Private equity’s growing appetite for UK-listed targets comes with the need for Takeover Code-savvy dealmakers.

By Doug Abernethy, Richard Butterwick, Tom Evans, David J. Walker, and Catherine Campbell

Amid stiff competition for attractive private targets, PE firms are competing more regularly against corporates and rival sponsors for listed targets, requiring skillful navigation of the dynamics of a contested UK take-private within the tight confines of the Takeover Code.

Several deals underline appetite for listed targets at mid-market and large-cap levels, including Towerbrook and Warburg Pincus’ £219 million takeover of The AA, CD&R’s £7 billion acquisition of W M Morrison, and Blackstone’s £3.5 billion acquisition of Signature Aviation, with PE bidders also recently involved in high-profile competitive situations around Sanne Group and Vectura. Once a rarity, Takeover Panel formal auction procedures have become more frequent in recent years, highlighted by the multibillion-pound Morrisons deal.

Scheme vs. Offer

Historically, competitive situations have usually been played out through competing offer (instead of scheme of arrangement) structures, because the terms of an offer can be quickly and relatively easily amended. Such flexibility can cause issues for some PE bidders, who prefer the certainty and finality (i.e., the “all or nothing” quality) of the scheme structure and therefore might avoid the flip to a less desirable offer structure if they thought a deal process was going to become a multi-bidder situation.

However, targets are increasingly agreeing to launch competitive schemes concurrently under the Takeover Code as they field different offers, allowing new bidders — including PE — to enter the competitive fray more easily with rival scheme structures. Recently, in a high-profile example, the battle over Morrisons was resolved through an auction overseen by the Takeover Panel. Once the auction was over, the supermarket group continued to implement the winning bidder’s scheme while dropping the other, and CD&R was able to complete its take-private transaction.

Other Scenarios for Savvy Dealmakers to Note

A phenomenon driving some competitive activity is that of public company boards in receipt of an approach from one party opening dialogue with other potential suitors (perhaps those who have approached the target in the past) in order to create competitive tension. We have also seen scenarios where significant (but non-controlling) shareholders in listed companies have contacted PE sponsors to elicit take-private interest.

PE bidders should be savvy to the implications of being contacted by a listed company (or a shareholder in a listed company), and how this engagement is reconciled with the Takeover Code rules and announcement obligations around active consideration (the point at which a potential bidder first has obligations under the Takeover Code). Deal teams should seek legal advice to ensure compliance with Code obligations as soon as they are engaged by a potential public company target or its shareholders.

Expert Guidance Required

PE’s increasing enthusiasm to compete publicly for the best UK-listed assets comes with its own challenges. The timeline for public takeover offers is more flexible and straightforward following changes to the Takeover Code that came into effect in July 2021. However, these amendments apply primarily to the offer structure and will therefore affect to a much lesser extent a bidder proceeding by way of PE’s preferred scheme structure.

Deal teams need to ensure they have an experienced Takeover Code-savvy advisory team on board from the earliest stages of preliminary discussions in a potential UK take-private transaction, as the commitments given by a PE sponsor at the start of a process can lay the ground in a subsequent competitive process. Competitive environments can be unforgiving for the unprepared, in which rivals can try to gain a competitive advantage by highlighting missteps to the market, and the regulator.