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As management terms converge, deal teams must still navigate cross-border differences in ratchets, put and call options, and management warranties.

By Alexander Benedetti, Tom Evans, David Walker, Neil Campbell, Catherine Campbell, and Eric Loubet

French and UK private equity firms are increasingly looking across the Channel for attractive buyout opportunities. Cross-border transactions involving French and UK sponsors have grown steadily since the global financial crisis, with an uptick in activity in recent years. According to PitchBook, French sponsors bought 33 UK-headquartered companies last year, the highest volume at any point in the past decade. Meanwhile, UK sponsors acquired 56 French-headquartered companies in 2018, up from 34 companies 10 years ago. The long history between the two nations continues to facilitate a strong level of deal flow.

Given the prevalence of pan-European management advisors and the increased number of cross-border deals, cross-pollination of deal terms is occurring. While we expect management equity terms in France and the UK to continue to converge, specific conditions under local tax regimes mean that there are still key areas of distinction. In our view, sponsors considering a buyout across the Channel must carefully navigate differences in the treatment of management equity terms in each jurisdiction. In a sellers’ market, appealing to management can help to win a deal. However, sponsors should proceed cautiously and avoid a one-size-fits-all approach, taking note of the following key developments.

Adherence to secrecy, pre-announcement preparations, realistic expectations-setting, and strategic plans for taking control are keys to P2P deal success.

By Richard Butterwick, Pierre-Louis Clero, Manuel Deo, Tom D. Evans, Tobias Larisch, David J. Walker, Suneel Basson-Bhatoa, Phillippe Tesson, Connor Cahalane, and Catherine Campbell

The deal market has seen a resurgence in public to private (P2P) transactions — global P2P volumes exceeded €115 billion in 2018, and have already surpassed €88 billion as of September 2019. As PE firms increasingly target complex and ambitious European P2P deals, deal teams need to consider tactics and understand local requirements. In our view, buyout firms can maximise the likelihood of successfully closing a P2P deal by considering these key issues.

Manage Your Information Expectations — Public Diligence Is Different

Public deals can falter over diligence, particularly if information requests are sizeable or require significant management time. Additional diligence will likely be carried out post agreement of headline terms — e.g., review of key legal documents, management presentations, etc. — but this is typically more limited than on a private deal, particularly with respect to time. In the UK, France, and Spain, equal information must be provided to bidders — target boards will be conscious that information shared with a bidder may need to be more widely distributed in due course. In Germany, while bidders do not need to be treated equally, access to information will only be granted by the target if it considers this to be in the best interests of the shareholders and the company. In all cases, buyers need to act quickly, with clear and realistic expectations of the public diligence process, in order to keep the board onside.

How can private equity firms identify and mitigate inherited liability risk from vulnerable portfolio companies?

By Tom Evans, Gail Crawford, Fiona Maclean, David Walker, Katie Peek, Catherine Campbell, and Amy Smyth

Ongoing big ticket regulatory fines coupled with high profile corporate veil cases indicate that private equity deal teams must remain alert to the risk of buyout firms inheriting liabilities from vulnerable portfolio companies. Increasing GDPR fine activity, including the UK Information Commissioners’ intention to fine British Airways £183 million and an international hotel group £99 million for GDPR failings, is of particular concern. In parallel, the UK Supreme Court recently examined the circumstances in which a parent company can be held accountable for its subsidiary’s actions. In our view, private equity firms should take careful but active steps to identify and mitigate this inherited liability risk; there is no doubt that PE funds are increasingly in the firing line.


Firms targeting assets divested by conglomerates still face obstacles, though barriers to PE investment in Japan are gradually falling.

By Stuart Beraha, Noah Carr, Tom Evans, Hiroki Kobayashi, Ivan Smallwood, David Walker, and Catherine Campbell 

Many hurdles that traditionally challenged private equity firms looking to invest in Japan have been lowered in recent years. The Japanese government is increasingly supportive of overseas buyers, addressing legal, structural, and cultural obstacles and creating renewed interest in the country’s conglomerates, many of which house non-core assets ripe for acquisition. While the environment for foreign private equity buyers has improved considerably, deal teams should be aware that significant general and target-specific challenges remain.

