M&A Report 2018 - DaHui Lawyers · jumping by 14% on a global basis against 2016. Asia led the way, reflecting a maturing PE market, with PE deal value nearly doubling. European deal

M&A Report 2018

Featuring contributions fromA S & AssociatesAlemán Cordero Galindo & LeeArthur CoxASAR – Al Ruwayeh & PartnersBarneaCleary Gottlieb Steen & HamiltonDaHui LawyersErdem & Erdem Law OfficeFellner Wratzfeld & PartnersGómez-Acebo & PomboHarbourVest PartnersKudun and PartnersLee and LiMatouk BassiounySuciu Popa & AsociatiiTrilegalUBSWalalangi & Partners

Lead contributor

REPORT PARTICIPANTS

Austria Bahrain Bangladesh

Egypt Hong Kong

Ireland Israel

Romania Spain

UK

HarbourVest Partners UBS

India

Kuwait

Taiwan

USTurkey

Thailand

Panama

Indonesia

China

M & A R E P O R T 2 01 8 | I F L R . C O M | 1

INTRODUCTION

The profound political events of 2016 were at least matchedby those of 2017, with dealmakers left to digest politicalswings in Europe, progress towards Brexit in the UK, a range

of unfolding events in the Middle East and Asia, and the first year ofpolicies from a new US administration. Yet against this backdrop,global economic growth accelerated and stock markets hit record highs.Global M&A volumes remained robust, despite dropping roughly 3%by value against 2016 (although the number of deals increased). Thisstatistic masked strong regional variations: declines of roughly 13% inNorth America and 34% in MEA were offset by gains of roughly 14%in Europe and 5% in APAC. An uneven pace of activity also markedthe course of 2017, with final numbers being boosted by several mega-deals in December, led by the $68 billion takeover of Twenty-FirstCentury Fox by Walt Disney and the $67.8 billion acquisition of AetnaInc by CVS Health Corporation.

So far, so good

In spite of the turbulent geopolitical backdrop, 2018 has startedpromisingly, with M&A activity carrying on the momentum of the lastquarter of 2017. Most corporations and private equity (PE) fundspredict an acceleration of M&A activity in 2018, both in the numberand size of deals. In the UK and Europe, Brexit-related fears seem tohave subsided for now, with inbound investment levels remainingstrong.

But to balance the optimism, macro uncertainties remain, and thepotential impact of changes to tax, regulatory and political regimes arelikely to be the big wild card during the course of 2018.

Battling headwinds Simon Jay and Michael Preston from ClearyGottlieb Steen & Hamilton review the likely

dominant trends for 2018

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2017 saw the value of Chineseinvestment into the US fall by

roughly 80%

2 | I F L R . C O M | M & A R E P O R T 2 01 8

Taxes going down?

In the US, the Tax Cuts & Jobs Act has introduced significant changesto the US tax system. The changes may, amongst other things, impactthe structuring of M&A transactions in the US, encourage non-techM&A (through the accelerated expensing of asset acquisitions) and freeup offshore cash (by allowing more efficient repatriation), which couldresult in an increase in overall M&A activity. The drop in the headlinerate of US corporate tax might also encourage the investment of taxsavings in M&A.

Protectionism going up?

Political movements since 2016 have seen some strengthening ofprotectionist policies. 2017 saw the value of Chinese investment into

the US fall by roughly 80%, although this was impacted by a numberof factors other than Cfius, including tighter monetary controls inChina. In the UK, in October 2017, the government publishedproposals that would give it greater powers to intervene in mergers thatraise national security considerations (e.g. military and advancedtechnology) or involve national infrastructure. A draft statutory

INTRODUCTION

Simon JayPartner, Cleary Gottlieb Steen & Hamilton

London, UKT: + 44 20 7614 2316F: + 44 20 7600 1698

E: [email protected]: www.clearygottlieb.com

About the authorSimon Jay advises on all types of mergers and acquisitions, aswell as joint-ventures and restructurings. He has representedboth corporates and private equity funds on a broad range ofpublic and private M&A transactions, often involving cross-border issues.

Jay is recognized as a leading M&A lawyer by ChambersGlobal, Chambers Europe, Chambers UK, the Legal 500 UKand IFLR1000.

His experience includes advising Fidessa in the on-going£1.4 billion recommended takeover offer from Temenos;Google in its tender offer for all the shares of Global IPSolutions (GIPS) Holding AB; TPG in its acquisition of Prezzo;Coca-Cola on the combination of the businesses to form anew Western European bottler, Coca-Cola European Partners;Raine Group as financial adviser to SoftBank in its acquisitionof ARM Holdings; Sony in its acquisition of Ericsson’s 50%stake in Sony Ericsson Mobile Communications; WarburgPincus and General Atlantic in the joint acquisition from BancoSantander of a 50% stake in Santander Asset Managementand the subsequent divestment; Santander Asset Managementin its proposed merger with Unicredit’s Pioneer Investments;and Bank of America Merrill Lynch in the sale of its non-USwealth management business to Julius Baer Group.

Michael PrestonPartner, Cleary Gottlieb Steen & Hamilton

London, UKT: + 44 20 7614 2255F: + 44 20 7600 1698E: [email protected]

W: www.clearygottlieb.com

About the authorMichael J Preston advises a broad range of private equity andcorporate clients on mergers and acquisitions, co-investments,joint-ventures and other commercial transactions.

He has experience across a range of business sectors, withparticular experience in financial services, healthcare, naturalresources and technology, and he has worked extensively inthe emerging markets. Michael also has significant experienceadvising clients on issues related to investment funds,acquisition finance and alternative investment structures.

Preston joined the firm in 2005 and became a partner in2011. From 2011 to 2015, he was resident in the Hong Kongoffice. Preston is recognised as a leading M&A lawyer byChambers Global, Chambers Asia, Asian Lawyer andIFLR1000.

His experience includes advising TPG in a range oftransactions including its acquisition of DTZ, Cushman &Wakefield and Cassidy Turley, its equity investment in ChinaInternational Capital Corporation and its investment inMoroccan schools operator Ecoles Yassamine; Hillhouse in arange of investments in Europe and Asia; Alnair CapitalHoldings JSC in the acquisition of an approximately 25% stakein JSC Kazkommertsbank; Mittal Investments in the acquisitionof an interest in Ophir Energy; and African Minerals in a $1.5billion investment by Shandong Iron & Steel Group.

Strategic buyers have been buoyedby a decade of low-cost debt and

have increasingly targetedacquisitions for expansion


instrument was published in March 2018, setting out further detail ofhow these rules might be applied.

Influence of private equity

Private equity was a significant driver of global M&A activity in 2017,jumping by 14% on a global basis against 2016. Asia led the way,reflecting a maturing PE market, with PE deal value nearly doubling.European deal values increased roughly 30%, but while the PE marketin the US remained robust, growth was more muted, with deal valuesincreasing roughly 1% against 2016. We expect the prominent role ofprivate equity to continue in 2018. Private equity’s assets undermanagement, or “dry powder”, have increased to record levels (roughly$1.8 trillion by the end of 2017), led by the fundraising efforts of themegafunds. Pension funds and sovereign wealth funds continue to risein prominence, adding direct investment and co-investment strategiesto their armouries. The continued availability of low-priced debt,increasingly on a covenant-light basis, will have a multiplying effect onprivate equity’s deal capacity.

The private equity world will not, however, be free of challenges in2018. With funds and strategics competing fiercely for prime assets,median PE EBITDA multiples in 2017 rose above 10x EBITDA, withhalf of deals being priced at closer to 11x. Average debt multiplessupporting those transactions stretched towards 6x EBITDA.

But strategic buyers still lead the tables

The cost of debt has not just benefited private equity. Strategic buyershave been buoyed by a decade of low-cost debt and have increasinglytargeted acquisitions for expansion. Natural advantages over privateequity, including longer-term investment horizons and the ability to

price in synergies, have seen strategic buyers both as competitor toprivate equity funds looking to buy, and friend to private equity fundslooking to sell: significant transactions in 2017 included Unilever’sacquisition of Carver Korea for $2.7 billion from Bain Capital PrivateEquity and Goldman Sachs, and Crown Castle International’s $7.1billion acquisition of LTS Group Holdings from a consortium of PEfunds.

What’s hot?

For private equity, we expect that continued competition will lead tocontinued innovation in deal structuring and investment strategy.Adding on smaller, complementary businesses to existing platformcompanies, as part of buy-and-build strategies, should allow PE fundsto build companies of scale at lower multiplies. Another strong trend in 2017 was the rise of public-to-private (P2P)

buyouts, which doubled in number against 2016, as private marketvaluations increased towards public market levels. We expect to see P2Pactivity remain strong in 2018. We do not, however, expect that thistrend will be all one-way, as 2017 also saw a slow return of the IPOmarkets, with PE-sponsored IPOs making a particular comeback. As to sectors, the acquisition of technology, with its increasingly

disruptive implications for a range of industries, is now a leading driverof M&A deal-making. The acquisition of tech companies by non-techcompanies, and vice versa (so-called technology convergence), is alsolikely to remain a feature of the market. Pharmaceutical and healthcarecompanies are also likely to remain popular, although strong cashpositions are likely to make them buyers as well as sellers. In January,healthcare deals totalling more than $38 billion were announced,representing the best start in several years. Energy, mining and utilitieshad a strong 2017, and this looks likely to be the case in 2018 as well. Shareholder activism is another phenomenon that we expect will

remain relevant to M&A activity in 2018, having spread from the USto Europe and Asia. The strengthening cash positions of corporatesmight see an increase in activism if cash is not deployed quicklyenough. And finally, a nod to social impact investing. While early initiatives

focused on adopting environmental, social and governance policies,recent years have seen asset managers successfully raise funds withspecific impact investment mandates, demanding tangible social impactas well as competitive investment returns. In parallel with the rise ofdirect impact in the private M&A world, we have also seen impactinvestors (or pooled funds of investors) invest in some of the world’slargest traded companies for the purpose of using the investmentposition to drive change, in some cases deploying techniques borrowedfrom the playbooks of traditional activist investors.

