Latham.London

Earnouts Are Rising Across Europe, But Can They Unlock COVID-19 Valuation Gaps?

Posted in M&A and Private Equity

Despite practical challenges, earnouts are a tool that PE buyers should increasingly consider to reconcile differences and get deals done.

By Alexander Benedetti, Giancarlo D’Ambrosio, Sebastian Pauls, Laura Kichenside, Catherine Campbell, Tom Evans, and David Walker

The use of earnouts, though historically disliked by PE buyers, is increasing across Europe. Earnouts can provide a way to bridge valuation gaps, a common need given frothy valuations pre-COVID-19, and a more frequently encountered issue during H1 2020. According to the forthcoming seventh edition of the Latham & Watkins Private Equity Market Study that examined deals signed or closed between July 2018 and June 2020, 18% of deals featured an earnout, compared to 16% and 14% in the 2018 and 2019 editions respectively. While the use of earnouts has challenges for PE dealmakers, earnouts have enabled parties to reconcile differences and get deals done, making them a tool that PE buyers may become more willing to accommodate in the year ahead, particularly given the uncertainties for many businesses caused by COVID-19.

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Healthcare AI Deals a Tonic for Private Equity Investors

Posted in M&A and Private Equity

Healthcare artificial intelligence is a promising sector for PE investors that requires careful navigation, particularly given divergent regulatory approaches.

By Jon Fox, Frances Stocks Allen, Catherine Campbell, Tom Evans, and David Walker

PE funds invested more than US$14 billion in healthcare (including pharma) in 2019, up from US$3.5 billion in 2013, and interest is likely to grow further, given the global impact of COVID-19. In our view, the application of artificial intelligence (AI) to healthcare and pharma is of increasing importance, and is likely to bring new deal opportunities for PE investors.
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Transacting With Troubled Companies – 3 Tips for PE Deal Teams Navigating Stressed, Distressed, and Insolvent Acquisitions

Posted in M&A and Private Equity

Successfully executing an acquisition from stress, distress, or insolvency requires a creative approach to reconcile competing interests.

By Simon Baskerville, Jack Isaacs, Hyo Joo Kim, Catherine Campbell, Tom Evans, and David Walker

The COVID-19 pandemic has brought a heightened risk of financial difficulty and insolvency for companies. Whilst there have been relatively few formal insolvencies so far, in our view troubled businesses may be forced to pursue accelerated asset disposals, creating opportunities for PE firms. However, successfully executing an acquisition from stress, distress, or insolvency requires skillful navigation of competing interests in a complex legal landscape.

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PE Can Pursue PIPE Dreams

Posted in M&A and Private Equity

European PIPEs — which have experienced an uptick due to COVID-19-related market volatility — present unique structural, informational, and governance considerations for private equity investors.

By Richard Butterwick, Chris Horton, Tobias Larisch, Harald Selzner, Anna Ngo, Hector Sants, Catherine Campbell, Tom Evans, and David Walker

European private investments in public equity (PIPEs) have historically been rare, particularly compared with the US. However, since the onset of the COVID-19 pandemic, companies have sought to access additional sources of liquidity to repair their balance sheets. For example, in May 2020, Clayton, Dubilier & Rice invested £85 million in UK-listed building supplier SIG for a 25% stake and two board seats, as part of a £165 million fundraising process to rebuild the company’s capital base — underlining the demand for private capital in the present environment and the willingness of PE to pursue PIPEs.

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So Say We All? Scope and Risks of Informal Shareholder Consent Clarified

Posted in Commercial, Dispute Resolution

A recent Privy Council decision examines the extent to which formal shareholder resolutions may be bypassed by relying on the Duomatic principle.

