Concentrated notes for BPP LPC Private Acquisitions Elective Module.
Summary of EVERY SGSs in 1 document (21 pages) - highlighting key areas and exam structures you REALLY need for your PA exam.
These notes are high distinction level. Received 95% in my PA exam.
Share Sale – a buyer purchasing the issued share capital of a company (by SH)
Seller: wants clean break sold assets and liabilities + consideration goes straight to selling SH
Buyer: can buy whole company + continuity (the target company can continue serve its customers) + more straightforward + tax
advantage (SDLT on shares may be lower than Asset sale) + simpler and quicker (there is only shares to be transferred)
Assets Sale – liabilities are left behind (by the co)
Buyer: cherry picking + tax advantage but more complex (each asset are transferred separately) + consents are required
(assignment etc)
Seller: can retain profitable part of business and sell other unprofitable part that costs loss to the co. (but will be unable to
transfer assets and liabilities that they do not want because of cherry picking) *depends on terms of sale
Auction Sale
Confidentiality Agreements – with each potential bidder with right to assign benefit of obligation under the
agreements to the new owner of T.
Process letters
• Setting out the procedures and timing requirements for the proposed action sale
Process for the auction including a list of details the bidders have to provide to the S S can analyse
which are more committed to the acquisitions
• Enclose the information memorandum
Indicative bids
• Sets out the initial understanding between the parties (like a heads of term in private treaty sale)
Information memorandum – a selling document designed to get bidders interested
Legal consideration at the preliminary stage
1. S.19(1) FSMA General prohibition (ONLY SHARE SALES) – no person can carry on a regulated activity.
Regulated activity (s.22(1)) = specified investment (Art 70 RAO) + specified activity
Specified activity includes (apply whether the fact is involved here):
• Art 14 - dealing in investments as principal (includes buying or selling securities as principal - SELLER)
• Art 25 – arranging deals in investments – seller + solicitor
• Art 21 - dealing in investments as agent – solicitor
• Art 53(1) - advising on the merits of investments – requires opinion + recommendation as to a course of action.
Exceptions:
• Art 28 – where person making the arrangements enters into the arrangements as principal – seller as a party to share
sale agreement
• Art 29 – arrange transaction as agent through authorised person
• Art 33 – refer client to the auth. person.
• Art 70 – where 50% or more of voting shares in a company are being sold + each of whom is a body corp, partnership,
individual or group of connected individuals = does not apply to public takeovers!
2. S.21 FSMA – Financial Promotion (share sale only!)
• Criminal offence to communicate an invitation or inducement to engage in investment activity (e.g acquisition of
shares) unless an auth. person / content is auth. by them in accordance with s.31 FSMA.
• IM may constitute a financial promotion
FPO Exceptions:
• Art 19(1) – communication made only to recipients whom person making the communication believes on
reasonable grounds to be an investment professional
• Art 62 (IM to state use of this exception on disclaimer) – meet the conditions set in Art 70 (commonly available for
acquisitions of private ltd)
o Shares consist of 50% or more of voting right to share capital OR
o Together any shares already held by the persons acquiring the shares = carry not less than 50% of the
voting right +
o Seller is a body corp, partnership, individual or group of connected individuals and the buyer is also one of
these. (does not have to be the same type)
Art 62(b)(ii) - If the conditions are not satisfied if it is one made by or on behalf of a single
indi/co./partnership/group of con. person which relates to a transaction with the aim of
acquiring or disposing of shares in a body corp + transaction may be regarded as being the
acquisitions of day-to-day control of the company
3. S.85(1) FSMA Requirement of a prospectus (share sale only!)
1
, • S.85(1) – prospectus needed if shares are offered to the public
Exception S.86(1):
No need for prospectus if the distribution of IM is to fewer than 150 persons per EEA states or qualified investors only (e.g bank,
investment institutions, gov) – s.86(1)(aa) FSMA + PRR 1.2.3R
• “intended solely for a limited number of persons” on info memorandum disclaimer = demonstrate that the parties
intend s.86(1) FSMA exception to apply.
4. S.89 Financial Services Act 2012 – when preparing the IM about embellishing the virtues of the T due to potential liability for
misrepresentation.
• Criminal offence to do the following:
o Make a statement which he knows to be false/misleading in any material respect
o Conceal dishonestly material facts
o Make recklessly a statement that is false or misleading in any material respect
• Advise seller and adviser not to overstate the level of interest in the target + withheld the info about the business
• Smith New Court Case fraudulent misrepresentation by informing one bidder that there was a no. of other bidders
interested in buying the T at a price when that was not the case.
5. Obligation for Listed company to note when selling a subsidiary
(1) Class test – depending the size of the transaction (class 1 or 2) = will delay the transaction!
LR 10 Annex 1
• Gross assets test gross assets of T’s business/co/gross assets of the listed company
• Profit test profit attributable to T’s business/co/profits of the listed company
• Consideration test consideration to be paid for T business/co/aggregate market value of all the ordinary shares of
listed co.
• Cross capital test gross capital of T co/business/gross capital of listed company (only for acquisitions not disposal)
Class 1 – any % ratio is 25% or more but less than 100%
• Explanatory circular approved by FCA sent to SHs
• Obtain SH approval of transaction by OR
• Ensure agreement affecting transaction conditional on approval being obtained
• Issue an announcement to Regulatory Information Service (RIS)
Class 2 – any % ration is 5% or more but all ratios are less than 25%
• Issue an announcement to RIS
(2) Disclosure – EU Market Abuse Regulation (MAR)
• general obligation on listed companies to disclose inside information if the info is not already at public knowledge and it
may have significant effect on the co’s share price
• CAN BE DELAYED
o Immediate disclosure likely to prejudice the legitimate interest of the listed company (non-exhaustive
indicative list in ESMA MAR Delayed Disclosure Guidelines) + such delay will not mislead the public +
confidentiality of info can be secured.
(3) Related party transactions – only relevant if the transaction is between a listed co(or its sub) and a substantial
SH/D/shadow D
Listed co needs to:
• Send related party circular approved by FCA to SH
• SH approval
• Announcement to RIS
6. Other matters – check facts!
Consents (if the deal involves)
• SH’s consents:
o Class 1 transactions, OR from listed plc
o Transaction b/t listed plc (or sub) and relate party, OR from listed plc/sub
o S.190(1) – substantial property transaction between the co. and one of its director
o S.188 – new long term services contract longer than 2 years
o S.217 – compensation for loss of office of director
o S.551 – authority to allot shares
o S.569/570 – disapplication of pre-emption rights
• Regulatory approval:
2
, o If T or part of its group is FCA-regulated obtain FCA approval if a holding of at least 10% is changing hands
(otherwise = crim offence)
o Secretary of State consent if deal involves a newspaper merger
o Consent from relevant regulator
• Contractual consents:
o Suppliers, LL, Lenders
7. Competition Law Issues (can affect timing of transaction):
EU Merger Regulation – give commission the power to scrutinise cross-border M&A and prohibit them
• Obligatory to notify commission re: any transaction under EUMR before implementation of concentration must be
given clearance before completion!!!
o Substantive test = concentration (change of control) prohibited if it significantly impedes effective
competition in particular as a result of the creation or strengthening of dominance
o Investigation –
Phase 1 begins on receipt of complete Form CO 25 working days to decide if they do not have
jurisdiction/clear the concentration/phase II investigation
Phase 2 – further 90 days to complete and conclude
UK Merger control – Competition and Market Authority (CMA)
• Turnover test = value of turnover in UK of T enterprise > £70m; OR
o Unless ‘relevant enterprise’ active in: military or dual-use goods subject to export control, computer
processing units and quantum technology, in which case turnover in UK > £1m
• Market share test = merged entity will have a market share (based on demand and supply substitutability) of ≥ 25% in
UK, or existing market share of 25% or more will be enlarged
o Or T is ‘relevant enterprise’ with existing 25% share of supply of goods or services in UK before merger
8. Data Protection – DPA 2018
• Personal data must be processed lawfully and in a transparent manner under DPA (set out in art 6 of GDPR)
o Obtaining consent from EE/customers before completion
o Legitimate interest – allows for disclosure in the legitimate interest of controller / other partying providing
such interests are not overridden by the interest and fundamental rights and freedoms of data subject.
o Failure to comply not criminal offence but ICO may issue enforcement notice requiring compliance (failure
to comply this notice = monetary penalty + controller may face civil proceedings by data subject)
To deal with EE data = Anonymised data (removing names and other identifying details) & Confidentiality Agreement
PA SGS 2 Advanced Due Diligence (Data Room Issues)
Employment Issues
1. Director’s service agreements
• Check (if not, request) signed and dated copy of the contract or the doc varying the contract + explain the
consequences if the doc is/is not signed. + check for any variation to the agreement (length of contract/altering notice
period)
• Confidentiality undertaking (e.g. non-disclosure of confidential information) – check if it covers the period of
employment + endures following the end of employment (ideally indefinitely)
• Restrictive covenants (even D is retiring but they might change their mind buyer would want to be sure that the D
cannot change his mind and set up a competing business instead):
o Consider enforceability, RC is void unless:
It is reasonable for the protection of a legitimate interest of the buyer (e.g protection of trade secrets,
trade interest, stability of workforce)
No further than reasonably necessary in
• Duration – non-compete = < 12 months are acceptable
• Geographical scope
• Business scope – limited to the EE the relevant EE dealt with + ditto for customers
• Duties of employees – junior EE with no client contract should not be subject to this onerous
RC
o Breach of contract by T (employer) e.g failure to give notice (General Billposting v Atkinson) RC
unenforceable even the contract states RC would remain enforceable regardless of how the contract is
terminated (Briggs v Oates)
• Handover period – if the director is a key person + holds a great deal of know-how about the business that is leaving
the company advisable to ensure there is a short handover period (6-12 months)
3
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