European M&A

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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.

Latham & Watkins’ 2018 survey of European private M&A transactions analyses the acquisition and equity documentation for more than 210 European deals signing or closing between July 2016 and June 2018. Key highlights include:

  • The use of the locked box on UK deals has reduced slightly, although it continues to be the norm on deals with PE Sellers.
  • Warranty & Indemnity (W&I) Insurance continues to increase in popularity, particularly in deals involving PE Sellers, and increasingly tax indemnities have been

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By Oliver Browne, Katie Campbell and Ashleigh Gray

Given ongoing competition between buyers in a strong sellers’ market, the resilience of seller break fees as a feature of the European M&A market is surprising. According to the Latham & Watkins 2017 European Private M&A Market Study (which examined over 190 deals signed between July 2015 and June 2017), 10% of European private M&A transactions featured a seller break fee, slightly up from 8% in 2016.

“Break fee and reverse break fee quantum ranges greatly based on transaction factors. Examples of reverse break fees in UK public M&A in the first half of 2017 ranged from 1% to 2.5% of the deal value.”