Increased Flex Amid Record Liquidity in European Leveraged Loans Requires Careful Navigation by PE Firms

Posted in Finance and Capital Markets, M&A and Private Equity

By Chris Kandel

The European leveraged loan market is going from strength to strength, with a continuing surplus of available credit compared to deal requirements, resulting in very borrower-favourable terms. However, we are seeing signs of a two-tier market emerging, with strong demand and pricing reductions for deals perceived as stronger credits, alongside an increase in flex for some other credits. We are also seeing an increase in volatility. In our view, PE deal teams need to be aware of the recent market developments, which are impacting financing terms.

Developments in the Financing Market

The growth of the European institutional market is influencing credit availability for deals. 2017 European CLO issuances are at a new record, and alternative lenders continue to raise significant amounts. On the demand side, while refinancing volume has picked up, this does not offset the relative slowdown in the number of European leveraged acquisitions. Because the imbalance is most pronounced in Europe, Europeanleveraged loan pricing is cheaper than in the US, reaching a differential of 120 bps in October — the widest at any time in 2017 according to S&P Leveraged Commentary & Data (S&P).

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CJEU Offers Improved Protection for Luxury Goods in Coty Ruling

Posted in EU and Competition

By Jonathan Parker and Calum Warren


The Court of Justice of the European Union (CJEU) has handed down its much-anticipated judgment in Case C-230/16 Coty Germany GmbH v Parfümerie Akzente GmbH (Coty). The case concerns the legality of a prohibition of sales on third-party platforms discernible to the public within Coty Germany’s selective distribution system. The CJEU stated that selective distribution for luxury goods is compatible with Article 101(1) of the Treaty on the Functioning of the European Union (TFEU) provided that both:

  • Distributors are chosen on the basis of objective criteria of a qualitative nature applied uniformly to all potential distributors in a non-discriminatory fashion
  • The criteria do not go beyond what is necessary

The CJEU addressed the specific issue of the prohibition on discernible third-party platform sales within Coty Germany’s selective distribution system. The court stated that this type of restriction is a justified and proportionate means of protecting the brand image of luxury goods and does not amount to a “hardcore” restriction within the meaning of the EU Vertical Restraints Block Exemption Regulation (VBER). The CJEU’s judgment provides important clarifications on the use of selective distribution for luxury goods and the EU courts’ assessment of such distribution. Continue Reading

Group Liability for Data Protection Failure – A New Threat for Private Equity Firms?

Posted in Data Protection, M&A and Private Equity

By Gail Crawford, Hayley Pizzey, Mark Sun, and Calum Warren

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As European data protection regulators prepare to enforce the General Data Protection Regulation (GDPR) from May 2018, private equity firms must act to minimise the risk of becoming financially liable for the data protection failings of portfolio companies. After a recent spate of high-profile data breaches, the risks for financial sponsors are high.

Why is a Data Protection Failing at Portfolio Company Level a Serious Concern for a Buyout Firm?

The GDPR sets out defined obligations and extends EU data protection law’s territorial reach, catching any business that operates in the EU, or offers goods and services to — or monitors the behaviour of — EU data subjects (whether in the EU or not). Fines for noncompliance can be substantial — up to the higher of €20 million or 4% of an undertaking’s global annual turnover. The regime defers to the EU antitrust concept of “undertaking”, which in our view means fines may be calculated by reference to the combined revenue of an offending portfolio company and the buyout firm (including the firm and all other portfolio companies within its group). This leaves open the possibility of data protection regulators directly fining buyout firms for the failures of portfolio companies. Continue Reading

Parties Must Take Care to Avoid Risk of Defective Service in Arbitration

Posted in Dispute Resolution

By Robert Price and Eleanor Scogings

Two recent English court decisions provide useful reminders that parties to arbitration agreements must take care to properly serve arbitration proceedings on the other party. In doing so, parties will avoid the risk of the court setting aside an award on the grounds that service was defective and that the tribunal did not have jurisdiction.

