The UK buyout system is not kind to private buyers. But his protections help prevent epic stories like the Elon Musk show on Twitter.
The UK buyout system is not kind to private equity buyers. It got tougher after Kraft Foods’ bitter acquisition of rival sweet maker Cadbury in 2010. But are its rules too restrictive?
If the leveraged finance market rebounds, British equities should be a major hunting ground for the private equity industry. However, local M&A rules are often seen as a brake.
Blair Jacobson, co-head of European credit at Ares Management, told a Financial Times summit last week that “everything in the UK is for sale” and that a weaker pound was an advantage for US dollar-denominated funds. At the same time, he warned that negotiating the requirements for the acquisition regulator could be difficult.
It’s a common note from the buyout industry. Transactions in the UK are subject to a 433-page “code” that is enforced by the Acquisition Panel. The slightest whiff of a potential bid, and the organizer forces the supposed buyer to clarify his interest. After Cadbury’s devastating four-month siege, a rule was introduced requiring bidders to formalize any offer within 28 days, unless the acquisition target was happy to extend.
Above all, acquirers must have secured funds – guaranteed by their advisors – before making a formal offer.
A corporate buyer with cash on hand, supportive banking relationships and the option to pay for the takeover using their stock won’t be too staged with all of this. But this model presents a challenge for private equity due to its reliance on huge amounts of debt. In the event of a leak on a deal, the watch starts ticking and there isn’t much time to finish dealing with the tires and secure financing. The argument, then, is that rules keep buyouts away from higher-risk transactions to avoid the possibility of being seen trying and then failing.
However, the British checks and balances seem justified. Last year’s deal boom shows rules are not holding back acquisitions: culminating in grocery purchases Wm Morrison Supermarkets, the UK’s largest in more than a decade.
Meanwhile, the saga in the United States generated by billionaire Elon Musk’s bid for Twitter Inc. It is a reminder of why the UK is so focused on speed and certainty in closing deals. Twitter contributors and employees suffered a roller coaster ride. Since the conclusion of the Musk deal on April 25, the market has been concerned about funding. This does not happen in the UK given the regulatory requirement for funding to be 100% in the bag, even if the bid target board happily signs a deal with unreasonable funding commitments.
Musk’s attempts to back off his Twitter offer led to long-running lawsuits. While it appears equally difficult to reverse a deal on both sides of the Atlantic, the decision-making process will take less time to complete under the UK’s orderly approach. Simply put, UK rules increase the chances of completing the deal at the advertised price as quickly as possible.
London is an open market for deals. Listed companies can’t do so-called toxic pill defenses with the potential to frustrate bidders (like Twitter did). When a buyer of private equity offers an attractive price, the target company is unlikely to use the regulatory timetable to block the deal.
If there are brakes on UK acquisitions, it is less procedural and more political, like a government’s national security veto. Private equity firms can close deals if paid. Given the grief Morrison has burdened lenders with, some might want the system to make purchases much more difficult than it does.
Losing time will get a short vibration. But low valuations and a weak currency are more help to bidders than UK rules which are a hindrance.
#Elon #Musks #Twitter #mess #happen