Mergers and acquisitions

The framework is the Companies Act 2001, which governs the transfer of shares, the issue of new shares, corporate approvals and the obligations of directors. The first choice is structural: a share deal or an asset deal. The second is temporal: what must be verified before signing, and what can safely be pushed into a condition precedent.

Due diligence turns on matters that are mundane and decisive. The chain of title to the shares, the register of members, board resolutions, security granted over assets, pending claims, and contracts carrying a change of control clause, which have a habit of waking up on the day of completion. Where the target holds immovable property, an acquisition involving a non-citizen requires prior authorisation, and that shifts the timetable far more often than the parties expect.

Three regulatory filters deserve to be identified at the term sheet stage, not later. If the target holds a licence, any change of control falls to be assessed by the Financial Services Commission under the Financial Services Act 2007. If the transaction materially affects the structure of a market, the Competition Commission may examine it under the Competition Act 2007. If the target is listed, the takeover rules made under the Securities Act 2005 impose their own timetable and disclosure constraints. Discovering any one of these three late costs months.

Then the documentation. The price mechanism, completion accounts or locked box. The scope of the warranties, their caps, their thresholds, their duration. Then the security behind the warranty, which is the real question: a price retention, an escrow, or insurance. Finally the shareholders agreement, the document that is read again five years later, when the relationship has soured: governance, deadlock, pre-emption, tag along, drag along.

The work of the practice is to rank these things. Not every clause carries the same weight, and a negotiation that exhausts itself on secondary points will wave through the ones that turn out to be expensive. The dispute resolution clause in particular is too often left until last, at the late hour when attention is at its lowest. It is nonetheless the only clause that will be read if the deal goes wrong.