In Sino Channel, the Court of Appeal confirmed that only in rare cases will an agent have anything other than express actual authority to accept service of a notice of arbitration.[1] However, in the unusual circumstances in Sino Channel, the Court of Appeal held that the agent had both implied actual and ostensible authority to accept service. In Glencore Agriculture, the High Court confirmed that a notice of arbitration sent by email to a junior employee is unlikely to amount to effective service, unless the nature of that individual’s role implies that they possessed authority to accept service on their employer’s behalf. Continue Reading

Payments Innovation and Competition in Retail Banking Services Stay High on FCA Agenda for 2018

Posted in Emerging Companies and Technology, EU and Competition, Finance and Capital Markets

By Stuart Davis and Brett Carr

Driven by payments innovation and new regulation, 2018 is cited as the year for some of the most significant changes retail banking has seen.

At the Westminster Business Forum for Digital Payments, Adoption, Innovation and Policy Priorities, Graeme McLean (Head of Banking, Lending & Distribution at the FCA) appraised a panel and audience including legislators, innovators, and market infrastructure providers on the regulatory state of play heading into 2018.

With the revised Payment Services Directive (PSD2) set to apply from 13 January 2018 (see Latham’s Client Alert Understanding PSD2: Key Points to Know About the Upcoming Regime), the industry finds itself, according to McLean, just weeks away from an impending “diversification the retail banking sector has never seen before”.

Closely following the publication of the long awaited Regulatory Technical Standards (RTS) on Strong Customer Authentication and Secure Communication (SCA), McLean discussed PSD2, competition, and the UK’s Open Banking initiative. McLean highlighted that the transitional period applying to these standards has raised some uncertainty across the industry, and reminded those concerned to familiarise themselves with the FCA’s Approach Document and joint statement with HM Treasury, which detail the FCA’s approach to the transitional period. Continue Reading

French Employment and Tax Reforms Set to Boost Private Equity Buyouts

Posted in M&A and Private Equity

By Matthias Rubner, Denis Criton, Olivia Rauch-Ravise and Bénédicte Bremond

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President Macron recently unveiled employment and tax reforms to increase France’s appeal for deal makers. While France ranks highly as an investment destination for private equity firms, complex and inflexible French employment laws have been perceived as a hindrance — perpetuating the belief that France can be an unfriendly jurisdiction for businesses and investors. In our view, these reforms — which focus on employee termination, collective bargaining, and employee consultative bodies — will make doing business in France easier and, coupled with proposed tax reforms, should facilitate an even stronger French dealmaking environment.

France ranks just 31st in the World Bank’s 2017 Ease of Doing Business index — the Macron reforms aim to improve this.

Collective Bargaining and Employee Termination – Developments and Implications for Private Equity

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Rules on collective bargaining agreements, a key feature of the French labour market, are changing. Previously, French companies could not change employment terms with workers if such changes were less favourable to employees than the rules set by industry-level agreements. Under the reforms, employers can now agree to company-level deals with unions that will supersede industry-level rules. This allows PE owners more flexibility to tailor agreements that better align with their actual business needs. Continue Reading

CMA Imposes Fixed Penalty on Hungryhouse for Failure to Comply With Information Request

Posted in EU and Competition, M&A and Private Equity

By Jonathan Parker and Anuj Ghai


The Competition & Markets Authority (CMA) has imposed a £20,000 fixed penalty on Hungryhouse Holdings Limited (Hungryhouse). The CMA imposed the penalty under Section 110 of the Enterprise Act 2002 (EA02) for failure to comply, without reasonable excuse, with a requirement the CMA issued in a notice pursuant to section 109 EA02 dated 31 May 2017 (the First s.109 Notice). The CMA imposed the penalty on Hungryhouse on 22 November 2017, following the CMA’s unconditional clearance of its acquisition of Just Eat plc (Just Eat) on 16 November 2017 (the Transaction). This is the first time that the CMA has imposed a fine on a merging party for failure to comply with an information request.

