Companies must mitigate risks to antitrust privilege posed by cross-border megadeals and increased regulatory demand for documentation.
A strong M&A market has driven a high volume of megadeals across the globe in recent years, with acquirers turning to ambitious transactions. Antitrust issues frequently arise on such complex deals, and in an evolving antitrust environment, taking a planned and strategic approach to privilege during the deal process is crucial. Balancing the need to run a thorough due diligence exercise and transparent deal process with the need to maintain confidentiality and privilege can be challenging. In our view, practical planning for privilege issues forms a key part of successfully navigating international M&A deals.
What Is Privilege, Why Privilege Matters, and Which Jurisdiction’s Privilege Applies
Privilege is fundamental in the business world, allowing lawyers and clients to freely exchange information and advice without fear that it will be disclosed to third parties, including regulators (this form of privilege is commonly known as “legal advice privilege”). Privilege also applies over confidential communications made for the dominant purpose of preparing for or conducting litigation or a regulatory criminal investigation reasonably in contemplation (commonly referred to as “litigation privilege”). However, privilege is a jurisdictional issue, and is treated differently across the globe — the law applicable to claiming and maintaining privilege varies.
In European Commission competition investigations, EU law applies. However, unlike in other jurisdictions, EU law does not recognise non-EU lawyers’ advice — or in-house lawyers’ advice — as being legally privileged. In Competition and Markets Authority (CMA) competition investigations, English law principles of privilege usually apply. Given the international nature of M&A, the laws of other jurisdictions are likely to come into play. Deal teams must carefully consider which laws apply, and adjust their approach accordingly.
What to Expect From Antitrust Regulators — Privilege in an Interventionist Antitrust Environment
In an era of increasingly interventionist regulators, deal teams must note the growing desire among competition agencies to obtain more information and apply greater rigour to challenge assertions of privilege. Following the approach taken in cartel investigations, we expect privilege to be a greater focus area for antitrust regulators.
The European Commission and the CMA are stepping up requests for internal documents. We have seen extensive European Commission and national regulator document trawls requiring the production of documents going back several years and expansive e-discovery requests in order to access and assess internal company emails. In recent procedures, the CMA has targeted strategic internal documents as well as emails between senior management and board members. The CMA is looking at new ways of scrutinising companies, and now asks for a list of all the documents a company is producing in competition filings, in addition to a log of privileged documents. This request creates further risk: if parties are forced to inform regulators about a privileged document’s existence, the chances of further scrutiny are increased. Test cases in which regulators challenge assertions of privilege are increasingly likely.
Companies can mitigate the risk of disclosing legally privileged material by taking practical steps to protect information (see adjacent box), including properly labelling documents as legally privileged and avoiding mixing legal advice with commercial issues (doing so risks losing privilege). In jurisdictions where an investigation is to be carried out (i.e., where merger filings are triggered), local counsel should be instructed to ensure privilege is maintained over antitrust risk assessment. Further, parties should note that greater scrutiny is being applied to bankers’ documents. Parties should seek legal input on the bank deck at an early stage, and involve counsel in interactions with economists and bankers.
Planning the Deal and Managing the Information Flow
M&A transactions require an effective flow of information between buyers and sellers, but privilege is based on confidentiality between a lawyer and their client. There is a danger that once information or advice is shared, privilege may be waived, and third parties, including competition agencies, can request disclosure in investigations or legal proceedings. Navigating the commercial realities of dealmaking requires parties to assess their priorities. For example, a potential buyer might want to see the advice a target company has received in relation to a legal issue it is facing (or could potentially face) in order to consider the potential acquisition and its terms (and requirements for warranties, etc.). Likewise, a seller might want to show legal advice on an issue to a buyer to demonstrate that there is no substantive legal issue to cause concern and no need for a warranty/indemnity.
The key point is that deal teams should carefully consider the implications of sharing written advice before doing so, particularly when setting up data rooms and responding to diligence questions. Data room best practice should be applied — while sellers may be keen to provide information to attract buyer interest and demonstrate the value of assets, it is generally better not to include privileged material in data rooms. On many deals, a phased approach can be taken, with sensitive information offered only during the latter stages of a transaction, when the field of buyers has been narrowed. Competition authorities are unlikely to be convinced that materials shared with multiple bidders can retain privileged status.
Parties can use mechanisms to help share information while minimising the risk of compromising privilege. When sharing information within corporate groups, sellers and targets should ensure that privileged advice is disclosed only to the “client” — which includes the board and any employees who need to see the advice to prepare it for the board. In-house lawyers should be clear in their communications about when they are giving legal advice vs. commercial advice. Regardless, in-house legal advice is not privileged at the EU level, so in-house lawyers should consider carefully at what point to involve external counsel if they envisage an EU filing. Sellers may exchange facts, or a summary of the case or issue, rather than legal advice, allowing buyers to seek their own advice on the matter. Sharing information orally can be a solution to avoid wider unintended circulation, and sharing via legal counsel may be preferable, in order to maintain a chain of privilege. If written material is exchanged, deal teams may also consider whether a common interest relationship can be established between the parties by recording that any disclosure of legally privileged information is on a common interest basis and is not intended to waive privilege. Limited and restricted waivers, which allow parties to share information for a specific purpose and period of time, may provide another solution, allowing companies to limit access to a document to a tight-knit group. Approaches vary by jurisdiction, which demonstrates the importance of local law advice. Joint disclosure agreements are commonly used in the US, but might be less effective in the EU and UK.
After the Deal Is Done
Parties should remember that some antitrust regimes, including the UK’s, operate on a voluntary filing basis. Post-signing and even post-closing, the risk of an antitrust investigation remains, and if a deal is called in, the CMA will request all documents up to the date it launches an investigation. Therefore, parties should not relax their safeguards in the immediate post-signing or post-closing period. The sharing of privileged information between signing and closing carries the same risks as set out above — whilst sellers may wish to share further information (e.g., to facilitate integration planning), parties should still consider whether sharing of legal advice absent a common interest relationship or applying limited and restricted waivers could result in the loss of privilege.
Understanding privilege is vital for M&A deal teams, as competition regulators increase their requests for document disclosure. With the introduction and expansion of national security regimes in the UK, Europe, and elsewhere, along with a variety of regulators asserting themselves, privilege considerations are likely to arise in circumstances beyond antitrust filings and investigations. Accordingly, following best practices with respect to legal privilege is more important than ever.