INTRODUCTION

The strengthening cash positionsof corporates might see an

increase in activism if cash is notdeployed quickly enough


14 AustriaMarkus Fellner and Irena Gogl-HassaninFellner Wratzfeld & Partners

19 BahrainSimone Del Nevo, ASAR – Al Ruwayeh & Partners

24 BangladeshDewan Faisal, A S & Associates

29 ChinaCloud Li and Leo Wang, DaHui Lawyers

34 EgyptOmar S Bassiouny and Sahar Badran, Matouk Bassiouny

39 Hong KongGabriele Antonazzo, Raymond Lam and Grace Yuen, Cleary Gottlieb Steen & Hamilton

44 IndiaHarsh Pais and Clarence Anthony, Trilegal

49 IndonesiaLuky Walalangi, Miriam Andreta and Fiesta Victoria, Walalangi & Partners

54 IrelandMaeve Moran and Cian McCourt, Arthur Cox

60 IsraelAriella Dreyfuss, Barnea

65 KuwaitJohn Cunha and Laurent Levac, ASAR-Al Ruwayeh & Partners

70 PanamaEloy Alfaro and Rita de la Guardia, Alemán Cordero Galindo & Lee

75 RomaniaMiruna Suciu and Andrei Hâncu, Suciu Popa & Asociatii

81 SpainFernando de las Cuevas Castresana and Ignacio de la FuenteMuguruza, Gómez-Acebo & Pombo

86 TaiwanKen-Ying Tseng, Robin Chang, Lihuei Mao and Patricia Lin, Lee and Li

92 ThailandKudun Sukhumananda and Kom Vachiravarakarn, Kudun and Partners

97 TurkeyErcüment Erdem and Özgür Kocabaşoğlu, Erdem & Erdem Law Office

102 UKSimon Jay and Michael Preston, Cleary Gottlieb Steen & Hamilton

108 USGlenn McGrory and Paul Tiger, Cleary Gottlieb Steen & Hamilton

CONTENTS

HarbourVest Partners

Creative thinking in secondaries

NB: All graphs contained in the country chapters have been produced by IFLR with Dealogic data. Figures in the text may have come from different sources.

6

UBS

China 2018: strong prospects

9

Country reports

6 | I F LR .COM | M&A R E PORT 2018

Boston-based private equity firmHarbourVest Partners is one of theworld’s largest private equity asset

managers. Here IFLR speaks with its London-based managing director David Atterbury. In2016, the fund acquired the portfolio of SVGCapital after a fraught battle – the deal won theIFLR private equity deal of the year award atthe IFLR Europe Awards 2017. It sparked a lotof media debate as it was launched as a hostilebid under the UK Takeover Code beforeswitching to an asset deal: a secondaryacquisition of SVG’s investment portfolio. Italso had a dramatic impact on the sleepy worldof listed funds. Atterbury explains the way thesecondary market is influencing private equityand the broader M&A market.

What are the broad privateequity trends you are seeingand how does the secondarymarket fit into that puzzle?

The private equity asset class as a whole isgrowing as investors globally look for ways toenhance returns in their broader portfolios inthe current environment. Existing investorsare increasing these allocations as they look atthe returns that private equity has generatedfor them over past years (when you look at thelong-term performance of the asset class thereis a clear outperformance, certainly relative tothe public markets). The asset class is alsogenerating increased appetite from differenttypes of investors.

One likely development going forward isgreater penetration from retail-type investors,whether it be through the high net worth endof the marketplace via banks andintermediaries, who put their high net worthchannels into private equity, or throughdefined contribution pension schemes, suchas 401(k)s in the US, or other such plans inthe UK. The secondary market has played an

increasing role in the growth of private equity.People have historically thought about privateequity as an illiquid asset class, and certainlyit is a long-term asset class given the nature ofthe underlying investments, but the illiquidityalso comes from the fund structures that are

EXPERT ANALYSISHARBOURVEST PARTNERS

Creative thinking in secondariesDavid Atterbury, managing director at global private markets asset managerHarbourVest Partners, analyses the trends and developments in the private

equity secondary market

One likelydevelopment goingforward is greaterpenetration fromretail-type investors

M&A R E PORT 2018 | I F LR .COM | 7

EXPERT ANALYSIS HARBOURVEST PARTNERS

typically used. The secondary market has gonesome way to improving liquidity in thismarket, enhancing people’s ability to move inand out of private equity holdings and realisetheir investment or their entire portfoliobefore the natural long-term realisation oftheir investment takes place. It has breathedsome maturation into private equity in theform of increased liquidity.There is also a whole spectrum of risk-

return profiles within private equity, andsecondary funds have a role there too.Secondaries have demonstrated the ability toprovide very strong returns with gooddownside protection. If you look at thenumbers, secondary funds have very low lossratios and typically deliver strong IRRs

(internal rate of return) for investors.Therefore they have a place within anybroader private equity portfolio.

What changes to the secondarymarket has this growthbrought?

The secondary market has grown dramaticallyin recent years as investors have seen strongreturns. The increase in allocations and thuscapital available to invest has added to thelevel of competition for deals. We have seensmaller, more niche secondary groups springup and at the same time, the more establishedplayers have increased in scale and raisedlarger funds. When it comes to larger deals,we have also seen some of the sovereign wealthfunds or large pension funds becoming moreactive in pursuing deals directly. It is fair tosay the market continues to be dominated bythe same 5 or 10 large managers that existed10 years ago, as we have not seen many newcompetitors of real scale. We have also seenincreasing levels of specialisation. The secondary market has traditionally

been dominated by fairly straightforwardtransactions with a secondary buyer acquiringan interest in a private equity fund from theoriginal investor. That remains a big part ofthe market today, but it has become ever morecompetitive and with an associated upwardmove in pricing. What a limited number ofsecondary players have done is look for otherways to access private equity portfolios on thesecondary market and find different ways ofunlocking those assets. We consider ourselvesat the forefront of that. HarbourVest’s secondary fund’s acquisition

of the investment portfolio of SVG Capital in

2016 is a prime example of moving outsidethe mainstream and looking for other ways ofaccessing portfolios of private equity assets.Those more complex opportunities havefewer competitors and therefore, we believe,present more fertile hunting ground. What’s more, it is not just about buying

limited partnership interests in funds, thefundamental way in which we add value as asecondary buyer is by providing solutions thatmeet the seller’s needs and allows us to createa compelling investment opportunity. Forexample, we have increasingly been workingwith funds and with general partners at thetail end of their fund’s life to provide liquidityacross an entire portfolio of investments as analternative to a fund manager selling itscompanies one by one. That is providingmore of an efficient and timely end to anolder fund.

How have regulatorydevelopments influenced themarket and deal flow?

Over the years regulatory change has been animportant driver of deal flow; whilst banksand financial institutions have always been asignificant portion of the sellers into thesecondary market, more recent regulatorychange post financial crisis has placed evenmore pressure on them to sell. To a certainextent though, that pressure has softened inrecent years. The banks slowed down theirselling activities as some of the regulatorychanges were pushed back, but as thosedeadlines come back into view, then the bankswill likely come back to the market with amotive to sell, albeit having already sold alarge part of their legacy assets. I do not think there is much else in the

form of specific regulatory change that hasdriven deal flow. Regulatory change alwayscreates a level of uncertainty and that cancatalyse opportunities for us. Aside that waveof bank sellers as mentioned before, our dealflow in recent years have not been based onregulatory changes. What we have seen overthe last two or three years in terms of deal floware many of the more complex deals Idescribed before, working with fund managers

David AtterburyHarbourVest London, UK

T: +44 (0)20 7399 9820W: www.harbourvest.com

About the authorDavid Atterbury focuses on Europeansecondary investments. He joinedHarbourVest in 2004 and has led anumber of European secondarytransactions, including AbsolutePrivate Equity and SVG Capital. Hecurrently serves on the advisoryboards of funds managed by AbénexCapital, Bridgepoint DevelopmentCapital, Clyde Blowers Capital,Magnum Capital, Motion EquityPartners, and NewQuest CapitalPartners.Atterbury joined HarbourVest after

five years with Abbey NationalTreasury Services, where he wasdirector of private equity. His previousexperience also includes five yearswith PricewaterhouseCoopers.Atterbury received a BSc (with

honours) in International Managementand French from the University ofBath in 1994, and qualified as aChartered Accountant in 1997.

They are changing the secondary market from a simple one-size-fits-all

market into a much more differentiated one

It is estimated thatfunds over 10 yearsold hold more than$100 billion of assets


EXPERT ANALYSIS HARBOURVEST PARTNERS

to manage out their end-of-life funds. Anexample is HarbourVest’s deal with MotionEquity Partners in Paris in 2013 – that was afund nearing the end of its life. This part of the market has gone from

strength to strength and we have seen anincreasing number of high quality fundmanagers look to provide solutions of thistype to their investors. This is gratifying to seeas some of the early deals completed in thisspace generated some negative attention andthere was talk about potential regulation. Theindustry though has worked very hard inrecent years with much greater transparencyfor all stakeholders involved and there isclearly a best practice as to how these deals aredone.

What regulatory challenges doyou most have on your horizonand how are you managingthem?

There is a question in the US with the Volckerrule [which limits banks’ total investments inprivate equity and hedge funds to 3% of theircore tier 1 capital and individual investmentsin a fund to 3% of the fund’s assets] andwhether there will be a pull back in terms ofimplementation, which ties in with mycomments above on deal flow. In terms ofmanaging our own business, the Markets inFinancial Instruments Directive II (Mifid II)and the Alternative Investment FundManagers Directive (AIFMD) have had animpact on our day to day business – thestructure of the funds we manage, thedisclosures that our clients have to make, andthe reporting we provide to them – ratherthan being a driver of our secondaryinvestment activities. Changes such as AIFMD and Mifid II

create challenges for us in terms of managingour business, given the number of countriesin which we operate and our local offices. Thishas a knock-on effect for our processes andsystems as we strive to deliver best in classinformation to our clients. These types ofchange have led to growth and increased

investment in that part of our business. . The other obvious challenge being here in

London is Brexit implementation and itsimpact on our business in the future. Clearly,this is something we are actively consideringas we look at the next three years of business.

What for you was interestingabout HarbourVest secondaryfund’s acquisition of SVGCapital’s portfolio?

