Herbert Smith Freehills is a leading global law firm with more than 5,000 personnel, including 529 partners, in 24 offices across Africa, Asia, Australia, Europe, the Middle East and the US. As a firm, we are recognised for the strength of our transactional practices, dispute resolution, projects, as well as advising many of the largest and most ambitious organisations across all major regions of the globe.

Our M&A team provides market-leading capability on public and private M&A, with extensive experience of acting both on the buy and sell side, in the context of formal and informal auctions and on bilateral deals. We advise many of the world’s leading corporates, financial buyers, investment banks, as well as public sector and government clients. This gives us excellent insight into the terms on which M&A deals are currently transacted, combined with an ability to help our clients navigate key areas of risk and complexity to successful closing. Our teams are led by partners who support our clients in all aspects of the structuring, negotiation and execution of their deals. As a result, we see a large slice of what goes on in the market, and the depth of our expertise and experience – coupled with our involvement in the most prominent deals – means we bring best practice to our clients and can solve issues on a global scale to ensure M&A transactions are completed efficiently and without risk.

Our clients benefit from our expertise in executing and delivering cross-border transactions, regardless of size or complexity. Irrespective of the locations of the parties or the assets, we pride ourselves on applying our technical expertise in a practical, efficient and commercial manner to achieve the clients’ goals. We are as capable of delivering smaller and medium-sized transactions as we are of conducting the larger deals, and are always keen to strike the balance of resource to transaction value and complexity commensurate with the relevant client’s appetite for risk. Our reputation for the seamless execution of the most complex cross-border deals underlines the international scope and strength of our teams.

In particular, we have an unrivalled standing in public takeovers, and are the leading firm for UK public takeovers by deal value since the new Takeover Code came into force. Given the broad nature of our practice and the clients we act for, we have gained a detailed understanding of the tactics employed by bidders and targets, as well as major shareholders, whether as activists or otherwise. We are highly familiar with the corporate governance constraints and tactics that can be employed by companies and their shareholders.

Through a long-embedded sector focus, we fully understand our clients’ specific industry drivers and risks. Accordingly, we combine that knowledge with deep-seated transactional experience to navigate successful outcomes while working with specialists in such key practice areas as competition, employment, IP, data protection, tax and ESG, to address issues and challenges common to those industries.

The team continues to be highly recognised in the market, having been recently commended in the Corporate Team of the Year category by both The Lawyer Awards 2023 and Legal Business Awards 2023. In addition, we have been the #1 legal adviser for total UK stock market clients for the past four years, and have more UK stock-market-listed clients than any other firm according to the latest data from Adviser Rankings. We are further ranked in Tier 2 by the Legal 500 for M&A: Upper Mid-Market & Premium Deals £750m+.

The UK is a common law jurisdiction, rather than civil law – meaning that as well as statute, the law is derived from case law and judicial rulings.

The primary piece of corporate legislation in the UK is the UK Companies Act 2006, which was introduced in 2009 and builds on previous Companies Acts. The latest iteration did not entail a radical departure from previous Acts; rather, its aim was to reform and update the Act where it was deemed necessary. Elements of it come from EU legislation – for example, around corporate reporting – that were introduced prior to Brexit. Further amendments to the Companies Act are in the process of being introduced via the Economic Crime & Corporate Transparency Act, which is being brought into force in stages. It will, among other things: turn the UK Registrar of Companies, Companies House, into an active gatekeeper rather than a passive recipient of information; enhance transparency in relation to limited partnerships; and reform corporate criminal liability for economic crimes, such as by introducing a new “failure to prevent fraud” offence.

Much of the UK’s financial services regulation stems from EU legislation, though some is in the process of being reformed post-Brexit – for example, the Prospectus Regulation regime.

Other key pieces of regulation for our clients include the Listing Rules – which have recently been the subject of a radical overhaul that comes into effect on 29 July 2024 – as well as the UK Takeover Code, which is an unusual piece of regulation in that parties are expected to comply with the spirit, not just the letter, of the rules contained therein.

The updates to the Listing Rules removes many of the “gold standard” super-equivalent provisions that currently differentiate the UK from other listing regimes in the EU – for example, the requirement to obtain shareholder approval for large transactions.

There was a lull in M&A activity in the UK market in 2023 as a result of such factors as inflation, the war in Ukraine, as well as financing and energy costs. As these abate – or parties become more acclimatised to them – clients are exploring how they can grow and expand their businesses, be it through M&A, co-investment or organic growth. Meanwhile, activity has picked up considerably in 2024, and we expect this to continue, absent any further significant geopolitical shocks.

