain individuals.
5.3 What are the trends observed in respect of buyers seeking to obtain warranty and indemnity insurance in your jurisdiction?
Warranty and indemnity insurance is becoming increasingly common in both local and cross-border private M&A transactions, particularly in a controlled sales process or where the seller is looking for a clean break from completion of the transaction.
Insurance may be arranged by either the seller or purchaser. A seller’s policy may be suitable where the seller is selling a company or business and intends to invest or distribute to its shareholders the proceeds of the sale.
A purchaser’s policy secures greater financial recourse than is offered by a seller, which is of particular assistance in an auction where low caps on liability may be offered or the only financial recourse available in respect of business warranties comes from target management.
Policies are often subject to the following exclusions:
- issues that are known to the policyholder;
- financial obligations that are payable as a consequence of the selected pricing mechanism;
- fines and penalties that are uninsurable by law;
- financial obligations resulting from pension underfunding;
- liabilities arising from transfer pricing; and
- issues that are specific to a transaction, such as liabilities arising from the use of asbestos.
In addition, a seller’s policy would exclude recovery in respect of fraud by the seller.
5.4 What is the usual approach taken in your jurisdiction to ensure that a seller has sufficient substance to meet any claims by a buyer?
Typically, a purchaser will assess the continued creditworthiness of the seller post completion. If there is any doubt as to whether the seller will be able to meet its obligations under any warranty or indemnity claim, the parties will negotiate a suitable outcome, such as an escrow arrangement whereby a proportion of the purchase moneys will be held on account until the expiry of the window for bringing claims under the sale and purchase agreement. As outlined in question 5.3, it is becoming much more common for parties to seek warranty and indemnity insurance and simply price the cost of any premiums into the transaction.
5.5 Do sellers in your jurisdiction often give restrictive covenants in sale and purchase agreements? What timeframes are generally thought to be enforceable?
It is common for sellers to agree not to solicit senior employees of the target as well as agreeing to a covenant not to compete with the company or business that has been sold. To be enforceable, any non-compete covenant must apply to a reasonable geographic area for a reasonable time period, typically considered to be up to two years; though in exceptional circumstances, this can be up to three years.
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?
As a result of the COVID-19 pandemic, we have noticed a shift towards purchasers seeking to include additional conditionality or termination rights in the sale and purchase agreement, giving them flexibility to walk away from the deal (or leverage to reopen the commercial terms) if there is a detrimental change to the fortunes of the target between signing and completion. One method of seeking to secure this type of flexibility is through a MAC clause, which aims to allow the purchaser to withdraw from the deal in the event of a significant adverse business or economic change affecting the target or its assets in the interval between exchange and completion.
Aside from a MAC clause, it remains relatively unusual in Jersey – particularly for English law-governed sale and purchase agreements – to repeat or to ‘bring down’ warranties at closing (save for fundamental warranties relating to title and capacity). This concept, which effectively extends the effective date of the warranties, is likely to continue to be resisted by sellers (because it exposes them to consequences beyond their control). This is particularly so where the purchaser requires the warranty repetition to confer a termination right as well as a right to damages, and especially where a MAC clause has already addressed COVID-19 related issues.
6. 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?
Set out below is an indicative timeline of key events in the takeover of a Jersey company by way of a scheme of arrangement or a contractual offer that is subject to the jurisdiction of the Takeover Panel.