I think this was the first time a secondarytransaction moved over from the privateequity press into the broader financial news.Our funds previously closed transactions withtwo large publicly-listed fund-of-fundsvehicles (Absolute Private Equity andConversus Capital), but I think the SVG dealwas propelled into the limelight as it took themarket by surprise and as SVG was a highprofile UK name in listed private equity. Theninterestingly, SVG moved the focus fromlooking for a competing bid to our fund’sshare offer to trying to sell the underlyingassets and the underlying portfolio – the otherpotential buyers that emerged were largequality institutions and this demonstratedthere was some serious ‘smart money’interested in this deal which kept it in thepress. It was not just the fact that the SVGboard went down that route, but also the factthat our deal team was able to changeapproach and move from a share offer to anasset deal in a very expeditious fashion thatkept the media interested for quite a period oftime.

What impact has the SVG dealhad on the market?

The listed private equity space is not a bigspace. Several vehicles, post-financial crisis,have changed strategy and gone intoliquidation mode, driving the absolutenumber of publicly-traded private equityvehicles down. The SVG deal certainly putthe sector back on the map, especially with

several blue-chip organisations chasing theassets. By virtue of what played out with SVGit illustrated that it is not an easy thing to do.I am not sure you are going to see a wholewave of deals that look like this.

What will be the areas of focusfor the secondary market in thecoming years?

The secondary market by definition is largelyopportunistic. We have to look at where assetsare available for sale. Part of the challenge hasbeen that private equity has been very cashgenerative for investors for a number of yearsand there is not a great deal of pressure forlong term holders of private equity to sell bigportfolios. What we are seeing in themarketplace now is people using thesecondary market to rationalise or restructuretheir portfolio, sell older managers andredeploy capital. We think the focus of themarket will continue in the same vein.This means that the average age of the

assets sold in the secondary market has goneup. There are more tail-end portfolios andthere are groups that are focused around tail-ends. The other big area of focus, andcertainly for us, are those end-of-lifetransactions where we are working with fundmanagers on ‘whole fund liquidity solutions’,as we call them. This involves approaching ageneral partner or manager of a fund in yeareight, nine or ten, and making a proposal toprovide a liquidity solution. It is estimatedthat funds over 10 years old hold more than$100 billion of assets and there is anopportunity for the secondary market to comein and work with such funds and eitheracquire assets, or offer to buy out theunderlying investors, or create a hybrid ofthat.

Finally, what are the biggestrisks to your business?

The obvious one as an investor is pricing. Inthe more mainstream traditional secondarymarket place it is clear that pricing is key. Thatpart of the market is very competitive whichhas put pressure on the targeted returns formany secondary buyers. We are focused onthe more complex end of where we the marketcan see more value.

Regulatory change always creates a level of uncertainty and it can catalyse

opportunities for us


Samson Lo, head of Asia M&A forUBS, looks beyond the figures at thedynamics in the China and Hong

Kong markets. The dominating headlinesabout Chinese M&A have been the slowdownin outbound deals, but this masks someinteresting trends beyond the numbers thatmay have longer term resonance. For example,the restructuring of Chinese state-ownedenterprises, at times explicitly to create entitiesthat can compete on a global field. ChinaCosco Shipping being one example of this.Although flashy outbound deals may beslowing, corporate activity is not and nor arethe prospects for outbound. The much-discussed capital controls have also had aninteresting affect on Chinese private equityfunds, which find themselves in the positionof being able to offer strategics consortiumarrangements in which the latter can benefitfrom offshore financing to avoid localcontrols. Meanwhile, the capital controls maybe beginning to relax.

What is your reading of theM&A market in China andHong Kong right now? Wekeep hearing of a slowdown inoutbound investment fromChina, is that really the story tofocus on?

Broadly, we have seen two types of deals in theChinese M&A market: domesticrestructuring and outbound acquisitions.

Domestic restructuring has made acomeback over the last 12 months. There isn’tany particular catalyst for it but the Chinesegovernment has never deviated from itsambition to reform some of the state-ownedentities (SOEs). SOE reform was particularly

active between 2014 and 2015; it thenquietened down and now the SOEs are back.For example, UBS advised on recentrestructurings by China Merchants Groupand China Cosco Corporation. Typically,SOEs have sought to merge subsidiaries and

EXPERT ANALYSIS

China 2018: strong prospectsSamson Lo, head of Asia M&A for UBS, remains bullish about the ChineseM&A market as financial sponsors, SOE restructuring and capital controls

continue to shape deals


streamline their businesses by consolidatingassets and we expect this trend to continue.There are persistent rumours of large mergersin the offing, most notably, of a tie-upbetween ChemChina and Sinochem.

Speculation about a slowdown in outboundacquisitions has been in the market for almostone and a half years now, but, in my view, as

long as the target is strategic, demand hasremained strong. Chinese companiescontinue to pursue these targets and arestructuring deals both to get around capitalcontrols and to cope with the lengthyregulatory approval processes. Althoughcapital controls have been in place sinceNovember 2016, over that period we advisedChina Investment Corporation (CIC) on its€12.25 billion acquisition of Europe-basedlogistics company Logicor; a consortium offive Chinese companies in its S$15.9 billion($12 billion) acquisition of Singapore-listedGlobal Logistic Properties (GLP); and ChinaCosco Shipping in its $6.4 billion acquisitionof Orient Overseas International (a cross-border deal with an SOE buying into a HongKong-listed company). While there has beena slowdown, especially on the part of privateenterprises, activity among SOEs continues tobe robust. Nonetheless, the size of deals hastended to decline and we are seeing more dealswith a sweet spot of between $1 billion and$2 billion.

Some private enterprises with little accessto offshore funding can get stuck in lengthyregulatory processes but the SOEs continueto be strong in outbound because they haveready access to government funding.

At the same time, structuring has becomemore innovative. For example, Chinesestrategics are, increasingly, willing to formconsortia with Chinese private equity (PE)funds. We’ve seen companies team up withnot just one but a number of Chinesesponsors to help circumvent capital controls,meet funding requirements, and secureforeign currency approval. It also seems likecapital controls are slowly beginning to relax.

How have capital controlsinfluenced the way deals arebeing done and theonshore/offshore structuresbeing used?

Capital controls are most onerous forcompanies with all their cash onshore. Theapproval process can take a long time; forexample, to get the equivalent of $1 billion in

onshore RMB, offshore, approvals are likelyto come in batches, which has implications forthe prospective deal’s completion time. As aresult, many onshore companies turn tointernational banks to provide the SBLC(standby letter of credit), which involvestaking onshore cash as a collateral for anoffshore bridge financing. But it is importantto note that such arrangements are wellestablished and pre-date capital controls.Onshore companies are also willing to teamup with Chinese sponsors, which arecomfortable with onshore cash as equity aswell as with being a shareholder in an A-sharelisted company. Under such arrangements, thePE funds receive collateral or guaranteedreturns, in return for providing offshoreequity.

What will be the likely impactof the National Developmentand Reform Commission(NDRC)’s AdministrativeMeasures on EnterpriseOutbound Investment?

The measures are aimed at a specific groupof industries that are not encouraged by theChinese government. They include: footballclubs, the entertainment/media-relatedindustries and property. But most deals we’vebeen looking at have been strategic – you justdon’t see many entities looking to buy afootball club in Europe any more. Themeasures are unlikely to have much effect dealflow in the industrial, tourism or logisticssectors. There have also been changes toeliminate the so-called “roadpath” system, aninformal process for small deals that precededthe formal approval process. In short, if acompany got through the roadpath system thedeal was to all intents and purposes approved.Now, all deals need formal approval. ButChinese outbound deals are all quite sizeableand subject to formal approvals anyway, soremoving this conduit does not affect timingsor deal flow. The Administrative Measureshave also made guidelines for the outboundmarket more transparent, especially in termsof deal size, approvals etc. It is more clear-cut

EXPERT ANALYSIS UBS

Samson LoHead of Asia M&A, UBSHong Kong, ChinaT: 852 2971 7121

E: [email protected]: www.ubs.com

About the contributorSamson Lo is currently head of AsiaM&A for UBS. Lo joined UBS in 2010and is primarily responsible for M&Aorigination and execution in the AsiaPacific region, with a focus in GreaterChina across many industry sectors.From 2007-2010, Lo was a memberof Merrill Lynch Asia Pacific’sinvestment banking team for HongKong-based corporations and Macau-based gaming companies. From2000-2007, Lo was a member ofLehman Brothers’ M&A group in NewYork and led executions fortransactions across many industrysectors.Notable transactions in Asia Pacific

include PAG’s unsolicited offer forYingde Gases for $2.6 billion; ChinaMengniu Dairy’s acquisition of ChinaModern Dairy for up to $1.1 billion;LafargeHolcim’s Fr1.1 billion ($1.1billion) sale of a controlling stake inSichuan Shuangma Cement to IDGCapital; and sale of Nirvana Asia toCVC for $1 billion. Lo graduated magna cum laude

from the University of Pennsylvania’smanagement & technologyprogramme, with joint undergraduatedegrees from Wharton School andSchool of Engineering & AppliedSciences.

There are persistent rumours of large mergersin the offing, most notably, of a tie-upbetween ChemChina and Sinochem


EXPERT ANALYSIS UBS

and the new measures allow for onlineapplications which enhances transparency.

What implications does therestructuring of SOEs have andwhat is behind therestructuring process?

Restructuring has made the SOEs moreefficient. Many of the large SOEs aremultiple-listed entities; Hong Kong-listed, A-share and even B-share, which means thatoften their subsidiaries are competing witheach other. Merging select subsidiaries helpsstreamline the business and reduce overlapsand competition between subsidiaries. At thesame time, some mergers were designed tocreate national champions, for example,China Cosco Shipping. China CoscoShipping was formed by a series of assetrestructurings to create a standalone shippinggiant that can compete globally and be aconsolidator. The company is now capable ofcompeting against other shipping giantsaround the world.

How have financial investorsbeen influencing the ChineseM&A market?