There is a strong pipeline of deals, not all of which will come to fruition, though clients are very much exploring the options open to them. Getting deals done is not as straightforward as it used to be, and so more creativity is often required to get such deals over the line.

On the public M&A side, we advised Hotel Chocolat Group plc on its £534 million takeover by US-based Mars, Incorporated, Inc. The deal, governed by the UK Takeover Code, involved a cash offer by Mars via a wholly owned Delaware-incorporated subsidiary, Hive Bidco, to Hotel Chocolat shareholders, as well as a partial share alternative of unlisted and non-transferable rollover shares in Hive Bidco.

The terms and conditions of the partial share alternative were novel, highly complex and required careful structuring combined with legal and tax analysis. This was also the first time a Delaware entity has been used in such a structure. The deal was executed on an extremely tight timeline, with the period from announcement to completion taking just over two months. In this matter, the team played a vital role in ensuring the successful negotiation of the deal for Hotel Chocolat, as well as the smooth completion of the transaction.

On the private M&A side, we advised Inchcape plc, the leading independent global automotive distributor, on the sale of its UK retail operations to a wholly owned subsidiary of Group 1 Automotive for a cash consideration of approximately £346 million. This deal demonstrates our expansive track record of advising our clients on their strategic journeys, and demonstrates our ability to draw upon the expertise of a wide range of practice areas, working alongside clients to execute on strategies at a fast pace.

Political uncertainty and a heightened regulatory environment have led to a proliferation of regulators and regimes, a growing confidence in challenging deals and an increase in appetite to enforce procedural compliance. Strategy to manage regulatory approvals (often on longer timelines) across various jurisdictions has become a critical aspect of deal planning and execution, and we expect this to remain a feature of M&A in the near term. These regimes are not necessarily inhibiting the launch of transactions – even where the deal may face challenges – though it does mean that upfront screening and planning for regulatory can be extensive.

In light of the current economic backdrop, buyers are placing greater emphasis on due diligence as a means to verify performance and prospects. M&A sales are typically still initiated as auction processes, and while competitive tension has held for the right assets, the reality for some processes is that they have moved to essentially bilateral exercises. Sale processes have also sometimes stalled and aborted on valuations or required tools, from cost cover to contingent consideration, rollover stakes, vendor financing and other creative risk partnering on value and funding, in order to move the deal forward. In these less competitive conditions, buyers have pushed for additional deal protections – in some cases regaining ground from the seller-friendly deal terms that had dominated the market prior to 2023.

Despite these challenges, there were still bright spots of activity in 2023, as well as a noticeable uptick in activity in 2024 to date, demonstrating the resilience of the market. For example, after many years of private equity dominating deal headlines, the weight of activity rebalanced somewhat towards corporates, who showed continued appetite for transformational deals and carve-outs to accelerate portfolio realignment, as well as portfolio acquisitions and divestments more weighted towards the mid-market.

In 2023, tech continued to be the most active sector by volume, while energy and healthcare were the two largest sectors by value – the former due in part to BP’s buyout of its JV partner in Lightsource bp and Eni and Vår Energi’s acquisition of Neptune Energy, underscoring the two themes of energy transition and ensuring UK energy resilience. Activity in these sectors continues to be buoyant in 2024 to date.

We are also seeing private capital investors focus on ESG, no longer purely for risk management purposes, but to seek to monetise it and make themselves more attractive to both investors and potential target companies.

We advise clients at every stage of the investment life cycle – from formation and structuring, capital raising, asset management, IPO, life as a listed company through to take privates and exit – acting for both corporates and investors. Our breadth of expertise and range of execution capability enable us to advise clients at whatever stage of development or status they are at.

Getting the setup right in a startup or early stage of a business is invaluable. It is essential to ensure there is good governance, and that investors and the company alike have adequate protection, while also retaining flexibility to raise capital and bring in additional investors as needed. Retaining and incentivising key personnel can be critical to the success of a business. To this end, we offer a dedicated global Venture Capital & Growth Equity practice with specialist practitioners all around the world, and, therefore, we advise on all these areas (and more), providing guidance on what is market practice, both in the particular sector and in the market more broadly.