|Date||Scheme of arrangement||Contractual offer|
|As early as possible||Book court dates.|| |
|A – 28||Announcement of possible bid and beginning of the offer period (if not already commenced). Except with the Takeover Panel’s consent, the potential bidder will have 28 days from the date of the possible bid announcement either to announce a firm intention to make a bid or to announce that it will not make a bid unless, upon request from the target, the panel grants an extension to this deadline.||Announcement of possible bid and beginning of the offer period (if not already commenced). Except with the Takeover Panel’s consent, the potential bidder will have 28 days from the date of the possible bid announcement either to announce a firm intention to make a bid or to announce that it will not make a bid unless, upon request from the target, the panel grants an extension to this deadline.|
|A Day||Announce scheme by way of a Rule 2.7 announcement.||Announce takeover offer by way of a Rule 2.7 announcement.|
|D – 1||Convening hearing of Royal Court in Jersey in order to seek directions to convene a meeting of shareholders to consider the scheme.|
|D Day||Publication of scheme circular and proxy form (must be within 28 days of A Day, but can only be within the 14 days following A Day if the target board consents to this).·Announcement of publication of scheme circular.||Publication of offer document and form of acceptance (must be within 28 days of A Day, but can only be within the 14 days following A Day if the target board consents to this).·Announcement of publication of offer document.|
|D + 21||First date on which court and shareholder meetings to approve scheme can be held.||Usual first closing date (bid must be open for at least 21 days after publication of the offer document).|
|D + 22||Target announces results of meetings by 8:00 am.||Bidder announces level of acceptances by 8:00 am and (usually) extension of bid.|
|D + 38||Sanctions hearing of Royal Court in Jersey (all scheme conditions must have been fulfilled).Target announces results of sanctions hearing.|
|D + 39||·Court order which sanctions the scheme is filed at Registrar of Companies in Jersey.Scheme becomes effective.Target or bidder announces scheme has become effective.End of offer period||Last date for material new target information to be published.|
|D + 42||Earliest date when accepting shareholders entitled to withdraw acceptances if bid is not by then unconditional as to acceptances (assumes first closing date is on D+21).|
|D + 46||Last date bidder can revise the bid.|
|D + 53||Latest day to pay consideration to target shareholders (within 14 days of scheme becoming effective).||Last date potential competing bidder usually allowed to clarify its intentions.|
|D + 60||Last date by which acceptance condition can be satisfied or waived – offer goes ‘unconditional as to acceptances’ or lapses. Offer period ends.|
|D + 81||Last date by which all conditions can be satisfied or waived – offer goes ‘wholly unconditional’ or lapses.|
|D + 95||Latest day to pay consideration to target shareholders (within 14 days of offer becoming wholly unconditional).|
|Thereafter||Bidder can undertake compulsory acquisition procedure if it achieves 90% or more acceptances of offer.|
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?
If the City Code on Takeovers and Mergers applies, the bidder must disclose its own and any concert parties’ opening positions following the start of an offer period or an announcement which first identifies the bidder as the bidder.
It is common for the constitutional documents of a listed Jersey company to contain disclosure requirements, with the sanction for non-compliance being disenfranchisement of the relevant shareholder.
Bidders are also subject to insider dealing and market abuse regulations, which are relevant if a bidder seeks to build a stake in the target while it possesses price-sensitive information.
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 your jurisdiction?
Under Article 117 of the Companies (Jersey) Law (CJL), if the bidder has acquired or contracted to acquire nine-tenths in nominal value of the shares in the case of a par value company (or, in the case of a no par value company, nine-tenths in the number of the shares) to which the offer relates, the bidder can acquire or squeeze out the remaining one-tenth by giving notice to the relevant shareholders.
Similarly, under Article 119 of the CJL, if a takeover offer relates to all the shares in a company and, at any time before the end of the period within which the offer can be accepted, acceptances have been received from the holders of shares amounting to nine-tenths in nominal value of the shares in the case of a par value company (or, in the case of a no par value company, nine-tenths of the number of the shares) to which the offer relates, the holder of any shares to which the offer relates which has not yet accepted the offer may, by written communication addressed to the offeror, require the offeror also to acquire its shares.
6.4 How does a bidder demonstrate that it has committed financing for the transaction?
In transactions where the City Code on Takeovers and Mergers applies, General Principle 5 of the code prescribes that a bidder must announce a bid only after:
- ensuring that it can fulfil any cash consideration; and
- taking all reasonable measures to secure the implementation of any other type of consideration.
Where an offer is for cash or includes an element of cash, a Rule 2.7 announcement must include confirmation by an appropriate third party (normally the bidder’s financial adviser) that resources are available to the bidder sufficient to satisfy full acceptance of the offer. This obligation is replicated in Rule 24.8, which requires the same statement to appear in the offer document. In addition to carrying out its own due diligence, a financial adviser providing this cash confirmation will engage legal counsel to investigate the funding structure to demonstrate that it acted reasonably and avoid any obligation under the code to make up any funding shortfall.
