Public M&A: What we have seen over the last 12 months

In some ways, the striking feature of public M&A activity in the UK in 2018 is how closely it aligns to prior years. The total of 49 firm UK takeover offers in 2018 (42 of which were for companies listed on the Main Market or AIM) compares with 51 in each of 2017 and 2016, and 52 in 2015. A further 14 have been announced so far in 2019, so ahead of the curve, and with a higher proportion of Main Market offers than has been usual (nine out of those 14). If the overall number of bids in 2018 was slightly down, the number of larger bids had increased – 17 with a total value of £1 billion or more in 2018 against 12 in 2017.

On closer analysis, a few other trends emerge. We summarise the following below:-

High proportion of overseas bidders, US in particular

There is a clear pattern of overseas companies seeking to acquire UK-listed businesses, with US buyers at the forefront. Of the 63 firm offers in our review period, 21 came from a US bidder, or a consortium involving at least one US party. At the larger end, this proportion increases – out of the 10 highest value bids, half were from US bidders. Whilst there were a number of other overseas bids during the period, no other country outside the UK provided more than one or two bidders. Nor can one detect any particular sector bias to the US bids, they have cut across most industry sectors, with tech and healthcare represented (Sky, Earthport, BTG) but also financial services and insurance (the NEX group, JLT), engineering (Laird) and others – last year also saw KSE, UK, Inc., the majority owner of Arsenal football club, buy out the remaining stake.   

Many reasons have been offered up for this prevalence of US acquirers, for example, the continued weakness of sterling against the dollar, a saturated US domestic market when it comes to available target companies, historically high equity valuations in the US. No doubt each of the above, and others, are relevant to some degree. What is clear is that the trend shows no immediate signs of abating. Both the RPC Group (Main Market-listed) and Earthport (AIM) have been engaged in competitive bid processes involving US acquirers – Appollo Global and Berry Global Group in the case of RPC, with Bain Capital having dropped out at the end of 2018 (itself also an acquirer of the esure group earlier in the year) and Visa and Mastercard in the case of Earthport.

The return of the competitive bid

The period has also seen a resurgence in the public M&A landscape of competitive bid processes. Some of the most high profile bids during the year were run as competitive processes, with US acquirers again involved. Twentieth Century Fox and Comcast Corporation fought a running battle for Sky plc throughout 2018, which culminated in Comcast's successful £17.28 per share offer (up from Fox' initial bid of £10.75 per share, in December 2016) following a Panel led auction process, under Rule 32.5 of the Takeover Code, albeit one which departed from the procedures laid down in Appendix 8.

Currently, the AIM-listed authorised payments institution Earthport plc – for whom this firm acts – is the subject of a firm bid from Visa, Inc. following a competitive process with Mastercard, Inc. which involved an original offer from Visa, a counterbid from Mastercard (now lapsed) prior to Visa making its improved offer (of £247m) and, earlier this week, going into the market to acquire 9.9% of the company's issued shares.

Other targets during the year captured the interest of multiple prospective bidders in transactions which did not proceed to the firm offer stage – for example, IWG plc (owner of the Regus group of companies) attracted expressions of interest from five separate private equity buyers (three of them US-based), before pulling the plug on a sale process in August 2018.

Scheme meetings & low shareholder turn-out

Lastly, we note the following development in recent court decisions to sanction takeovers effected by scheme of arrangement. It remains the case that the majority of UK takeovers are implemented by way of schemes of arrangement.   

At the scheme court hearings in respect of three offers during the review period - for Stellar Diamonds, Old Mutual and, most recently, Vernalis - the court has paused to consider the fact of very low shareholder turn-out, either in person or by proxy (in terms of numbers, not percentage holdings) at the relevant shareholder meetings.  In each case, the requisite statutory majorities for approval had been comfortably met, but the low shareholder turn-out in terms of overall number of shareholders, 5% or less, gave the court pause before sanctioning the scheme. 

In the matter of Vernalis plc [2018] EWHC 3898 (Ch), concerns were further exacerbated by the fact that the scheme documentation sent to shareholders prior to the meeting had been returned undelivered in a number of cases – not uncommon, apparently, for the company in its recent shareholder communications.

In each case, the court did ultimately sanction the scheme, and accepted that the low turn-out was a reflection of the large number of small and/or overseas shareholders in each company. However, in light of these hearings, practitioners should be mindful of the willingness of a court to scrutinise the target's processes for convening its shareholder meetings and enabling shareholders to vote on a takeover, even where the statutory voting thresholds have been met.

That may in turn mean making extra efforts beyond the minimum requirements under the Companies Act. For example, in the case of Vernalis, the company had also posted a notice in the Times to draw shareholders' attention to the takeover, aware that many of the shareholder addresses it had on record were out of date.

Conclusion

In the other articles in this Takeover Code Update Simon Allport considers the chain principle rulings made by the Panel in the Sky bid referred to above, and Nick Heap summarises the most recent changes to be made to the Takeover Code – in respect of asset valuations and Brexit. Please also see our deals update with the latest activity of the Bird & Bird Public M&A group, both in the UK and overseas. We hope you find it an enjoyable read.