M&A Headwinds - November 2018

Highlighted below are some key areas of recent development which could impact on M&A transactions and strategy.

Greater protectionism

Earlier this year, we saw the government’s first use of its new merger thresholds which came into force in early June. These allow the government to intervene in potential merger situations in three sectors at a much lower level than other sectors.

The three sectors are: computer processing units and associated software/firmware; quantum technology; and development/production for military or military/civilian use.

Further changes are now proposed that would significantly increase the government’s ability to intervene on the grounds of national security more broadly. Relevant assets include infrastructure (such as telecommunication and nuclear) and advanced technologies (such as artificial intelligence, nanotechnology, synthetic biology and material sciences) which could be used to undermine national security. (There are some echoes of the recent expansion of protectionist measures in the US, through the FIRRMA strengthening of the CFIUS regime.)

See “BEIS White Paper on National Security and Investment” for more information.

Corporate transactions involving defined benefit pension schemes

Additional measures are being considered that would increase the Pension Regulator’s powers in relation to corporate transactions involving groups that operate a defined benefit pension scheme. These include a potential increase in liability for directors or sponsoring employers (and others) and additional investigatory powers and reporting requirements.

New legislation is unlikely to be introduced until 2020. However, some of the powers may have retrospective effect and we are considering with our clients now the impact of corporate activity on any defined benefit scheme.

Brexit: business transformation/maintaining supply chains

Organisations are having to prepare and put in place contingency plans for a no-deal Brexit. Our team has been advising on group reorganisations to facilitate required post-Brexit operational structures, including setting up new subsidiaries or branches and the transfer of assets or businesses.

There are particular impacts for organisations that rely on the import/export of products into and out of the UK, including the maintenance of their supply chains immediately following the UK’s exit from the EU on 29 March 2019.

Nationalisation agenda of a future Labour government

The UK Labour party has publicly announced its intentions to embark on a mass nationalisation programme in the UK’s energy, water, rail, mail and PFI sectors if elected to become the next Government.

This is at the heart of its economic strategy and could have far-reaching impacts on current investors’ positivity towards the UK utilities sector, as well as for future investment strategies.

This document (and any information accessed through links in this document) is provided for information purposes only and does not constitute legal advice. Professional legal advice should be obtained before taking or refraining from any action as a result of the contents of this document.