They’ve been both a facilitator and a threat toChinese strategics. They act as a facilitatorwhen a Chinese strategic is short on fundingor is getting caught on capital controls;sponsors are an alternative source of financing.They are also user-friendly. Many are ChinesePE funds, so they understand the culture andhow to get things done. They can also helpcarry the strategic, especially the one-timer,through a competitive process. At the sametime, they are a threat, and there have beensituations where Chinese investors have notneeded to team up with strategics becausethey have the in-house knowledge to competedirectly with them. With the flush of capitalin the market, Chinese PE funds have also

been driving up valuations. For example,funds have been very active in the educationand tourism sectors, competing with strategicsas well as against other PE funds. Ultimately,the winner pays above and beyond to beatother financial investors. They have reset thevaluation benchmarks in some sectors.

The Hong Kong market has also beeninteresting and we’ve seen Chinese SOEsbuying out Hong Kong competitors or PEfunds taking Hong Kong-listed companiesprivate. Hong Kong-listed companies aretrading at very low multiples and, for many,their valuation relative to A-share listedcompanies means that they are unable tocompete. The Hong Kong market is rife withprivatisations and sales to SOEs. Anothertheme is the conglomerate carve-out. ManyHong Kong-based conglomerates are morewilling to divest than the Chinese SOEs andthey are divesting non-core assets to externalinvestors. This has been going on over the pastcouple of years.

What trends have you seen ininbound M&A into China?Have there been changes toforeign investment rules?

You just don’t see a lot of inbound these days.The market has moved from the one of manyyears ago where foreign companies wereseeking to make inroads into China. Foreigninvestors have been perturbed by a couple offactors. In some cases, the companies acquiredwere not what they seemed and investors havebeen burnt. In addition, in some sectors, suchas pharmaceuticals, the Chinese government

favoured incumbent Chinese companies andput up hurdles to foreign companies. Anumber of Western conglomerates includingMcDonalds China, Yum! China, and officesupplier Staples, have or are seeking to divestfrom China inbound investments are nowmore likely to be via joint-ventures (JV) with

an incumbent local company. Foreigninvestors are willing to take a minorityposition because it offers an element of safety.

As for inbound investment rules, there arecatalogues in certain areas, for example in theautomotive sector. For a Chinese internationalcar manufacturer, the catalogue says that theycannot have more than two international JVs.That continues to be the case. There may havebeen minor tweaks in some catalogues but,broadly, some restrictions remain.

What is your outlook for thenext 12 months?

In 2017, the focus was on falling deal flow,and the media was reporting a 35% declinefrom 2016. But if you look behind the scenesand discount some of the large and one-offtransactions, like Syngenta, the decline wasreally about 15%. In terms of volumes, lastyear was still the second-highest for Chineseoutbound M&A. In 2018, China outboundis likely to remain at the same level as 2017,but whether it will be the second or the third-highest we don’t yet know. China may bemore cautious towards the US but Europe willcontinue to be very active. Chinese SOEs willalso continue to be very active, whether viaasset restructurings or mergers.

PE funds receive collateral or guaranteedreturns, in return for providing offshore

equity [to strategics]

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COUNTRYREPORTS

MERGERS ANDACQUISITIONSREPORT 2018


SECTION 1: Market overview

1.1 What have been the key trends in the M&Amarket in your jurisdiction over the past 12 monthsand what have been the most active sectors?

The Austrian M&A market has been growing continuously for the pastfew years. Same as in 2016, 2017 showed a constant number oftransactions with a massive increase in transaction value. The mostactive sectors in 2017 were the real estate, technology and industrysectors. According to the Ernst & Young market analysis for 2017, of345 transactions which took place in 2017, 86 concerned the real estatemarket followed by 76 transactions in technology and 60 in industry.

Another trend that has been going on for the last few years is theincreasing interest among foreign investors to enter the Austrianmarket. Meanwhile more than one third of all deals with Austrianrelevance concerned foreign investments in Austrian companies.

1.2 What M&A deal flow has your marketexperienced and how does this compare to previousyears?

The number of M&A transactions completed on the Austrian markethas been steadily increasing. In 2017, pursuant to the Ernst & Youngmarket analysis for 2017, 345 transactions took place whichcorresponded approximately to the number of transactions completedin the year 2016. M&A deals in Austria reached an aggregatetransaction value of €14.7 billion in 2017, which is an increase of 37% as compared to 2016. This trend in significant increase intransaction volume has been continuing since 2016 where a 10-yearhigh was reached with a transaction volume of €10.7 billioncorresponding to an increase of 66.2 % compared to 2015.

AustriaMarkus Fellner and Irena Gogl-Hassanin, Fellner Wratzfeld & Partners

www.fwp.at


AUSTRIA

1.3 Is your market driven by private or public M&Atransactions, or both? What are the dynamicsbetween the two?

Most transactions on the Austrian market are private M&Atransactions, whereas public M&A deals have not played a big role inthe last few years. 2017 was, in this regard, an exception as the largestdeal – the takeover of Buwog by Vonovia with a transaction value of€5.6 billion – was a public M&A transaction. However, the prevailingnumber of M&A transactions on the Austrian market are private.

1.4 Describe the relative influence of strategic andfinancial investors on the M&A environment in yourmarket.

The influence of financial investors in the Austrian M&A environmentis relatively slim. Only 20 out of 345 deals in 2017 were financialinvestments. On the other hand, strategic investments play a very largerole on the Austrian M&A market. In 2017 the majority of transactionswere performed by strategic investors.

SECTION 2: M&A structures

2.1 Please review some recent notable M&Atransactions in your market and outline anyinteresting aspects in their structures and what theymean for the market.

2017 has seen four major transactions, which caused the aggregatetransaction value of Austrian M&A transactions to increasesignificantly:

(i) The takeover of Buwog by Vonovia (transaction value of €5.6 billion);(ii) The acquisition of UPC Austria by T-Mobile Austria (€1.9 billion);(iii) The acquisition of the Russian gas field Juschno-Russkoje by OMV

(€1.7 billion) and(iv) The acquisition of the real estate portfolio of RFR Holding by Signa

(€1.5 billion).The majority of transactions was performed by means of a share deal,

which is generally the typical means of acquisition of an Austriancompany. An interesting aspect of M&A deals performed in Austria in2017 was the continuing increase of foreign investments – outbound aswell inbound – and a significant reduction of purely domestictransactions. This shows that the Austrian market is getting increasinglyinteresting for foreign investors in particular on the real estate sector wherehigher margins as opposed to traditional financial investments can beachieved.

2.2 What have been the most significant trends orfactors impacting deal structures?

Most investments in the Austrian M&A market are strategic investmentswith an insignificant number of financial investors playing a role. It canbe perceived that due to the low interest rates and high liquidity in themarket investors are searching for projects with higher achievable margins,which can be found in the Austrian real estate sector. Due to thecontinuing digitalization, the technology sector has also become more andmore interesting over the years.

Markus FellnerPartner, Fellner Wratzfeld & Partners

Vienna, AustriaT: +43 1 53770 311F: +43 1 53770 70

E: [email protected] W: www.fwp.at

About the authorMarkus Fellner is a founding partner and the head of the firm’scorporate and M&A practice who specialises in banking andfinance, insolvency law and restructuring and disputeresolution. He was admitted to the Austrian Bar in 1998 andlectures at various institutions, having been awarded a MagIUR from the University of Vienna and a Mag RER SOC OECfrom the Vienna University of Economics and Business.

Irena Gogl-HassaninPartner, Fellner Wratzfeld & Partners

Vienna, AustriaT: +43 1 53770 372F: +43 1 53770 70

E: [email protected] W: www.fwp.at

About the authorIrena Gogl-Hassanin is contract partner at fwp specialising incorporate and M&A, banking and finance, insolvency law andrestructuring, company law and aviation law. She obtained hermaster of laws degree from University College London. IrenaGogl-Hassanin is author of several publications in her areas ofspecialisation and a part-time lecturer for finance at an Austrianuniversity.


AUSTRIA

SECTION 3: Legislation and policy changes

3.1 Describe the key legislation and regulatory bodiesthat govern M&A activity in your jurisdiction.

Austrian law does not have one specific law regulating all issues on theacquisitions of companies, but rather various different statutes apply,depending on the specific type and form of an acquisition.

For asset deals, in particular the regulations of Sec 1409 of the GeneralCivil Code and Sec 38 of the Commercial Code are pertinent. Sec 1409of the General Civil Code provides that a purchaser generally is jointlyand severally liable with the seller towards the seller’s creditors for anyliabilities of the acquired business having their origin prior to theacquisition. The purchaser’s liability is limited to the current net assetvalue of the acquired assets and applies in case the purchaser knew orshould have known at the time of the purchase of the pre-existingliabilities. Sec 1409 of the General Civil Code is mandatory law andcannot be waived or amended by contract. Liability can be reduced if thepurchase price payable by the buyer is used to pay off the debts of thebusiness sold. Sec 38 of the Commercial Code provides that a legal entity,which acquires and continues a commercial business, is liable for all debtsthe former owner incurred in the course of business conduct, meaningeven those which are not contractually agreed to be taken over by thebuyer. Unlike liability under Sec 1409 of the General Civil Code, liabilityunder the Commercial Code is not limited to the value of the acquiredassets. Nevertheless, under Article 38 of the Commercial Code the sellerand the buyer can agree to limit liability of the seller, such limitation ofliability, however, being only valid if a timely notification to thecommercial register is submitted or otherwise made public.

A key regulatory authority with regard to M&A transactions is theFederal Competition Authority (Bundeswettbewerbsbehörde), which iscompetent for the clearance of mergers if the transaction volume does notexceed the thresholds of the EC Merger Control Regulation, but exceedsthe thresholds under Austrian competition law. Further relevant authoritiesare the Commercial Register Courts (Firmenbuchgerichte), which registerand publish transactions and reorganizations in the Austrian commercialregister, and the Financial Market Authority (Finanzmarktaufsicht),which reviews banking acquisitions. Public M&A transactions regardinglisted joint stock corporations (Aktiengesellschaft) are also subject to thesupervision of the Austrian Takeover Commission(Übernahmekommission), which monitors compliance with the Austriantakeover regulations and decides on all matters related to the Takeover Act.

3.2 Have there been any recent changes to regulationsor regulators that may impact M&A transactions oractivity and what impact do you expect them to have?