6.5 What threshold/level of acceptances is required to delist a company?
This will depend on the relevant stock exchange, though at the very least, this will usually require some form of shareholder approval of the Jersey target.
6.6 Is ‘bumpitrage’ a common feature in public takeovers in your jurisdiction?
Bumpitrage continues to be a feature of some transactions.
6.7 Is there any minimum level of consideration that a buyer must pay on a takeover bid (e.g., by reference to shares acquired in the market or to a volume-weighted average over a period of time)?
If the City Code on Takeovers and Mergers applies, there are no restrictions on the nature of consideration or price at which the bid can be made, except where the bidder (or anyone acting in concert with the bidder) acquires or has acquired any interest in securities of the target.
If the bidder (or any person acting in concert with the bidder) acquires any interest in shares during the offer period, any bid must be in cash or accompanied by a cash alternative at no less than the highest price paid by the bidder during the offer period and within the 12 months prior to the offer period.
If a mandatory offer is triggered, the offer must be in cash (or accompanied by a full cash alternative) at no less than the highest price paid by the bidder during the 12 months prior to the announcement of the offer.
6.8 In public takeovers, to what extent are bidders permitted to invoke MAC conditions (whether target or market-related)?
If the City Code on Takeovers and Mergers applies, the permission of the Takeover Panel is required to invoke a MAC condition, in accordance with Rule 13.5 of the code.
The recent offer by Brigadier Acquisition Company Limited (BACL) for Moss Bros Group plc has attracted much attention after BACL sought a ruling from the panel to invoke a condition of its recommended cash offer and lapse its offer. In this instance, the panel’s executive ruled that BACL had not demonstrated that circumstances of a material significance existed that would permit BACL to invoke a condition under Rule 13.5(a).
This ruling is significant, as it is not uncommon for Jersey public companies to be subject to a takeover offer that is not subject to the panel’s jurisdiction. In such instances, it is quite common for the implementation agreement (or equivalent document) and scheme document to contain a MAC condition that can be invoked by a bidder. Given Jersey’s close alignment with the jurisprudence of the United Kingdom, particularly in the area of company law, it is likely that the Royal Court in Jersey would be asked to have regard to the developments in Moss Bros, and specifically the test applied, should it ever be asked to adjudicate upon the invocation of a MAC condition in a scenario where the panel (or any equivalent regulatory body) does not have jurisdiction over the proposed offer.
6.9 Are shareholder irrevocable undertakings (to accept the takeover offer) customary in your jurisdiction?
It is common for a bidder to obtain irrevocable undertakings to accept an offer from significant target shareholders immediately prior to the announcement of a firm offer, so as to secure as much comfort as possible that the offer will succeed. There are no prescribed disclosure requirements in respect of undertakings under Jersey law regarding the content, form and process; these are usually dictated by the City Code on Takeovers and Mergers and the listing rules of any relevant stock exchange.
7. Hostile bids
7.1 Are hostile bids permitted in your jurisdiction in public M&A transactions? If so, how are they typically implemented?
Hostile bids are permissible, though are very uncommon in Jersey.
A hostile bid would likely be structured as a contractual offer under Part 18 of the Companies (Jersey) Law. A scheme of arrangement is typically undertaken only in a recommended transaction. As a scheme of arrangement requires the target to convene meetings of its shareholders and to make an application to the court to sanction the scheme, it is less likely to be used as a means of implementing a hostile offer – though it is worth noting that the City Code on Takeovers and Mergers does consider the possibility of implementing a hostile offer by way of a scheme.
7.2 Must hostile bids be publicised?
On a hostile bid, where the City Code on Takeovers and Mergers applies, the bidder will typically prepare an announcement regarding a firm intention to make an offer and the offer document without input from the target. The target will publish a press announcement in response to the Rule 2.7 announcement and, within 14 days of publication of the offer document, must send a defence document to the target shareholders setting out:
- the reasons why it is not recommending the bid; and
- its view on the effect of implementation of the bid on the target shareholders; and
- the strategic plan for the target.
7.3 What defences are available to a target board against a hostile bid?
A number of defensive actions are available to a board that has received a hostile takeover offer. What is appropriate will depend on the circumstances and what is required under the City Code on Takeovers and Mergers and the rules of any relevant stock exchange.