As a leading global law firm with 24 offices across Africa, Asia, Australia, Europe, the Middle East and the US, we regularly utilise our global network to assist our clients around the globe, whether on domestic or cross-border transactions. We understand the impact of effective coordination on providing high-quality services. Similarly, ensuring our clients benefit from efficient integration across our network has been a critical objective on which HSF has spent considerable time and effort. We believe that our clients’ interests are best served when we offer teams a combination of client familiarity, practical experience and technical expertise, carefully considered by reference to the task at hand. It is a guiding principle of ours to “deliver the firm”, which involves working collaboratively within offices, as well as across offices. In practical terms, we routinely draw teams together from multiple practice areas and locations. This means that while an investment or financing might be led from one locale, due diligence and regulatory matters may be handled from elsewhere. We are flexible as to which of our sites takes the lead, and prefer to discuss and agree with our clients on what makes the most sense in each situation, giving due regard to the bespoke dynamics of the here and now. We are organised as a fully integrated firm, and our lawyers possess extensive experience of managing large teams of lawyers from around the world, as well as liaising with local counsel where necessary to ensure that a seamless service of the highest quality is provided at all times.

Below, we have highlighted some of the key changes that will be implemented as a result of the new Listing Rules coming into effect in the UK this summer (2024), as well as some developments in relation to the UK’s National Security & Investment (NSI) regime (which gives the government powers to scrutinise and intervene in business transactions, such as takeovers, to protect national security) and the UK’s merger control regime as it pertains to powerful technology firms (through the implementation of the Digital Market, Competition & Consumers Act).

UK Listing Regime:

The UK Financial Conduct Authority has published the final version of the new Listing Rules, effective as of 29 July 2024, to implement the radical restructuring of the UK listing regime. While the genesis of the rule changes is the desire to attract more companies to list in London, they will have a significant impact on existing listed companies.

Key changes pursuant to the new UK listing regime include:
• shareholder votes will no longer be required for significant/Class 1 transactions or related party transactions;
• a modified sponsor regime will remain a cornerstone of investor and market protection;
• relationship agreements with controlling shareholders will no longer be mandatory; and
• there will be significant changes to the eligibility requirements for IPO candidates, moving to a disclosure-based, rather than rules-based, regime and adding institutions to the categories of people who can hold enhanced voting rights in a company with a dual-class share structure.

UK’s National Security & Investment (NSI) Regime:

The UK government is in the process of taking certain steps to fine-tune the NSI regime in order to balance the essential protections required over investments into the UK for UK national security reasons, while ensuring the NSI regime remains as frictionless as possible for the vast majority of transactions that do not pose any concern.

As a first step in this plan, the UK government has published:
• an updated statement on how the Secretary of State intends to exercise the power to call in a transaction for in-depth investigation; and
• updated Market Guidance aimed at improving comprehension of and compliance with the NSI regime.

Further steps that the UK government indicated that it will also take in the coming months:
• a formal public consultation on amendments to the definitions of the specified activities in 17 specified sectors that can trigger mandatory notification obligations under the NSI regime;
• secondary legislation to exempt the appointment of liquidators, official receivers and special administrators from the scope of mandatory notification requirements; and
• further improvements to the NSI review process and ways to improve the online NSI notification portal are being considered.

Digital Market, Competition & Consumers Act (DMCC):

In May 2024, the DMMC Act received Royal Assent. The key reforms introduced by the DMCC Act include:
• implementing the UK’s new digital markets regime, which will see the most powerful technology firms with strategic market status having their conduct regulated by the UK Competition & Markets Authority (CMA), as well as being subject to a new mandatory merger reporting requirement;
• significant changes to the UK’s competition law regime, such as introducing a new merger control threshold and strengthening the CMA’s enforcement powers (including tougher penalties for failing to comply with statutory information requests); and
• substantially strengthening the CMA’s role in the enforcement of consumer protection legislation, including enabling it to enforce legislation directly against companies rather than going through the courts.

We share our views on the M&A market globally, as well as providing regional and sectoral insights, in our 2024 M&A report “Ready for Take-off” – available here: Global M&A Outlook 2024: Ready for take-off? | Herbert Smith Freehills | Global law firm

For the latest on developments in relation to company law and regulation, subscribe to our HSF Corporate Notes blog here: Corporate Notes | Herbert Smith Freehills | Global law firm

In addition to author Gavin Davies, this entry has been prepared by Laura Ackroyd, Corporate Partner, and Aya Aboulatta, Corporate Senior Associate, both of Herbert Smith Freehills LLP.