Factual Background

As part of its inquiry into the Transaction, the CMA issued Section 109 notices to the parties requiring them to produce specified documents and supply specified information to the CMA. On 26 May 2017, the CMA provided Hungryhouse with a draft of the First s109 Notice. The CMA offered Hungryhouse the opportunity to raise any questions relating to the content of the draft, including the availability of the documents, information, or data requested. On 30 May 2017, Hungryhouse responded to the CMA, noting that some of the questions would be difficult to respond to in full within the relevant timeframe, as responses to particular questions would involve access to senior management emails. However, Hungryhouse added that that they would “endeavour to provide all information by the stated deadlines”.

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Unified Patent Court Update: Ratification Could Take Place in the Coming Months

Posted in Brexit, EU and Competition

By Deborah Kirk

The Delegated Legislation Committee’s (DLC) support for the Unified Patent Court (Immunities and Privileges) Order 2017 (the Order) suggests a swift approval of the Order by the House of Commons. Presuming a rapid approval by the House of Lords thereafter, this could mean the Unified Patent Court Agreement (UPC Agreement) is ratified by the end of 2017 or early 2018.

The DLC met to discuss the Order and passed the motion unanimously. The next stage is for the House of Commons to approve the motion. Following approval, the motion will have to pass through the House of Lords before the UPC Agreement can be ratified. The ratification discussion is scheduled for 6 December 2017. Continue Reading

ICC Court Clarifies Summary Dismissal Procedure in Arbitration

Posted in Dispute Resolution

By Charles Rae

In a revised practice note, the ICC Court of Arbitration has provided guidance on the procedure for determining applications for summary dismissal of unmeritorious claims and defences in arbitrations conducted under the ICC Rules. The revisions are important because the ICC Rules do not otherwise contain a process for dismissing claims or defences on a summary basis. The guidance is the latest signal from institutions that tribunals should consider summary procedures as a means of ensuring that disputes are resolved in an efficient and cost effective manner.

Revised Practice Note: Summary

The practice note seeks to promote efficiency in the way in which tribunals and parties deal with applications, by:

  • Requiring parties to make the application as promptly as possible after the filing of the relevant claims or defences
  • Confirming that the tribunal considers the need to ensure time and cost efficiency in determining whether or not to allow an application to proceed
  • Directing tribunals to promptly adopt procedural measures to deal with the application after consulting with the parties
  • Encouraging tribunals to adopt a streamlined process by allowing the presentation of evidence beyond the defendant’s response to the application only in exceptional circumstances, and considering whether any hearing (if required) can be conducted by video conference or telephone
  • Directing tribunals to decide the application as promptly as possible and provide concise reasons for its decision in either an award or order
  • Providing a one-week deadline for the ICC Court to scrutinise any award or order a tribunal makes

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UK Government Focuses on Real Estate and the Digital Economy in Autumn 2017 Budget

Posted in Brexit, Emerging Companies and Technology

By Karl Mah and Sean Finn

Against a stormy backdrop of government instability and Brexit uncertainty, the 2017 Budget was always unlikely to rock the boat. The Chancellor chose not to launch a sweeping attack on “tax avoiders” in light of the public outrage over the Paradise Papers, instead targeting announcements in this area at specific perceived abuses.

The Budget contained some welcome developments around the key areas of real estate taxation and the digital economy, though there is clearly still a long way to go before tax policy in these areas is adequate to address the challenges ahead.  In addition, it was helpful that HMRC confirmed it will not seek to reintroduce the 1.5% stamp tax charges, given the uncertainty this has caused on recent deals and the post-Brexit imperative for the UK to appear “open for business”. On the other side of the coin, tax practitioners will have mixed feelings about the raft of technical changes. While HMRC’s willingness to address drafting defects and unintended consequences is welcome, the need to do so is surely an indictment of HMRC rushing the legislation through without refining it at the outset.