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.

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.

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.

The taskforce continues to receive and monitor complaints about unfair practices in relation to cancellations and refunds and potentially unjustifiable price rises.

By John D. Colahan and Anuj Ghai

On 21 May, the CMA released a further update setting out the work of its COVID-19 Taskforce in responding to complaints regarding competition and consumer protection problems arising from the novel coronavirus and measures taken to contain it. This follows a 30 April report (summarised here) which set out the programme of work the CMA intended to undertake to deal with complaints about unfair practices in relation to cancellations and refunds.

Based on the complaints received and additional information received from consumer bodies, such as Which? and Citizens Advice, the CMA’s principal concerns continue to relate to unfair practices in relation to cancellations and refunds and unjustifiable price increases, particularly for essential goods. The CMA notes that from 10 March to 17 May it was contacted more than 60,000 times about coronavirus-related issues; further, the rate at which consumers are contacting the CMA has increased in recent weeks suggesting that problems continue to persist.

UK companies interested in producing ventilators and other critical equipment may benefit from regulatory exemptions and use government product specifications.

By Frances Stocks Allen and Oliver Mobasser

On 16 March 2020, Prime Minister Boris Johnson called on the UK’s leading manufacturing businesses to help the UK step up production of vital medical equipment to combat the COVID-19 crisis.[i]

With no proven COVID-19 treatment or vaccine to date, ventilators are a critical piece of equipment to help treat patients with acute symptoms of the disease. The UK industry has responded to the government’s call, with a number of companies in the aerospace and automotive sectors reportedly working on plans to lend capacity to manufacture ventilators. Meanwhile, a number of newly designed ventilators and breathing aids have reportedly gained regulatory approval and are either undergoing trials or are already subject to orders from the UK government.


UK regulators announce a further package of measures to ease the burden on issuers.

By Chris Horton, James Inness, Rob Moulton, Koushik Prasad, Connor Cahalane, and Charlotte Collins

In response to the COVID-19 pandemic, UK regulators have published further measures affecting issuers, to try to preserve the flow of information to investors and support the continued functioning of the UK’s capital markets. However, the FCA has also noted that issuers will still need to observe their other disclosure obligations, in particular those concerning inside information under the Market Abuse Regulation.

D.P.C.M. now includes measures for certain manufacturing industries, as well as call centres and civil engineering works, but excludes employment agencies.

By Giancarlo D’Ambrosio and Giovanni B. Sandicchi

By decree of the Ministry of Economic Development, adopted yesterday and in force since today, March, 26, 2020, several amendments have been made to the list annexed to the D.P.C.M. of March 22, 2020.

Specifically, from March 28 to April 3, the suspension of activities comes into force for the manufacture

Material adverse change provisions in credit agreements are under much heightened scrutiny in the current circumstances.

By James Chesterman and Helena Potts

In the current environment, both corporates and their lenders are trying to assess a fast-moving situation. Businesses are suspending operations, countries are limiting travel and non-essential activities, events are being cancelled and consumers are in actual or semi-lockdown.

At present, credit arrangements are an important source of cash for companies, and continuation of trade is a function of continued access of those credit lines. An absence of liquidity may force a board of directors to consider whether a company can continue to trade as a going concern in many jurisdictions. In many cases, this consideration involves an assessment of access to available lines of liquidity and credit, as well as a company’s ability to continue to meet its ongoing payment obligations.

The Cura Italia Decree also extends the validity of administrative authorizations.

By Cesare Milani

On March 17, 2020, the Italian government adopted Law Decree No. 18/2020 (the Cura Italia Decree), providing for a contingency package of extraordinary measures to strengthen the national health service and provide financial and economic support to families, workers, and companies facing the pandemic.

The Cura Italia Decree entered into force on March 17, 2020, and shall be converted into law, following potential amendments, within 60 days from its adoption.

From a public law perspective, the Cura Italia Decree sets forth the following key measures: