The uncertainty created by the referendum result is likely to discourage companies from making investment decisions. Inward investment is likely to be particularly hard hit as the UK can no longer be seen as a guaranteed route to the EU single market. On the other hand there may be some buying opportunities for overseas investors as a result of the drop in the value of sterling.
Looking forward, for private M&A transactions one would not expect the overall structure of such deals to change significantly. English law is often chosen as the governing law for international transactions and there is no reason to think that this would change as a result of the referendum.
Nevertheless, there may well be changes to certain detailed aspects of M&A transactions which are directly impacted by EU Regulation. These would include:
(i) Anti-trust clearance – Certain transactions currently benefit from the EU’s “one stop shop” clearance process, thereby avoiding a need for merger clearances in individual member states. Brexit opens up the prospect of mergers having to go through both a Brussels and a UK clearance process. This is likely to impact both costs and timeframes for deals that come within this framework.
(ii) Business sales and employee protections – On an acquisition of a business or assets, TUPE regulations require the purchasing entity to take on existing staff on their existing terms and conditions. While a wholesale removal of the underlying TUPE principle seems unlikely Brexit may be the trigger for moves in the UK to allow greater flexibility for harmonising the terms and conditions of the transferring employees with those of the purchaser.
(iii) Due diligence and warranties – There is likely to be an increased focus on a target company’s readiness for the impacts of Brexit. As the picture of how Brexit is to be implemented becomes clearer, buyers will likely need to consider its impact on a target’s IP arrangements, contractual structures and any anticipated regulatory changes.
(iv) Restrictive covenants – More focus will need to be given than before to use of terms such as “European Union” both in drafting new covenants and interpreting existing ones.
For deals which are already required to be conditional on regulatory or other approval, in addition to standard “material adverse change” conditionality, purchasers may now look to introduce Brexit related conditions. This may depend to some extent on the sector involved but could for example, encompass conditions relating to future imposition of tariffs or the availability of passporting rights.
As to public takeovers, these are unlikely to be affected to any great extent. They are largely regulated by the Takeover Code and while the Code does implement the EU Takeovers Directive, it has existed in its current form for some time (and since before the Directive came into effect) and there is no reason to think that Brexit would require a substantial change to this.