COVID-19

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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 Simplification Decree (Decreto Semplificazioni) follows and puts into effect the earlier attempt of the Italian cabinet to facilitate capital increases.

By Antonio Coletti, Isabella Porchia, and Marta Negro

Law no. 120/2020 converting Law Decree no. 76/2020 (Decreto Semplificazioni), which entered into force today (Law no. 120/2020), introduces certain measures (see Article 44) facilitating capital increases by Italian private and listed companies needing to raise equity financing and counter liquidity shortage due to the COVID-19 pandemic.

The CMA’s efforts include investigations into the package holiday and hand sanitizer industries.

By John D. Colahan and Anuj Ghai

CMA announces package holiday sector investigation

On 10 July, the CMA announced that it was investigating suspected breaches of consumer protection law in the package holiday sector. The investigation was launched on the back of work carried out by the CMA’s COVID-19 Taskforce. As noted in previous updates (see here), the Taskforce received a number of complaints about allegedly unfair practices concerning cancellations and refunds, including in relation to package holidays. The investigation specifically relates to concerns that businesses have not been respecting customers’ statutory rights to a refund for package holidays that were cancelled by either party due to lockdown restrictions. Notably, the CMA is carrying out the investigation under its consumer protection powers, rather than under competition law.

For the retail and consumer product sector, the high yield market will likely remain an attractive source of capital.  

By Roberto L. Reyes Gaskin and Laurie Tomassian

The retail and consumer products sector has been deeply impacted by the COVID-19 pandemic, both due to physical constraints on brick-and-mortar stores and supply chains, and acceleration of existing trends favoring online purchasing and e-commerce. COVID-19 has reinforced the need to adapt to  existing disruptions relating to how AI and data analytics can be deployed in the sector, advances in logistics, and the shift toward more engaged and responsible consumption.

While the long-terms effects of COVID-19 against the backdrop of an already shifting sector are still uncertain, it is clear that many retailers are under pressure: some have commenced restructuring, while others are facing a tougher liquidity environment. All retailers will likely need to further accelerate their omni-channel activity and adapt business models to new retail conditions. Economic conditions may also encourage consolidation (either in the context of restructuring or otherwise) or take-private activity. A high yield issuance may be an option to raise funds to support acquisitions, capital projects, or refinancing of indebtedness.

The more stringent reporting obligations for certain Italian listed issuers will continue until October 12, 2020.

By Antonio Coletti, Isabella Porchia, and Marta Negro

The Italian Securities Commission (CONSOB) has adopted Resolution 21434, extending for a period of three months — from July 12, 2020, to October 12, 2020 — the provisions of Resolutions 21326 and 21327 of April 9, 2020 (April Resolutions), which imposed stricter reporting obligations of relevant shareholdings in certain Italian-listed issuers that were selected taking into account their high current market value and/or spread ownership structure (see Annexes A and B to the April Resolutions).

The CMA continues to field COVID-19 complaints concerning refunds and previously widespread excessive prices on day-to-day products.

By John D. Colahan and Anuj Ghai

The CMA continues to respond to complaints from consumers on COVID-19-related issues. Consumers submitted more than 80,000 complaints through 28 June 2020, with the volume decreasing from 7,000 a week in May to 3,500 a week in June.

The investigation is being carried out under the CMA’s competition law powers rather than under its consumer protection functions.

By John D. Colahan and Anuj Ghai

On 18 June, the CMA released an update noting that it had launched an investigation under Chapter II of the Competition Act 1998 into suspected breaches of competition law by four pharmacies and convenience stores. In particular, the investigations relate to suspected charging of excessive and unfair prices for hand sanitiser products during the COVID-19 pandemic.

As noted in a prior blog post, the CMA believed that there was a significant risk that prices would rise above justifiable levels in a number of sectors because of the COVID-19 outbreak, coupled with the restrictions on businesses and people. As of 17 May, the CMA had written to more than 200 traders about this issue. In its communication, the CMA asked for more information or expressed concern about what the CMA considered may be unjustifiable price increases.

The UK government has relaxed the application of UK competition law to certain types of agreements across sectors.

By John D. Colahan and Anuj Ghai

On 21 May 2020, the CMA published a register containing links to each public policy exclusion order and notified agreement related to COVID-19 in the UK. A public policy exclusion order is a legislative tool used by the Secretary of State for Business, Energy and Industrial Strategy to relax UK competition law for certain agreements that may normally be considered anti-competitive.

The Secretary of State has made several public policy exclusion orders to enable a coordinated response to the COVID-19 pandemic. In March, for example, the UK government considered it necessary to relax the application of UK competition law to certain types of agreements in the groceries sector, in order to ensure a smooth and efficient supply of food and essential grocery products to isolated and vulnerable consumers.

Buyout firms planning an acquisition or preparing a portfolio company for exit must consider the impact of poor corporate culture, particularly on a potential IPO.

By David Berman, Chris Horton, Robbie McLaren, Anna Ngo, Nell Perks, Charlotte Collins, Catherine Campbell, Tom Evans, and David Walker

No institution, whatever its geography, industry, sector, or size, is above the negative impact of a poor culture. Culture-related issues at Uber, Sports Direct, Boeing, and others highlight the implications of getting things wrong, including financial loss, reputational issues, and damage to investor confidence.

Often defined as “the way that people within an organisation behave when no one is looking”, the focus on corporate culture has become more acute during the COVID-19 pandemic, as investors and consumers observe and judge companies based on their navigation of the crisis, particularly the treatment of employees and wider societal stakeholders. LP expectations on PE firms to adequately diligence and monitor portfolio company culture are also rising, and the global regulatory direction of travel is clear. In our view, buyout firms planning an acquisition, or preparing a portfolio company for exit must consider the impact that poor corporate culture may have, in particular on an IPO.