A recent change, which has been made to the Austrian Cartel Act andwhich applies to all transactions closing after November 2017, extendedthe scope of transactions for which clearance by the Federal CompetitionAuthority needs to be obtained.

Another major change that will affect public M&A transactions as ofJanuary 3 2018 is the introduction of the possibility of a de-listing in theAustrian Stock Exchange Act (BörseG), which was introduced in orderto adopt new EU investor protection and capital markets transparencyregulations. The requirements for such a de-listing process is theaffirmative resolution of a qualified majority in the annual general meeting

■ Consumer products■ Energy and natural resources ■ Financial services and investment management

■ Healthcare■ Industrial goods■ Infrastructure and public services

■ Leisure and hospitality■ Professional services■ Telecoms, media and technology

OUTBOUND INBOUND

$13,733m327

1,905

92

363

513

1180

$3,690m

NB only deals with publicly disclosed values are represented in the charts and infographics

7,001

354

2,367

13

372 2,294

417

1,287

0

0

0


AUSTRIA

and the prior active official listing over a period of three years. Besides thisregular de-listing, a so-called “cold de-listing” (meaning de-listing due tocorporate law measures such as a merger) was also introduced. Themotivation for such delisting could be rooted in economic factors, suchas conflicts between the supply and demand sides or due to companyinternal initiatives to avoid the transparency rules and competitivedisadvantages associated with the stock exchange regulation.

3.3 Are there any rules, legislation or policyframeworks under discussion that may impact M&A inyour jurisdiction in the near future?

In October 2017, federal elections took place in Austria, which broughta change of political power. The new government was established inDecember 2017. It remains to be seen which changes with relevance tothe Austrian M&A market the new government intends to implement.According to the government program, the new government intends todissolve hurdles and simplify administrative proceedings, which mightalso have an effect to M&A in Austria.

SECTION 4: Market idiosyncrasies

4.1 Please describe any common mistakes ormisconceptions that exist about the M&A market inyour jurisdiction.

The Austrian legal system has a few peculiarities, which are commonlymisunderstood. As most M&A deals in Austria are private M&Atransactions, where the target company is an Austrian limited liabilitycompany, the share deal must be made in the form of a notarial deed infront of an Austrian notary public. Typically, such notarial deed needs tobe drawn up in German. With the increasing foreign involvement inAustrian M&A transactions, it has become more and more common thatsuch notarial deeds may also be drawn up in English.

Misconceptions also exist with regard to the fact that certaintransactions in Austria are subject to Austrian stamp duty tax. Typically,stamp duty tax becomes payable upon the simple fact that a writtendocument on a transaction is being drawn up in Austria. A lot ofmisunderstandings with regard to stamp duty tax can be resolved ifprofessional advice is sought at an early stage.

4.2 Are there frequently asked questions or oftenoverlooked areas from parties involved in an M&Atransaction?

The concept of the Austrian stamp duty tax often requires specific legaladvice in particular as to possibilities to legally avoid such stamp duty tax.

For real estate transactions, it is advisable to seek preliminary advice inorder to properly structure the acquiring vehicle to minimize possible taximplications connected with the transaction.

4.3 What measures should be taken to best prepare foryour market’s idiosyncrasies?

In order to best prepare for Austrian particularities and idiosyncrasies, itis advisable for foreign investors to seek legal and tax advice by Austrianspecialists at an early stage. That way the acquisition of a possible Austriantarget company can be structured in the best possible way to meet theinvestor’s needs and comply with Austrian particularities.

SECTION 5(a): Public M&A

5.1 What are the key factors involved in obtainingcontrol of a public company in your jurisdiction?

Most determinants regarding the acquisition of a controlling stake in apublic company are regulated in the Austrian Takeover Act. A compulsorypublic offer has to be made to the other shareholders when a shareholderacquires a stake of 30 % or more.

0

1000

2000

3000

4000

5000

6000

7000

8000

PUBLICTARGET

PRIVATETARGET

PUBLICTARGET

PRIVATETARGET

OUTBOUNDINBOUND

$729m$6,555m $5,892m $307m

NB: Values may exclude certain transactions, for example asset acquisitions/sales


AUSTRIA

5.2 What conditions are usually attached to a publictakeover offer?

Pursuant to Sec 5 para 2 of the Austrian Takeover Act, the intention toacquire a stake in a public company needs to be communicated as soonas there are rumours that could alter the stock price. The bidder who isintending to place an offer also has to inform the target’s representativesimmediately, notifying them that the executive board and the supervisoryboard have decided to place such offer, or that conditions have been metthat oblige them to place an offer. Public takeover offers need to beexecuted in a way that minimise market manipulation and insider trading.The members of the target company also have corresponding secrecy andtransparency duties. A further condition is the notification of the workerscouncil pursuant to Sec 11 para 3 of the Austrian Takeover Act. A financialexpert must also be included in the public takeover offer process.

5.3 What are the current trends/market standards forbreak fees in public M&A in your jurisdiction?

Break fees or break-up fees, as well as termination fees, have found theirway into Austrian M&A practice especially since the financial crisis. Thesefees can amount up to 20 % of the transaction volume. In public M&Atransactions, such fees are rather uncommon, which is partly due to legalrestrictions, whereas in private M&A transactions, break fees are moreoften agreed upon.

SECTION 5(b): Private M&A

5.4 What are the current trends with regard toconsideration mechanisms including the use of lockedbox mechanisms, completion accounts, earn-outs andescrow?

The purchase price in private M&A transactions is typically either fixedunder a locked box mechanism or determined at signing as a provisionalpurchase price pursuant to a fixed calculation method which is thenfinalized on the basis of financial accounts drawn up at closing. Earn-outmechanisms are sometimes included as mechanisms to adapt the purchaseprice after closing. It is also quite common to place a certain percentageof the purchase price in escrow at signing, of which a designated amountmight also be used as break fees in case the deal does not close.

5.5 What conditions are usually attached to a privatetakeover offer?

Typically, the private takeover offers are conditional upon a satisfying duediligence and transaction documentation, approvals of internal boardsand committees, the conclusion of certain side agreements which aredeemed necessary and the occurrence of no material adverse changes.

5.6 Is it common practice to provide for a foreigngoverning law and/or jurisdiction in private M&Ashare purchase agreements?

No, generally the parties of a private M&A share purchase agreementagree on Austrian substantive law and dispute resolution in Austria. Thisalso relates to the fact that mandatory Austrian laws apply to theacquisition of shares in an Austrian company.

5.7 How common is warranty and indemnity insuranceon private M&A transactions?

W&I insurance as a tool coming from the Anglo-American tradition isavailable but still not very common in the Austria M&A market.However, throughout Europe it is getting more and more common tomake use of this useful tool. We believe that this trend will gradually alsobe implemented in the Austrian M&A market.

5.8 Discuss the exit environment in your jurisdiction,including the market for IPOs, trade sales and sales tofinancial sponsors.

IPOs do not play a significant role on the Austrian market. Generally, ashareholder interested in selling his shareholding will initiate a structuredbidding process to which interested parties are invited. As the Austrianmarket is rather small, very often the shareholder will be aware ofpotentially interested parties and address them directly.

SECTION 6: Outlook 2018

6.1 What are your predictions for the next 12 monthsin the M&A market and how do you expect legalpractice to respond?

The Austrian M&A market will continue to be influenced bymacroeconomic developments (such as Brexit and general economicdevelopments). Due to the persistent low interest rates and existing highliquidity in the market, investors will keep searching for projects withhigher achievable margins. We believe that as in previous years, the focuswill remain on the real estate and technology sectors. We also expect thatthe trends of previous years, relating to the continuing increase oftransaction volume, will continue into 2018.




The trend of consolidation within the highly fragmented financialindustry has continued albeit at a slower pace than originally envisaged.This consolidation is expected to further pick up in 2018.Furthermore, the recent dynamic of oil prices, with Brent oil futurestrading in the range between $60 and $70 since November 2017, couldalso have a positive knock-on effect on the local M&A market. Othersectors which may see increased M&A activity are the hospitality,education and real estate sectors. With the respect to the latter, inparticular, an increase of M&A activity for distressed real estate assetsis being pursued by the government as part of its development policiestowards the real estate sector.


The pace of M&A activity in 2017 remained broadly in line with2016. In public M&A, the financial sector has been the most active.In the insurance sector, Bahrain & Kuwait Insurance Company BSChas launched and completed a mandatory tender offer on the sharesof Takaful International Company. In the banking sector, a voluntaryoffer has been launched on the shares of Bahrain Middle East Bank byone of its shareholders. Another significant transaction that took placein 2017 was the share swap between shares in United Gulf Bank andthe shares of the newly established United Gulf Holding Company,which was accompanied by a de-listing of the shares of the former andthe listing of the shares of the latter.

BahrainSimone Del Nevo, ASAR – Al Ruwayeh & Partners

www.asarlegal.com



The market is driven primarily by private M&A transactions, as publicM&A activity is still relatively infrequent. The reasons underpinningsuch dynamics may be related to the high ownership concentration inmost of the listed companies and the scarce liquidity of the stockmarket. A significant change of these dynamics could be triggered bya partial privatisation by the government of certain companies whichwould at the same time boost market liquidity and reduce ownershipconcentration with positive effects on public M&A activity.


M&A activity in Bahrain has been affected to an extent never seen inthe past by strategic investors from neighbouring GCC countries,which have provided much needed demand for local assets. This trendhas been facilitated by a large restructuring taking place in the localbanking industry where certain players (mostly investment banks) areproactively seeking to offload part of their investment portfolio bydisposing of non-strategic investment assets, also in the light of thehighly penalising capital adequacy regime associated with ownershipof such assets.



The mandatory tender offer on the share capital of TakafulInternational Company constituted the first mandatory tender offer toever take place in Bahrain under Volume 6 of the Rulebook (Rulebook6) published by the Central Bank of Bahrain (CBB). The transactionoriginated from a block acquisition on the Bahrain Bourse of asignificant shareholding in Takaful International Company whichtriggered one of the mandatory tender offer thresholds. This transactionhas been relevant to the market being the first of its kind and havingcasted light into the mechanics of mandatory tender offers in Bahrain.