A common action taken by the target board is to issue a defence document. Rule 25.1(a) of the code requires the target to issue a circular (which is considered as a defence document) when a takeover is hostile. This circular must usually be issued within 14 days of the announcement of the bid, and is issued to all target shareholders. Another popular action by the target board subject to the hostile offer is to lobby financial experts, the media and the relevant competition authorities (if appropriate), as well as the general public, to present a narrative that that the takeover offer made by the bidder is not fair according to the standard rules of competition in the marketplace. This is a popular technique, as it can be employed quickly by the target board and prior shareholder or Takeover Panel approval is not required.
8. Trends and predictions
8.1 How would you describe the current M&A landscape and prevailing trends in your jurisdiction? What significant deals took place in the last 12 months?
Both local and international M&A activity in Jersey more or less came to a standstill in March 2020 as the economic fallout from COVID-19 took hold. As the summer approached, M&A activity staged an extraordinary recovery as cash-rich investors – particularly private equity funds – returned to the market with force. This fuelled a flurry of takeovers of listed companies by sponsors as a result of depressed share prices and companies needing capital to invest in growing and rebuilding their businesses. Apollo’s take-private of JSE and SEM listed Atlantic Leaf Properties Limited and Nordic Capital’s acquisition of ADVANZ PHARMA Corp Limited are notable examples of this trend. Another high-profile public M&A transaction was the acquisition by BorgWarner Inc of Delphi Technologies PLC. All three of the examples listed above were implemented by members’ schemes of arrangement in Jersey.
The firepower of private equity capital was also notable in the higher-profile private M&A transactions in Jersey this year, which included the GBP6.8 billion acquisition by the Issa brothers and TDR Capital LLP of the Asda Group from Walmart; and the £1.1 billion acquisition of the Priory Group by Waterland Private Equity Investments from Acadia Healthcare Company.
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?
The imminent introduction of the National Security and Investment Bill (NSIB) in the United Kingdom will give dealmakers contemplating major M&A activity in the United Kingdom in the relevant sectors something additional to think about. In turn – at least while advisers grapple with the scope of the NSIB – this will have a knock-on impact on Jersey M&A activity. The NSIB introduces a far-reaching and standalone national security screening regime requiring mandatory notification of transactions in the most sensitive sectors of the economy and a voluntary regime for others. It provides for:
- an expansive ‘call-in’ power to enable the UK government to review non-notified transactions up to five years post-completion; and
- the power to impose serious sanctions for non-compliance.
We expect that the huge growth of special purpose acquisition companies (SPACs) in the US market will make its way into Europe, and the United Kingdom specifically, with SPACs becoming a popular alternative to the traditional initial public offering process in the United Kingdom. The recent Hill Review, which included recommendations to change current Financial Conduct Authority rules to make the listing of SPACs in the United Kingdom more desirable – is further evidence of this. Jersey – with its stable, tax-neutral environment and flexible company law regime – is expected to be at the front of the queue as the jurisdiction of incorporation for SPACs seeking a UK listing.
9. Tips and traps
9.1 What are your top tips for smooth closing of M&A transactions and what potential sticking points would you highlight?
Detailed planning and preparation are crucial to a successful closing. When clients and advisers are aware of what is expected from each other as part of the completion process, that process can be seamless and relatively stress free. The onus, of course, is on advisers (particularly legal advisers) to brief clients on what is required from them in terms of the receipt of funds, signing documents, completion meetings and so on. Continuous dialogue between legal advisers and clients is always helpful during this stage.
Equally as important as ensuring coordination between legal advisers and the client is the need to ensure that all advisers are on the same page as to what is required to be delivered by each set of advisers. It is not uncommon for the senior advisers who have negotiated the key transaction documents to leave the closing process to advisers on the deal team who are less familiar with the intricacies of the transaction; but this can result in key parts of the completion process being misunderstood or overlooked. For example, if there are multiple sets of lawyers, each with different proximity to and roles in the transaction, there will be a number of competing priorities at closing (eg, legal advisers to the seller will not be concerned with the requirements of the legal advisers to the incoming lender). Therefore, if the completion process is likely to be complex, we would always recommend doing a dry run so that any potential issues can be flushed out.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.