Companies previously considered immune from activist campaigns have come under pressure, driving new public and private deal opportunities for private equity.

By Richard Butterwick, Christopher Drewry, Tom Evans, Harald Selzner, David Walker, Ben Coleman, and Catherine Campbell

US shareholder activists are an established presence in Europe. In 2018, activist campaigns targeted 160 European companies, according to Activist Insight. In the UK, 17 companies faced activist demands in the first quarter of 2019 alone. Activist funds have prompted public company boards to look more critically at their portfolio and product mixes, as well as their geographical footprints, either to avoid activist attention or to respond to activist activity.

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M&A activist campaigns that advocate for breakup or take-private transactions create obvious opportunities for PE firms. However, deal teams should take note of both recent activist strategies in the US and developments in the broader activist landscape. In our view, such strategies and developments will likely spread to Europe and create new PE opportunities.

Persisting political and economic uncertainty means awareness of market changes remains crucial.

By Simon Baskerville, Tom Evans, David Walker, Stephanie Dellosa, and Catherine Campbell

The 2008 distress cycle triggered defaults and restructurings for European PE portfolio companies, as maintenance covenant defaults and balance sheet deleveraging forced refinancings and debt-for-equity swaps. While restructuring conditions for PE firms are stronger in 2019 than they were in 2008, persisting political and economic uncertainty means that awareness of market developments remains important.

Permissive Intercreditor Arrangements Impact Schemes of Arrangement

UK loan document developments have made new and more flexible tools available for sponsors to effect debtor-led restructuring processes. In response to the 2008 crisis and a sponsor-driven market, we have begun to see increasingly accommodative intercreditor documentation, reducing the need for court-sanctioned schemes of arrangement in restructuring deals. Previously, a scheme of arrangement (requiring the support of 75% in value and a simple majority in number of affected classes, e.g., lenders) was needed to restructure a company’s debt, where unanimous consent of lenders was not possible. It is now common for intercreditor agreement terms to circumvent the need for a scheme of arrangement and, therefore, the court process for certain forms of restructuring, including debt-for- equity swaps. This allows restructurings to be effected contractually with lower levels of support, such as a simple majority. In our view, this positive development for private equity firms allows portfolio companies to more easily reach agreement with lenders and effect quicker, more cost-effective, and private restructurings.

Cornerstone investments can assist a firm’s overall exit objective, particularly when there are bidders for a portfolio company but no outright buyer.

By James Inness, Tom Evans, David Walker, Sonica Tolani, Connor Cahalane, and Catherine Campbell

Cornerstone investments, which involve taking a stake in an about-to-list company, have been popular in Asia and in Nordic countries for several years, and are becoming a more regular feature in European deals. The £300 million IPO of peer-to-peer lender Funding Circle in November 2018 and the £2.18 billion IPO of payment processor Network International in April 2019 were both completed with cornerstone investments of around 10%.

Why Consider a Cornerstone Investment?

Despite difficult market conditions, we have seen continued interest in IPOs from PE firms, either as a sole exit option or alongside auctions in a dual-track process. Cornerstone investments can assist a firm’s overall exit objective, particularly if a firm attracts bidders for a portfolio company but fails to find an outright buyer. Strong early support from cornerstone investors can help with marketing an IPO to other investors, increasing the likelihood of a successful listing and paving the way for an exit.

With the explosion of AI applications, private equity houses and their portfolio companies must understand where key opportunities lie.

