Solving the global jigsaw
The number of countries and regions with merger control regimes has continued to rise in recent years and now exceeds 120. This increasingly complex regulatory minefield may have a direct effect on both the viability of an M&A transaction and the manner in which it is carried out. Almost all merger regimes provide for penalties for failure to notify qualifying transactions and most are suspensory, meaning that the deal cannot close until regulatory clearance is obtained.
In 2015, antitrust reportedly frustrated transactions in excess of US$50bn. Within the context of this environment and against a backdrop of record M&A activity levels in 2015, we are seeing transactions being managed more actively to mitigate these risks.
Addressing the risks
M&A deals that fall within one or more merger regimes are responding to these challenges in a variety of ways, including:
- the inclusion of a break fee, reverse break fee or indemnity in the acquisition agreement. Parties are increasingly allocating the financial risk that a transaction may not proceed as a result of antitrust concerns through the use of one of these deal protection mechanisms. Those providing financial comfort need to consider carefully the parameters of that commitment and any appropriate collars and caps that may be deployed;
- pre-closing divestitures or pre-emptive remedies to tackle antitrust concerns;
- making a “no names” enquiry of the local competition authority to exclude the need to notify where the law is unclear; and
- implementing best practice techniques to manage pressure before
antitrust approval in order to integrate the target into the buyer’s business, exchange competitively sensitive information or coordinate market conduct prior to closing (“gun-jumping”). Merger control rules generally require companies to remain independent until approval is granted.
Best practice includes:
- restricting confidential information to a limited number of people, retaining an independent third party to evaluate commercially sensitive data and establishing information barriers;
- ensuring any buyer protection from adverse changes in the value of the target’s business in the pre-closing phase, contained in the acquisition documents, do not raise any gun-jumping concerns by including ordinary course of business decisions; and
- providing detailed gun-jumping guidance on what is permitted in the run up to completion so that as much planning can take place as possible without overstepping the mark.
Merger control authorities worldwide are increasingly baring their teeth when it comes to non-compliance with notification and standstill obligations. The trend is not confined to one region or type of authority or company. Early awareness of national merger control rules and a robust and principled evaluation of the risks of failing to notify are vital.