Considerations for non-US acquirers looking to buy a publicly traded US-based company in a negotiated (i.e., friendly) transaction.

By Thomas W. Christopher, Bradley C. Faris, Alexander B. Johnson, Amanda P. Reeves, Les P. Carnegie, Kristin N. Murphy, and Kaitlin Verber

In 2019, the public M&A market in the US continued at a strong level. A total of 198 M&A deals with equity values over US$100 million were announced with US public company targets in 2019, worth a combined total of more than US$909.7 billion[1]. Non-US acquirers continued to represent a meaningful portion of US public company acquirers, accounting for approximately 25% of public company buyers since 2017[2].

The acquisition of a US public company by a non-US acquirer is a transformational transaction for the target and likely a significant transaction for the acquirer. There is no standard formula for such a transaction, and the legal considerations that arise require careful analysis on a case-by-case basis. Latham’s guide, Acquiring a US Public Company, summarizes such considerations for acquirers contemplating such a transaction.

By Drew Levin, Maarten Overmars, and Catherine Campbell

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Warranty and indemnity insurance (W&I) has become a common feature of European transactions in recent years, amid a strong sellers’ market that has enabled vendors to offload risk to buyers. According to the most recent edition of the Latham & Watkins Private M&A Market Study, which examined transactions between July 2016 and June 2018, the proportion of transactions employing W&I has continued to increase — from 8%, 13%, and 22% of deals in the previous three editions of the survey, to 32% for the latest period surveyed. We believe PE deal teams should be aware of changes and enhancements to W&I that will bring insurance coverage closer in line with the US market. In our view, the developments are positive for PE bidders.

The Impact of US Buyers on European W&I Policy Terms

US buyers are very active in the European deal market, and their influence is becoming increasingly evident in W&I terms. US buyers are pushing for more US-like W&I terms on European deals, and the changes have enhanced policies. Insurers are thinking outside of the box and providing new products. We believe US PE bidders will reap the benefits as policies begin to resemble their home market and PE bidders from other jurisdictions will also benefit as terms become enhanced.

A new UK policy establishes a commitment to providing victims of overseas bribery with compensation; however, important questions remain that will impact implementation.

By Stuart Alford QC, Nathan H. Seltzer, Joseph M. Bargnesi, Laila Hamzi, Clare Nida, and Christopher M. Ting

The UK’s Serious Fraud Office (SFO), the Crown Prosecution Service (CPS) and the National Crime Agency (NCA) have released a joint statement in support of compensation for overseas victims of bribery, corruption, and other economic crimes. As set forth in the General Principles, which were published on 1 June, the UK enforcement agencies have committed to consider whether victim compensation is appropriate in “all relevant cases,” including those resolved by prosecution, a deferred prosecution agreement (DPA), or a civil settlement. Both aggrieved governments (and their instrumentalities) and corporates facing potential bribery-related inquiries should therefore be aware that the UK government will very likely at least consider victim compensation in any bribery resolution; however practical questions remain that will impact implementation.

UK Policy

In cases resolved through prosecution, the General Principles stipulate that the CPS and SFO will seek remedies under the Proceeds of Crime Act 2002 or the Powers of Criminal Courts (Sentencing) Act 2000 for compensation. In cases resolved with DPAs or through civil settlement, the agencies agree to seek compensation as part of the agreement with the accused.

By William Lu and Jiyeon Lee-Lim

The fundamental US tax reforms brought in this year by the Tax Cuts and Jobs Act (TCJA) have changed the tax landscape for M&A more significantly than any other legislation in the modern era. Businesses and tax advisors will be considering the various opportunities created and threats posed by the TCJA for quite some time. This article looks at the tax drivers behind the current surge in US corporate M&A.

Federal corporate income tax rate reduced to 21%

From 1 January 2018, the TCJA reduces the federal corporate income tax rate from 35% to 21% (although the effective differential will often be less than 14% as a result of new deduction limitations and the addition of new taxes, as discussed below).

This tax rate reduction could increase the cash on balance sheets and overall value of US target corporations and by doing so increase their outbound M&A capabilities.

By Jason Morelli, Howard Sobel, and Maarten Overmars

In the US, unlike in Europe, deals are traditionally transacted on the basis of closing accounts, with adjustments made post-closing for working capital, indebtedness, cash, and transaction expenses.

This is now changing. Recent deal activity shows US private equity vendors, having become accustomed to the concept of a locked box in European sales processes, increasingly pivoting toward a locked box pricing structure in US domestic deals. These vendors are attracted to the fixed price certainty, as compared to the closing accounts approach.

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By Aaron Franklin

The United States has the deepest, most liquid capital markets in the world, attracting issuers from across the globe. To sell to US investors, these issuers must comply with US securities laws, entailing a more rigorous diligence and disclosure process. Issuers must weigh the benefits of increased demand against the additional costs, but the outcome should not depend on whether the bonds will be green or otherwise have sustainability credentials.

The US securities laws that apply to bond deals include a variety of rules on who can issue and purchase bonds, such as the registration requirements in the Securities Act of 1933, the Trust Indenture Act of 1939, and the Investment Company Act of 1940. But the real concern for bond issuers and underwriters is the threat of investors claiming securities fraud under the Securities Exchange Act of 1934, using “Rule 10b-5.” In general, a plaintiff is entitled to damages under Rule 10b-5 if a bond issuer or underwriter misrepresented or omitted a material fact in connection with the purchase or sale of the bond, with the intent to deceive or with recklessness, and the plaintiff lost money by relying on that misrepresentation or omission. This right to litigate for “material omissions” does not exist in most other jurisdictions, even where contractual fraud claims are possible. To avoid lawsuits under Rule 10b-5, issuers and underwriters (and their legal counsel) typically spend more time and effort (relative to deals not sold to US investors) investigating the affairs of the issuer and ensuring the offering disclosure is sufficiently robust.

By Manu Gayatrinath and Katherine Putnam

Since the 2008 financial crisis, the US Federal Reserve and other central banks in Europe have pumped trillions of dollars into the financial markets. Notwithstanding the amounts injected, a liquidity crunch in 2016 is unavoidable and could have a significant impact on available financing for PE sponsors.

Several regulatory factors point to this liquidity crunch, including new financial regulations that demand higher capital and liquidity requirements from banks, which must hold more cash in reserve.liquidity graphic Basel III, for instance, requires banks to maintain certain liquidity coverage ratios such that they have high-quality liquid assets that cover total expected net cash outflows over 30 days. Similarly, the Board of Governors of the Federal Reserve has brought in significantly tougher liquidity requirements for the larger bank holding companies in the US. In addition, increased enforcement of leveraged lending guidelines means that US banks are no longer as active in the syndicated markets as they once were, and are no longer in a position to hold certain riskweighted assets on their balance sheets.