M&A Views

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By Richard Butterwick, Stuart Alford and Katie Campbell

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Dealmakers’ appetite for transactions involving publicly listed companies remains strong — 2016 saw an increase in deal volume, a trend which continues into 2017. However, deals remain challenging, partly due to limitations on bidder deal protections and financing requirements. In response, innovative products have been developed by the insurance industry of provide solutions. In our view, these insurance products will help some bidders or public companies overcome perceived barriers to success in the UK market.

Takeover Code Requirements

Concern over Kraft’s 2009/2010 acquisition of Cadbury prompted a strengthening of deal requirements from bidders by the Takeover panel. This new approach — which the UK Takeover Code (the Code) enshrines — includes a general prohibition on certain deal protection measures on public acquisitions, such as “break fees”. A break fee is a fee that a seller or target company agrees to pay to another party (typically the bidder), if a specified event causes the transaction to fail. Further, Code cash confirmation rules require bidders to launch offers for public companies with “certain funds” financing in place, that a financial adviser has publicly confirmed to exist.

Combined, these factors influence how prospective bidders approach takeovers. Insurance market innovation has begun to address these issues, developing new products to help de-risk deals and navigate Code requirements.

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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.”