By Tom Evans, Kem Ihenacho, David Walker, Laura Holden, Hector Sants, Claudia Sousa, Catherine Campbell, and Patricia Kelly

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Artificial intelligence (AI) developments provide increasing opportunities for private equity, including deal sourcing and portfolio company analysis/enhancement, particularly in businesses that can adopt a customer subscription model or leverage big data opportunities. However, the adoption of AI technologies, and investments in new AI businesses, pose significant challenges. To ensure that time and capital are deployed productively, firms must understand the market space and usage for these tools, and the workings and accuracy of any underlying technology. How technology models and algorithms work, where underlying IP resides, and where data is stored are key. Whilst the use of AI is often discussed, it is much less often understood; we are seeing an explosion of AI applications and PE houses and their portfolio companies need to understand where the opportunities are for them to exploit.

A Tool to Secure Deal Opportunities and Drive Portfolio Company Growth 

According to a survey conducted by Intertrust, 90% of private equity firms expect AI to have a transformative impact on the industry. AI-backed data analytics are playing a growing role in analysing and identifying deals. QuantCube Technology, for example, provides in-depth data analysis, drawing on customer reviews and social media posts to develop predictive indicators of events, such as economic growth or price changes. There are now companies offering AI-driven technologies that claim to help source PE deals. While this presents a potentially compelling use of AI for investors, it remains to be seen whether these technologies will deliver results. 

We examine: increasing focus on non-controlling stakes, burdensome document production requests, heightened enforcement of gun jumping rules, examination of vertical deal overlaps, and ongoing political developments.

By John Colahan, Peter Citron, Calum Warren, David Walker, Tom Evans, and Catherine Campbell

In a continually evolving antitrust landscape, we consider five key trends that PE deal teams should be aware of.

Focus on Non-Controlling Stakes in Competing Companies

Antitrust authorities are paying closer attention to “common ownership”, the simultaneous ownership of non-controlling stakes in competing companies, with the EU’s Competition Commissioner, Margrethe Vestager, publicly stating that the European Commission is looking “carefully” into the issue. While public companies were the initial focus, we expect that private companies will face a similar level of scrutiny. As co-investment deals and non-controlling acquisitions become more common, deal teams should not assume that acquiring a minority position will mean that antitrust issues cannot arise.

Increasingly Burdensome Document Production Requests

Burdensome document requests from the European Commission and the UK’s Competition and Markets Authority (CMA) have become more frequent – both regulators are now adopting a more fulsome US-style approach to document production. PE firms need to consider communications made in preparation for and during a deal, and how these may be viewed by competition authorities. Requests for third-party reports, sale documents, and even emails between buyers, sellers, shareholders, and customers are not uncommon. When faced with document requests, firms need to engage in early coordination to handle authorities’ information requests, manage carefully the search and production of discovery materials, and address attorney-client privilege protections and data privacy safeguards. Even if transactions ultimately do not raise substantive concerns, fines can be imposed and delays to transaction timetables can occur as a result of non-compliance.

European regulators’ openness to PE investors is presenting attractive banking sector opportunities, but such opportunities require careful regulatory planning and local issue navigation.

By Carl Fernandes, Hans-Jürgen Luett, David Walker, Tom Evans, and Catherine Campbell

Ten years ago, a PE investment in a European bank would have been a rare occurrence. However, more recently, PE firms have deployed capital in the banking sector, encouraged by changing regulatory perceptions of PE bidders. Apollo, together with parallel investors, acquired the former German subsidiary of KBC Bank NV, which since then has completed several add-on acquisitions, kicking off a series of German bank deals. PE firms including Cerberus, JC Flowers, and Blackstone have also completed bank buyouts, as European regulators become more open to financial sponsors — a trend we see continuing in 2019.

What Is Driving European Bank Transactions?

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Disposal requests from the European Commission — as a consequence of breaching subsidy regulations — and regulatory reform have produced deal opportunities. The emergence of new growth markets has drawn the interest of PE, underlined by Blackstone’s €1 billion deal for Baltic lender Luminor. New technology and digital products have also attracted interest, as demonstrated by Cerberus’ acquisition of French consumer business GE Money Bank. Further, control of non-performing loans has meant less unpredictable downside risk for acquirers, but potential upside through enhanced operational efficiency (e.g., adopting FinTech) and exploiting scalability (e.g., through consolidation). As ever, distressed situations also present opportunities.