By Daniel Smith and Alanna Andrew

The ability for shareholders to pass resolutions — or assent to a course of action — quickly and informally is a potentially useful tool at any time, and even more so in times of financial and business uncertainty. Shareholders may wish to ensure time-pressured deals or restructurings are completed at speed. Companies may face liquidity challenges or expiring business opportunities, which require shareholder resolution. For creditors or bondholders, there may be an incentive to move swiftly, for example, if a receiver (who is appointed pursuant to the terms of a debenture and empowered to exercise the company’s voting rights) wishes to amend Articles of Association in order to effect a contentious restructuring. Continue Reading

English Legal Advice Privilege Can Apply to Communications With Foreign Lawyers

Posted in Dispute Resolution

High Court holds that English law legal advice privilege can extend to such communications regardless of whether or not the lawyers are in-house practitioners.

By George Schurr

In PJSC Tatneft v Gennady Bogolyubov & Ors.,[i] the English High Court held that legal advice privilege can apply to communications with foreign lawyers in certain circumstances. Specifically, privilege can extend to such communications if:

  • The communications are between a client and its lawyers (whether or not they are acting “in-house”).
  • Such communications are made in connection with the provision of legal advice.
  • The lawyers with whom the client is communicating are acting in their professional capacity.

The English courts will not look into whether the foreign lawyers are “appropriately qualified” or recognized / regulated as “professional lawyers” as a matter of local law. Continue Reading

Law no. 120/2020 Converting Simplification Decree Facilitates Capital Increases by Italian Companies

Posted in Finance and Capital Markets

The Simplification Decree (Decreto Semplificazioni) follows and puts into effect the earlier attempt of the Italian cabinet to facilitate capital increases.

By Antonio Coletti, Isabella Porchia, and Marta Negro

Law no. 120/2020 converting Law Decree no. 76/2020 (Decreto Semplificazioni), which entered into force today (Law no. 120/2020), introduces certain measures (see Article 44) facilitating capital increases by Italian private and listed companies needing to raise equity financing and counter liquidity shortage due to the COVID-19 pandemic.

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EU Platform-to-Business Regulation Enters Into Force

Posted in Brexit

The regulation is part of the EU Digital Single Market strategy to harmonise digital rights.

By Deborah J. Kirk, Elva Cullen, and Grace E. Erskine

From 12 July 2020, the EU’s Platform-to-Business Regulation 2019/1150 (P2B Regulation) promoting fairness and transparency for business users of online intermediation services applies. The P2B Regulation, which entered into force in June 2019, came about in response to complaints from SMEs regarding unfair practices and lack of transparency by online platforms, and the European Commission’s review of the same. Continue Reading

UK Supreme Court Narrows Scope of “Reflective Loss” Principle

Posted in Dispute Resolution

The decision overturns a series of cases deemed to have over-expanded a principle preventing shareholders from claiming against third parties for falls in a company’s value.

By Oliver Middleton and Thomas F. Lane

On 15 July 2020, the UK Supreme Court unanimously overturned a Court of Appeal decision that had barred a creditor of companies owned and directed by an individual from bringing tort claims against him for allegedly asset-stripping the companies in order to prevent them paying a court-ordered debt to that creditor. In Sevilleja v. Marex Financial Ltd,[1] the Supreme Court ruled that the “reflective loss” principle — restricting third parties from suing persons alleged to have harmed a company in a manner that caused “reflective loss” — should be narrowed so as only to apply to situations involving shareholders claiming for diminutions in value. Continue Reading

CMA COVID-19 Update: Recent Measures to Protect Consumers

Posted in Commercial

The CMA’s efforts include investigations into the package holiday and hand sanitizer industries.

By John D. Colahan and Anuj Ghai

CMA announces package holiday sector investigation

On 10 July, the CMA announced that it was investigating suspected breaches of consumer protection law in the package holiday sector. The investigation was launched on the back of work carried out by the CMA’s COVID-19 Taskforce. As noted in previous updates (see here), the Taskforce received a number of complaints about allegedly unfair practices concerning cancellations and refunds, including in relation to package holidays. The investigation specifically relates to concerns that businesses have not been respecting customers’ statutory rights to a refund for package holidays that were cancelled by either party due to lockdown restrictions. Notably, the CMA is carrying out the investigation under its consumer protection powers, rather than under competition law. Continue Reading

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