More US buyers — and more buyer-friendly deal terms — are entering the seller-friendly UK market, although the picture is increasingly nuanced.

By Joshua M. Dubofsky, Sam Newhouse, Jennifer N. Cadet, and Catherine Campbell

Whilst global M&A deal volumes have dipped at the start of Q1 2023, UK-bound M&A activity is expected to be one of the year’s highlights as overseas buyers seek out attractively priced British public and private targets. Within this activity, the deal term preferences of US buyers are likely to impact private UK M&A. A detailed understanding of both UK and US expectations is therefore essential for transatlantic dealmakers.

US private M&A deal terms — particularly related to deal certainty and post-closing recourse — have historically been viewed as more buyer-friendly than those in the more seller-friendly UK market. However, the picture is increasingly nuanced, and deal teams navigating ongoing economic uncertainty and financial market dislocation are being called upon to find new solutions to deal valuation, certainty, and recourse concerns.

By Nick Cline, Robbie McLaren, Katie Campbell

Britain’s decision to leave the European Union in June 2016, coupled with the election of Donald Trump as US president in November 2016, gave dealmakers plenty of pause for thought last year – but ultimately did little to derail strategic M&A. Encouraged by the post-Brexit decline in the value of sterling and supported by the continuing availability of transaction financing at attractive rates, the number of acquisitions of UK companies by US acquirers reached the highest level in 10 years, with 262 deals valued at US$48 billion closing in 2016.
Interesting reflection and lines formed by two modern glass architecture.With attractively priced credit predicted to continue to finance M&A transactions throughout 2017 and foreign buyers continuing to regard the UK and Europe as an attractive investment opportunity, there are strong indications that inbound UK and European M&A activity from the US will continue. In our view, transatlantic deal makers will increasingly encounter the following key deal term differences between the US and UK M&A markets. 

Transaction Accounts: Completion v Locked Box

In the Latham & Watkins 2016 European Private M&A Market Study (which examined over 170 deals signed between July 2014 and June 2016) as much as 46% of European deals included a locked box mechanism. 33% of deals included a completion accounts mechanism and 21% of deals did not provide for price adjustment. In contrast, locked box mechanisms are significantly less common in the US, where the majority of deals use completion accounts. Locked box mechanisms fix the deal price at an agreed date based on a set of accounts, with the seller giving undertakings that value will not be extracted, or leak, from the target before completion. In contrast, a completion accounts mechanism calculates the final deal price after completion, by reference to accounts relating to the target, drawn up to the date of completion. This allows the buyer to test and adjust its valuation by reference to the actual financials of the target.