M&A and Private Equity

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PE investors may like the sound of music deals but complex issues remain.

By Tom D. Evans, Andrew Gass, Kem Ihenacho, David Little, Lisbeth Savill, David J. Walker, Jonathan West, Rachael Astin, Amrita Ahuja,  Oscar Hayward, and Catherine Campbell

Music deals, particularly the acquisition of rights to songs and recordings by popular music artists, continue to be attractive investments for PE. Recent transactions underscore the ongoing demand for large-cap music assets.

The continued popularity of global streaming services and the music rental economy have helped to reduce the threat of online piracy, made revenues easier to track and predict, and ensured that strong revenues continue to flow to rights holders. Music rights will likely become even more attractive as revenues are increasingly derived from a growing number of sources, including social media platforms, video games, exercise platforms, video streaming, and virtual reality. As the use of popular music continues to broaden, rights holders will reap the dividends.

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.

Under the new legislation, BEIS may block or impose conditions on deals.

By Tom D. Evans, Jonathan Parker, David J. Walker, Stephanie Adams, and Catherine Campbell

The UK’s National Security and Investment Act (NSI Act), is now officially in force, granting powers to the Secretary of State for Business, Energy and Industrial Strategy (BEIS) to screen a broad range of transactions on national security grounds, allowing BEIS to block or impose conditions on deals. Due to its retroactive application, the NSI Act is already impacting deals.

The NSI Act arrives at a time of heightened scrutiny of foreign direct investments (FDIs) across Europe. According to the latest edition of Latham & Watkins’ Private Equity Market Study, the prevalence of FDI approval conditions in deals continues to grow, reflective of the increased number of jurisdictions with FDI approval regimes and the high value, high profile, and strategically significant nature of the deals surveyed. With the advent of the NSI Act, we anticipate that this trend will continue, bringing new considerations and challenges to deals.

Dealmakers should continue to weigh the impact of ESG issues on M&A deals as ESG standards evolve.

By Richard Butterwick, Pierre-Louis Cléro, Paul A. Davies, Tobias Larisch, Michael D. Green, James Bee, and Catherine Campbell

Environmental, social, and governance (ESG) issues have become increasingly important for corporates in recent years, driven initially by investor and consumer demand, and now by legislative developments across multiple jurisdictions.

As ESG becomes a growing part of the dealmaking conversation and acquirers seek to improve ESG credentials through individual acquisitions, the M&A market is showing a greater demand for enhanced ESG due diligence, particularly in relation to value chains. A wider range of deal provisions are being considered in light of their potential to enhance the ESG outlook of acquisitions. Further, regulatory developments and forthcoming changes mean that reporting obligations, both voluntary and mandatory, should remain front of mind. In this M&A Views article, we consider how corporates and M&A dealmakers are responding to the growing importance of ESG.

The judgment clarifies the Court’s approach to proposed transfers under Part VII of FSMA, as well as the scope and application of s. 110(1)(b). 

On 24 November 2021, the High Court of England and Wales (the Court) sanctioned a £10.1 billion annuity book transfer from The Prudential Assurance Company Limited (PAC) to Rothesay Life Plc (Rothesay) under Part VII of the Financial Services and Markets Act 2000 (FSMA).

The Court previously declined to sanction the transfer following an initial sanction hearing in July 2019. The Court of Appeal then overturned that decision in December 2020 after an appeal by PAC and Rothesay, and the transfer was remitted to the Court for a further sanction hearing between 8-10 November 2021 before the honourable Mr Justice Trower (the Remitted Sanction Hearing). The Court’s judgment following the Remitted Sanction Hearing was handed down on 24 November 2021 (the Judgment), and provides useful guidance on certain aspects of the Part VII process.

By Tom D. Evans, David J. Walker, and Catherine Campbell

Current Trends

The M&A market is constantly evolving — from the predominantly seller’s market of H2 2019, through the tumultuous times of H1 2020, to the strong rebound of H2 2020 and to the highly competitive seller’s market of H1 2021 — deal dynamics are shifting. Deal terms vary by transaction size, industry sector, and jurisdiction. Having a thorough knowledge of market trends is critical to negotiating and executing a successful deal.

By Robbie McLaren and Catherine Campbell

Current Trends

The M&A market is constantly evolving — from the predominantly seller’s market of H2 2019, through the tumultuous times of H1 2020, to the strong rebound of H2 2020 and to the highly competitive seller’s market of H1 2021 — deal dynamics are shifting. Deal terms vary by transaction size, industry sector, and jurisdiction. Having a thorough knowledge of market trends is critical to negotiating and executing a successful deal.

By Francesco Lione, Charles Armstrong, Tom Evans, Dominic Newcomb, David Walker, and Catherine Campbell

Undrawn credit lines are essential to private equity but in short supply from banks.

Undrawn revolving credit facilities (RCFs) are essential to private equity. They are a backup in the event of mismatches in the working capital cycle, provide comfort for a rainy day, and preserve swift access to deal-making when other financing sources are unavailable, or less easily accessible. The COVID-19 pandemic could not have proved the importance of undrawn RCFs more clearly. Within a few weeks of the onset of the pandemic, as credit markets gummed up and businesses worldwide grappled with evaporating liquidity, leveraged companies dashed for cash and drew revolving lines.

PE firms may be able to persuade banks to offer RCF commitments more freely by transcending the limitations of current transactional templates and allowing banks to consistently provide undrawn revolving credit in its most secure form — alongside all leveraged loans and secured bonds, rather than just on bond backed deals, as is current practice.

By Paul A. Davies, Tom Evans, Nicola Higgs, Farah O’Brien, David Walker, Michael Green, Hannah Berdal, Anne Mainwaring, and Catherine Campbell

Green shoots emerge as PE firms consider new ways to incorporate ESG into dealmaking.

Market sentiment and the increasing importance of environmental, social, and governance (ESG) to firms’ competitiveness across the market, combined with wide-ranging and rapidly developing ESG regulatory reforms, are driving increased focus on ESG at both LP and GP levels across Europe. As a result, the market is showing demand for enhanced diligence, and a wider range of deal provisions are being considered in light of their potential to enhance the ESG outlook of PE investments.

By Tom Evans, David Walker, Daniel Smith, Aisling Billington, and Catherine Campbell

The location of the data is not sufficient to avoid a disclosure order.

When it comes to personal devices, people increasingly communicate across multiple platforms, often in an informal and unguarded manner. However, high levels of litigation driven by the COVID-19 pandemic (including insolvency and restructuring litigation), the recent M&A boom (including shareholder disputes and other transactional litigation), and the rise of remote/hybrid work mean that PE firms must remain alert to the risk of personal device communications being disclosed in litigation.

As seen in recent cases, the English courts place value in contemporaneous written evidence, and take a pragmatic and targeted approach to disclosure. While English courts are mindful of the privacy rights of individuals, they recognise that employees conduct work on personal devices and non-proprietary third-party apps.

However, the location of the data is not sufficient to avoid a disclosure order, and PE firms should consider how to best protect themselves.