Widening valuation gaps between seller side and buyer side are dentingliquidity on the domestic M&A market and this negatively impactsdeal volumes. This is forcing practitioners to devise structural elements(including but not limited to earn-outs) in order to overcome theseissues.



The Takeover, Mergers and Acquisitions Module (TMA Regulation)Rulebook 6 is the primary governing regulation for public M&A inBahrain and it works in conjunction with other regulations issuedunder Rulebook 6. It applies where there is an acquisition orconsolidation of control of a Bahrain domiciled publicly listedcompany; or an overseas company whose primary listing of equitysecurities is on a Bahrain exchange. Rulebook 6, including the TMARegulation, is administered by the Capital Markets SupervisionDirectorate at the CBB. Private M&A, as such, is not a regulatedactivity beyond registration of share transfers and transfers of businesspremises.


There have been recent changes to the share transfer mechanicsapplicable to Bahrain closed joint stock companies, which are expectedto have an impact on private M&A as such changes are aimed atsimplifying the mechanics for share transfers in line with the proceduresfor Bahrain public joint stock companies.

BAHRAIN

Simone Del Nevo Senior associate, ASAR – Al Ruwayeh & Partners

Manama, Kingdom of BahrainT: +973 17 533 182 F: +973 17 533 185

E: [email protected]: www.asarlegal.com

About the authorSimone Del Nevo is a senior associate with ASAR-Bahrain andhas been with the firm since December 2014. Del Nevocurrently practices in the areas of banking, finance, securitiesand capital markets. He received his law degree from BocconiUniversity of Milan, Italy, in 2004. He was admitted to the MilanBar Association as a qualified lawyer in 2007. Del Nevo’spractice languages are English and Italian.


BAHRAIN

3.3 Are there any rules, legislation or policyframeworks under discussion that may impact M&Ain your jurisdiction in the near future?

A revised TMA Regulation was put to consultation during 2017,though no action has been taken by the CBB following suchconsultation. New laws on secured transactions and bankruptcy areexpected to be enacted during 2018 (or early 2019), which may haveimpact on M&A market as well. Implementation of VAT in Bahrainmay also be impactful to the extent that share or asset transfers will bedeemed as supplies of goods for VAT purposes (which we do not knowat the present stage).



One common mistake is to structure and implement M&A dealsfollowing schemes and solutions developed in overseas jurisdictionswithout paying the necessary attention to the local legal and regulatoryframework, both in cases of cross jurisdiction and of purely domestictransactions. This mistake can go unnoticed insofar as no conflict arisesbetween vendor and buyer, though this may result in the completionprocess conflicting with local regulations. If a conflict arises, the pitfallsof such approach become readily intelligible, including difficulty inobtaining legal redress in the local jurisdiction, uncertainties

surrounding application of foreign law provisions in domestic courtproceedings and impasse to meeting local requirements for completion.


Post-closing activities are often an overlooked area as action plans andtimelines are often drawn up until the closing date leaving post-closingactivities to proceed without a clear structure, sometimes even managedby a team that did not work on the deal. This neglect often subsistsnotwithstanding the number and importance of post-closing activitieswhich are often implicated (such as changes to public registers whichcannot be completed at closing, etc). Transitional services arrangementsinvolving continued seller involvement are common but may havedubious validity and enforceability.

4.3 What measures should be taken to best preparefor your market’s idiosyncrasies?

The key to a successful M&A transaction is an early involvement ofthe local lawyer in the structuring phase of the transaction in order toexplore, analyse and eventually find legal solutions translating thecommercial objectives pursued by the parties into viable solutionsunder Bahrain law.




OUTBOUND

300


$300m


BAHRAIN



Obtaining control of a public company often involves the launch of apublic tender offer (whether on a voluntary or a mandatory basis)unless de facto control is achieved by the acquisition of less than 30%of the target company voting share capital. The threshold triggering anobligation to launch a mandatory offer is set at 30% of the voting sharecapital of the target company and further thresholds are contemplatedfor any incremental purchase between 30% and 50% of the votingshare capital occurring within a specified timeframe. The launch of avoluntary or mandatory tender offer is accompanied by the publicationof an offer document containing all information required underModule TMS of Volume 6 of the Rulebook published by the CBB andsubject to CBB approval.


Usual conditions attached to an offer include levels of acceptance,approval of shareholders for the issue of new shares andlisting/regulatory approvals. A voluntary offer must not be madesubject to conditions whose fulfilment depends on the subjectiveinterpretation or judgment by the bidder or lies in the bidder’s hands.Once a firm intention to make an offer is formally announced, thebidder is committed to proceed. Scope to withdraw by invoking theconditions to the offer is limited. To the extent that the bidder intendsto attach conditions other than normal conditions, the CBB must bepreviously consulted. As a general rule with limited exceptions,financing for an offer must be fully committed when theannouncement of the firm intention to make an offer is made


Break fees are not used in Bahrain and their validity is uncertain as acommitment to a break-up fee can be seen as unlawfully impingingupon each shareholder right to decide whether to sell or retain theshares. In the absence of more legal clarity as to the permissibility ofbreak-up fees, we do not expect that this instrument will be adoptedin the structuring of public M&A deals.


5.4 What are the current trends with regard toconsideration mechanisms including the use oflocked box mechanisms, completion accounts, earn-outs and escrow?

The use of completion accounts is still the prevailing considerationmechanism in the realm of private M&A, though the financial datatracked for the purposes of determining any price adjustment with respectto the headline purchase price vary from working capital only adjustmentsto full-fledged adjustments based on net worth variations. Locked boxmechanisms are still relatively uncommon, though we expect to see anincreased use of such mechanisms especially in the context of vendor-initiated private auctions. We have seen an increase in the use of earn-outsin private M&A and believe these are being used as a tool for bridgingwidening valuation gaps between seller sides and buyer sides. Escrows arevery common and are mostly used in connection with management ofclaims against representations and warranties.


Regulatory approvals are invariably attached to private offers in respectof target companies operating in regulated industries. It is notuncommon to also find MAC clauses associated with specificquantitative metrics, though same are usually bitterly negotiated. It isquite common to bring down all representations and warranties toclosing so that any breach (or material breach) of them may give a dealexit to the buyer.


It is a rather common practice, albeit we strongly advise against the useof foreign jurisdiction clauses in M&A transactions in light of theenforceability issues that these may give rise to. In case of foreigngoverning law, foreign arbitration should be seen as a must due toproblems faced in proving the provisions of a foreign law in front of aBahraini court and difficulties in enforcement in Bahrain of foreigncourt decisions. Bahrain governing law with Bahrain court enforcementmay be valuable to facilitate enforcement of local obligations associatedwith the transaction and may be favourable for a foreign party whoreceived robust local law advice against a Bahraini counterparty.


5.7 How common is warranty and indemnityinsurance on private M&A transactions?

Warranty and indemnity insurance is slowly gaining recognition,though it is still rare to see in practice in purely domestic deals asopposed to the Bahraini leg of multinational deals where it is somehowmore common.

5.8 Discuss the exit environment in your jurisdiction,including the market for IPOs, trade sales and salesto financial sponsors.

The exit environment is very challenging. The main exit channel stillconsists in a private sale to an industrial or private equity purchaser.The IPO exit route is uncommon in light of the structural liquidityissues affecting local capital markets, though recent developments, suchas the Bahrain Investment Market launched by Bahrain Bourse, mayenhance the possibility for an exit through public offer in the localcapital market. Sales to financial sponsors are also often unviablebecause of the reluctance by financial sponsors to take on balance sheetequities also in light of the penalising capital treatment that this assetclass receives under the newly implemented capital adequacyregulations. Finally, restrictions on introducing new partners intoclosely held LLC entities make exit infeasible without full shareholdercooperation.



We expect that consolidation in the financial industry will continue,propelled by structural reasons going beyond the existing economiccycle. Relatively higher oil prices may also induce increased M&Aactivity though recent market volatility would suggest caution on this.Increasing bond yields brought about by the peg to the USD and thetightening of monetary policy taking place in the US, may inducecompanies to reconsider their capital structure and this may open upM&A possibilities. We expect market practice to embrace innovativestructuring options to face persistent liquidity challenges, and we alsoexpect that new legislation which is the making will be generallypositive for the M&A market.

BAHRAIN


SECTION1: Market overview


The practice of mergers and acquisitions may be considered at anascent stage in Bangladesh. The rationality of this position is themindset of traditional business people in Bangladesh, who consider ittaboo to sell a business, even if it is the best thing to do. Moreover, thelack of clear regulatory guidelines is one of the major impediments toM&A activities. The current regime is governed by the establishedpractice adopted from transactions completed in recent years. Nonetheless, we have noticed few large deals in Bangladesh in recent

times and also found an environment ripe for bank mergers. As per asurvey report, given the high number of banks compared to the size ofthe economy, 72% of bankers are in favour of reducing the number ofbanks in Bangladesh through merger or acquisition.Recently, a number of M&A and joint-venture deals in the

telecommunication, energy, FMCG, and food sectors have beeninitiated. These transactions over the past 12 months were intra-groupmergers having common or related sponsor shareholders.


During 2017, no remarkable merger process has been completed,however, the acquisition of 100% of the ownership of Holcim Cement(Bangladesh) by LafargeHolcim Bangladesh for $62.5 million attractedthe attention of the interested parties/stakeholders. Apart from thatacquisition, many private M&A deals may have taken place, however,as those M&A transactions took place outside of the public domain,there is no publicly available data.

BangladeshDewan Faisal, A S & Associates

[email protected]


BANGLADESH


The market is predominantly driven by private M&A transactions, andpublic M&A activities are very limited in practice. M&A transactionsin private (but unrelated) companies are dictated by acquisitions asopposed to mergers. Various cross-border acquisitions in thetelecommunication, energy and banking sectors during the first decadeof 21st century, such as acquisitions of Aktel by Axiata, Warid Telecomby Airtel, Sheba Telecom by Orascom Telecom and Oriental Bank byICB Financial Group, are testament to this. On the other hand,restructuring between intra-group entities (regardless of their privateor public status) usually takes place by way of merger. In the case of private mergers, required permission from Government

agencies is limited in condition, whereas, for public M&A transaction,

the Bangladesh Securities and Exchange (Substantial Acquisition andTakeover) Rules, 2002 (2002 Rules) comes into play and caters forsituations where any person is interested in acquiring 10% or moreshares of a publicly listed company. However, the 2002 Rules areregarded as inadequate for the modern dynamics of capital markets.Hence, as of now, companies usually seek and obtain exemption fromBangladesh Securities and Exchange Commission from compliancewith the provisions of 2002 Rules.


Bangladesh is observing intra-group merger transaction in the form ofprivate M&A. Therefore, the culture of strategic and financial investorson the M&A environment has not been developed yet.



Following the merger of Lafarge Group and Holcim Group, thecorporate market observed a restructuring in shareholding of HolcimCement (Bangladesh). To give effect of that merger, LafargeHolcimBangladesh, one of the largest multinational cement manufacturerslisted with local stock exchanges, was willing to acquire 88,244 sharein the target company. As part of the acquisition process, due diligencewas conducted on the company. Upon taking into consideration of thevalue of shares, Lafarge Surma Cement executed the share transferagreement for purchasing the shares from Holderfine B.V for $117million, and accordingly sought the central bank’s approval to remit$117 million to Holderfine B.V. In demonstration of its willingness to regulate, Bangladesh Bank

approved the share transfer for the merger but said that the share isoverpriced and asked Lafarge Surma to submit documents related to sharevaluation of Holcim Cement. Upon taking into consideration of necessarydocuments, the central Bank approved repatriation of $62.5 million only.After waiting for three months, Lafarge Surma and Holderfine B.V agreedto close the deal as per instruction of the central bank.


As the market is still developing, strategic investments rarely take placein Bangladesh. With the exceptions of a few acquisition deals, themarket is primarily dominated by intra-group mergers. While most ofthese mergers occur to boost profitability, in many cases, the profits ofthe entities involved decline, and historically, achieving tax neutralreorganisation has been the primary goal for mergers. If a company is acquired by way of share purchase, the said

transaction will attract stamp-duty of 1.5%, as well as capital gainstaxes from the seller; by the same token, if there is a transfer ofimmovable property, the transaction will attract a hefty amount 8-11%

Dewan FaisalPrincipal associate, A S & Associates

Dhaka, BangladeshT: +88 02 9561540F: +88 02 9561476

E: [email protected]: www.as-associates.net

About the authorDewan Faisal, an advocate of the Supreme Court ofBangladesh and one of the principal associates of the A S &Associates, is an expert in M&A and restructuring with aspecial focus on foreign investment and foreign exchange.Currently, Faisal is involved in several cross-border acquisitiondeals where target companies come from wide-range ofbusiness areas, such as investment banks, a power supplierand hotel management etc.Faisal played a pivotal role in the acquisition of Kite

Bangladesh Limited. This included advising on the applicabilityof capital gains tax and challenges related to applicable doubletaxation avoidance treaties and legal provisions. He is currentlyengaged in the takeover of a four-star hotel, located in Dhaka,Bangladesh, by way of an acquisition. He is also leading anintra-group merger of a group of companies in the RMGsector, which has six local companies and a companydomiciled in the US. Faisal has assisted in structuring aninvestment bank domiciled in Bangladesh, which involved theacquisition of shares by an investment bank of Sri Lanka. Healso assisted on the acquisition of shares of a joint-venturebetween a local company and a South Africa-based subsidiaryof a group of companies, whereby the shares of the localpartner will be acquired by another subsidiary of the samegroup, based in the UK.


BANGLADESH

of the transaction value, on account of stamp duties, registrationcharges, capital gain tax and advance income taxes. By contrast, anytransfer of shares and assets as a result of a merger is deemed to beeffective by operation of law, alleviating any need to pay of taxes andstamp duties on such transactions. Furthermore, in the absence of any provision in the Income Tax

Ordinance, 1984, regulating carry forward of losses in the event ofamalgamation, presumably, the accumulated loss of the transferorcompany will be deemed to be the loss of the transferee company.Consequently, the transferee company would be entitled to carryforward such loss, and set off such amounts against its future profits,reducing tax liabilities of the transferee companies.



Key legislation

The Companies Act 1994 contains the broad conditions for a transferof shares in an acquisition/takeover transaction. Moreover, where amerger is under consideration, one has to resort to sections 228 and229 of the legislation, which lay down guidelines for concludingarrangements with shareholders as well as the power of the High CourtDivision to sanction a scheme of arrangement/amalgamation.The Bangladesh Securities and Exchange Commission (BSEC)

(Substantial Acquisition of Shares and Takeovers) Rules, 2002, has beenpromulgated by the capital markets regulator of Bangladesh to regulatepublic takeover/acquisition activities. As anti-takeover defense, section 15 of the Competition Act, 2012

prohibits direct or indirect execution of any takeover by any personthat would have detrimental effects on competition or create monopolyor oligopoly in the market. However, this Act empowers theCompetition Commission to deal with complaints under the Act,which has been formed, but yet to be fully functional.Section 18 of the Foreign Exchange Regulations Act 1947 mandates

that permission be obtained from Bangladesh Bank for any act wherebya company, which is controlled by persons resident in Bangladesh,ceases to be so controlled. In addition to the above, sector specific laws, rules and regulations,

guidelines, and policy decisions may also be applicable. For example,M&A deals in the telecommunication sector will be subject toprovisions of Bangladesh Telecommunication Act, 2001, Telegraph Act,1885 etc.

Key regulatory bodies

The BSEC is the key regulatory body for M&A transactions. However,there is no explicit requirement to consult or seek permission from theBSEC for undertaking an M&A transaction unless the proposedtransaction results in its paid up capital being BDT100 million ($1.25million) or more (a requirement triggered by the rules regulating issueof capital, as opposed to M&A). Moreover, as far as public takeoversare concerned, it is worth noting that in the present environment ofnon-enforcement of 2002 Rules, the BSEC has limited scope inscrutinising such transactions.

Besides the BSEC, depending on the sector in which the proposedM&A deal is to take place, particular regulators, for instance theBangladesh Telecommunication Regulatory Commission (BTRC),Bangladesh Power Development Board (BPDB), Bangladesh Bank(BB) and Insurance Development & Regulatory Authority Bangladesh(IDRA), may take up the role of regulating M&A activity.


In the last 12 months no such changes in regulation and/or a regulatorhave been made that may impact in M&A transactions or activity inBangladesh.


Considering the limitations and inadequacies of existing regulatoryframeworks, the BSEC, the key regulatory authority for capitalmarkets, formed a committee in 2016 to revise the existing rules andformulate new rules for regulating M&A activity in Bangladesh. It isexpected that if the BSEC issues its guidelines, M&A transactions willhave to comply with certain new rules and it will make the processmore transparent, formal and systematic.



Corporate culture is relatively new in Bangladesh and traditionallymany of the large businesses are proprietorship or family businesses.In the existing conservative corporate scenario, selling/dissolution of abusiness is considered a taboo by many established entrepreneurs. Taxneutral reorganisations, let alone strategic mergers, are often overlookedas a viable option for achieving better growth. In the absence of a clearregulatory framework, the practice of M&A is viewed as cumbersomeby many.


Valuation: In the absence of any regulatory guideline as to the methodsand basis of valuation to be adopted during M&A activities,companies, particularly in intra-group mergers, may opt formethodology yielding higher valuation. As a result, propriety ofvaluation bears the possibility of becoming a highly contested issuebefore the court in considering an application for approval of a schemeof amalgamation. Financial statements: During the planning stage, some companies

may overlook financial statements. Consequently, where cash pay-out


BANGLADESH

is involved, there might arise irreconcilability between the amountsavailable on the balance sheet and the amount agreed to be paid againstthe shares, creating a gridlock during the post-sanction and post-closingstage.Regulatory compliance: Due to underdeveloped corporate cultures,

many companies fail to secure annual regulatory compliances. As aresult, the proposed M&A may end up being a far more time-consuming activity than initially foreseen.Disclosure to public shareholders: In the absence of any regulatory

provisions imposing strict disclosure requirements, listed companies’disclosure is limited to the publication of price sensitive information,which does not mandate giving details to the public of the effects of aproposed M&A transaction or how the interests of sponsors are affectedconsequent to a merger.Interests of employees: Though mergers may involve redundancies

of employees, the interests of employees are often overlooked duringthe planning stage so that companies involved do not take enoughprecautions, such as preparing voluntary retirement schemes or othercompensatory schemes before presenting the proposal for sanctionbefore the Hon’ble High Court Division.


Setting up a clear regulatory framework should be the first step towardsaddressing the misconceptions about M&A in Bangladesh. In additionto this, creating awareness about the importance of regulatorycompliance, transparent financial reporting and tax structures, as wellas improving the overall business cultures, would go a long way towardsbusting various myths surrounding M&A activities in Bangladesh.



Takeovers of public companies are very limited in practice. A numberof notable takeover transactions, during the first decade of 2000, wereundertaken to revive a sick company or to enter the stock market.However, during the twenty first century, there had been several intra-group horizontal mergers between listed companies seeking operationalefficiency and cost reduction.


Since public offers have hardly been made (see Question 5.1) it is notpossible to answer this.


The practice of break fees is absent in Bangladesh.



These mechanisms are not practiced in Bangladesh.


Any private take-over offer would usually be associated with thefollowing conditions:• obtaining of approvals from relevant regulatory authorities, where

applicable;• obtaining No Objection Certificates from the lending banks;• obtaining the latest tax clearance certificate;• rectifying any regulatory defects revealed during the due diligence

process, including renewal of licenses and approvals.


This is not a common phenomenon in Bangladesh. Since in acquisitiontransactions share transfer registrations are to be regulated by local law,it is usual to stipulate Bangladesh law as the governing law of the sharepurchase agreements.


BANGLADESH


There is no such practice of warranty and indemnity insurance inBangladesh.


In Bangladesh, both selling shares through the capital markets andtrading shares are very common in nature for closing the investmentin a company. However, the most common exit route is to sell sharesthrough the capital markets, as it creates the opportunity to remit thesale proceeds without observing the permission requirement of thecentral bank.Financial sponsors are entitled to acquire shares of a company if the

company has failed to perform its obligation in compliance with thefinancial documentations. However, in reality such power has not beenexercised yet.



