The article provides guidance for US buyers considering mergers and acquisitions (M&A) transactions in the UK Despite a global slowdown in M&A, US buyers remain interested in the UK market due to available capital, expansion strategies and favorable currency exchange rates. The UK is seen as a stable investment environment amidst global economic challenges.
Key considerations for US buyers include:
- Regulatory Considerations. US buyers must be aware of necessary regulatory clearances, such as the UK's National Security and Investment Act, which requires government clearance for transactions in certain sectors.
- Purchase Price Adjustments. UK deals may use a "locked box" approach where the purchase price is fixed at an early stage without post-closing adjustments, unlike the typical US approach with working capital adjustments.
- Due Diligence and Risk Allocation. Buyers should conduct thorough due diligence to understand the target company and allocate risks through warranties, representations, and indemnities in the acquisition agreement.
- Warranties vs. Representations. The UK distinguishes between warranties and representations, with the latter potentially leading to non-contractual claims, which US sellers usually do not provide.
- Disclosures. The US and UK differ in how disclosures are made to qualify warranties and representations, with the UK allowing broader general disclosures.
- Buyer's Knowledge. US buyers may include pro-sandbagging clauses to claim for known breaches, while the UK commonly negotiates anti-sandbagging clauses.
- Indemnities for Breach of Warranty. The UK typically limits indemnities to specific risks identified during due diligence, unlike the US where indemnities are also used for general breaches of warranty.
- Restrictive Covenants. The US may enforce longer restrictive covenants than the UK, with enforceability varying by jurisdiction.
The article concludes that while there are similarities between US and UK M&A practices, understanding the differences is crucial for successful transactions.
"UK M&A Transactions: Key Considerations for US Buyers," The Texas Lawbook, July 16, 2024
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