As the economy is growing, it is likely that many companies will seekmergers to achieve inorganic growth by downsizing costs. Prospectivesectors for mergers are banks, financial institutions, pharmaceuticals,healthcare, real estate, textiles, cement, steel, power andtelecommunication. In the next 12 months, consolidation in thebanking sector by way of mergers is highly probable. It is expected thatglobalisation and the adaptation of strategic corporate cultures willmake the new generation of entrepreneurs open to strategic investmentsthrough M&A.Currently, the BSEC is working on a draft regulation for M&A. It

is hoped that the proposed regulation, when published, will fill in thelegislative vacuum and shall set objective standards against which aproposed M&A transaction can be evaluated. Furthermore, it isexpected that the regulation will alleviate many misconceptionssurrounding M&A in Bangladesh and bring transparency in theregulatory process so as to create an environment more conducive toM&A.




Overall, the China M&A market slowed down somewhat in the past12 months. We attribute this mainly to market issues and regulatorychanges, especially relating to outbound investment policies. That said,M&A in certain industries grew robustly, such as in artificialintelligence (AI), big data, healthcare and advanced manufacturing.


According to PwC’s M&A 2017 Review and 2018 Outlook, “2017China M&A value fell 11% to $ 671 billion off the record highs of2016”. The total deal volume in 2017 was 9,839 transactionscompared to 11,407 in 2016. Despite of the slowdown, 2017 still ranksas second highest in the past five years in terms of deal volume andvalue.


The Chinese market is driven by both private and public M&Atransactions. Indeed, it is not uncommon to see private and publicM&A transactions occurring in parallel. For example, some listingcompanies may involve M&A investment funds to acquire targetcompanies first, and then initiate an (major) asset restructuring toacquire the targets by issuing shares to the M&A investment funds.

ChinaCloud Li and Leo Wang, DaHui Lawyers

www.DaHuiLawyers.com

3 0 | I F LR .COM | M&A R E PORT 2018


Both strategic and financial investors significantly influence the M&Aenvironment. For example, the internet giants in the China market,Baidu, Alibaba and Tencent (collectively BAT) are dominant strategicinvestors in the China internet and technology industries. They alsohave significant influence over start-up companies and certain privateequity (PE) and venture capital (VC) investors. Likewise, some PE andVC investors go to great lengths to build market influence in selectinginvestment targets and leading investment trends in specific industries.



In August 2017, ELE, a leading food delivery company in whichAlibaba is a major shareholder, announced its acquisition of Baidu

Waimai. Upon closing, Baidu Waimai will become a wholly-ownedsubsidiary of ELE and will continue to operate as an independentbrand for high-end food delivery services. ELE will issue new shares toBaidu as partial payment of the total consideration. In the M&Amarket, BAT companies usually insist as a standard provision that anycompanies in which they invested are prohibited from selling toanother BAT company (among other significant competitors). Thisdeal, however, shows that such restrictions are not absolute and undercertain circumstances, Alibaba and Baidu may work together (at leastindirectly).


Notable factors include industry practice, market share of the target orthe acquirer (in the cases of strategic investors), founder background,regulatory environment, etc. Capital increase or share transfer or acombination of both are common deal structures.

A recent policy-driven trend in 2017 is that many PRC investorshave switched to pure offshore structures when conducting outboundinvestment to avoid the Chinese regulatory approvals.

CHINA

Leo WangCounsel, DaHui Lawyers

Shanghai, ChinaT: +86 21 5203 0688F: +86 21 5203 0699

E: [email protected] W: www.DaHuiLawyers.com

About the authorLeo Wang is a member of DaHui Lawyers’ M&A and corporateteams. He graduated from Peking University law school andGeorgetown University law centre. He has worked for manyyears with extensive experience in foreign direct investment,M&A, general corporate compliance and outbound investment.He assists clients in a variety of different industries, includingIT, entertainment, media telecoms, education, e-commerce andreal estate. His recent representations include a PRC listed company’s

acquisition of a controlling interest in a Korean-listed company.To date, this deal is one of the largest investments by a Chineseenterprise in a Korean television producer. He has advised on apublic M&A project on behalf of a PRC listed company topurchase two target companies in the video game andentertainment industries in China. He represented two leadingexhibition and event organisation companies in purchasingseveral internationally recognised show events in China.

Cloud Li Counsel, DaHui Lawyers

Shanghai, ChinaT: +86 21 5203 0688F: +86 21 5203 0699

E: [email protected]: www.DaHuiLawyers.com

About the authorCloud Li is a senior member of DaHui Lawyers’ M&A andprivate fund practices. He graduated from Fudan University lawschool and Transnational Law and Business University,Republic of Korea. He has extensive experience representingEuropean and North American multi-nationals, large state-owned and private Chinese companies and PE funds in fundformation, mergers and acquisitions, investments, disputeresolution and compliance matters. He assists clients in avariety of different industries, including internet, entertainment,media, health care, energy, transportation, infrastructure andreal estate.His recent representations include a few PRC listed

company acquisitions of target companies in and out of Chinain the media and transportation sectors using onshore andoffshore structures. He has also advised a number of leadingPE funds investing in energy, infrastructure and financialsectors.

M&A R E PORT 2018 | I F LR .COM | 3 1

CHINA



The key laws and regulations include the PRC Company Law, Sino-Foreign Joint Venture Law, the Sino-Foreign Cooperation Joint VentureLaw and Foreign Enterprise Law, and the implementation rules of suchlaws; outbound investment regulations; foreign exchange laws andregulations; company registration laws and implementation rules; PRCCorporate Tax Law and its implementation rules.

Key regulatory bodies include:• In general, the State Administration of Industry and Commerce

(SAIC) and the State Administration of Tax (SAT).• With respect to outbound investment, the National Development

and Reform Commission (NDRC), the Ministry of Commerce(MOFCOM), the State Administration of Foreign Exchange(SAFE).

• With respect to public M&A, the China Securities RegulatoryCommission (CSRC).

• The Anti-Trust Bureau of MOFCOM, which governs anti-trustissues of M&A transactions.

• For certain specific industries, such as the education, healthcare andmedia industries, the Ministry of Education, the China Food andDrug Administration and the State Administration of Press,Publication, Radio, Film and Television may also be the governingregulatory bodies for any M&A deals in the industry.

• The local branches of the above regulatory bodies.


On November 3 2017, the NDRC promulgated the AdministrativeMeasures on Enterprise Outbound Investment which has enter intoforce on March 1 2018 (Administrative Measures). The AdministrativeMeasures and accompanying rules such as the Catalogue of SensitiveIndustries for Outbound Investment and the template documents forthe Administrative Measures are expected to allow closer monitoringand heightened transparency for the NDRC with respect to outboundinvestments.


As the laws governing foreign investment were promulgated in the1980s immediately after the opening reforms by the PRC government,some articles are obsolete or even contradict other existing laws, suchas the Company Law. In this connection, there have been efforts toreplace the current foreign investment laws and promulgate new ones.In particular, MOFCOM led the preparation of a new ForeignInvestment Law, a draft of which was published for public commentsin 2015. However, the draft law was met with an intensive publicdiscussion, especially in the international business community and nosubsequent drafts of this law have appeared to date.

Nevertheless, given existing issues in the current foreign investment-




OUTBOUND INBOUND

19,581

30,464

20,8354,425

44,267

105


9,156349

$32,551m$149,314m

5,721

1,693

15,863

1,1791,445

1,253

4,152

1,221 24

20,132


CHINA

related laws, it is widely expected that the PRC government and theNational People’s Congress (NPC) will eventually adopt new laws toregulate foreign investment. However, as foreign investment plays asignificant role in China’s economic growth, any significant changes oflaws may have far reaching consequences.

Nevertheless, trial regulations have been underway in select areas,such as the Free Trade Zones. The PRC government and NPC are alsorolling out new foreign investment laws and regulations to easeadministrative burden on foreign investors to invest in China.



Inexperienced buyers tend to neglect the importance of governmentapprovals/filings in PRC M&A transactions in certain industries andconsider the processes to be mere formalities. In practice, somegovernment authorities even may substantially review transactiondocuments and raise concerns or requests which may affect the overalldeal structure. Potential investors are therefore advised to communicatewith relevant government authorities early and often to ensure thesmooth closing of M&A deals.


In M&A deals in which exiting shareholders receive all or a portion ofthe sale proceeds, parties tend to agree in principle of the tax obligationswithout consulting PRC tax authorities in advance. As a result, issuesoften arise when actual tax filings are made. Sometimes the sellingshareholders may even request the buyers to raise the purchase price inorder to cover “unexpected” tax obligations. It is generally advisable toconsult tax advisors early on the tax implications of the transactionsand ensure that selling shareholders are aware of such implications asearly as possible.


In the PRC, parties should pay special attention to the following: • specific industry regulations, which may include shareholder

qualifications, foreign investment restrictions and/or capitalthresholds;

• arrange for project financing as soon as possible once deal structureis determined. In particular, for a cross-border transaction, theparties may discuss financing solutions simultaneously with M&Aproject itself. Due to the outbound restrictions set by the PRCgovernment in late 2016, we have seen many outbound investmentsterminated/put on-hold due to funding issues;

• do not underestimate employment risks, as PRC employment lawis highly complex and local and could cause last minute issues;

• consult anti-monopoly specialists early in the transaction, who canassess whether filing will be needed in the PRC or any otherjurisdictions, as such filings could be time consuming and couldresult in substantial delays.



The key factors in obtaining control of a public company in Chinainclude: • the shareholding percentage of the listed company that the buyer

needs to acquire; • the buyer’s own track record in terms of legal compliance, securities

actions, debt; • the source of funds for the purchase of the intended shares; • compliance with relevant rules, e.g., the Administrative Rules on

Acquisition of Listed Company and relevant rules on disclosure (seebelow); and

• the buyer’s commitment to hold the purchased shares for theperiods as specified by listing rules.

0

10000

20000

30000

40000

50000

60000

70000

80000

PUBLICTARGET

PRIVATETARGET

PUBLICTARGET

PRIVATETARGET

$53,584m$5,561m $23,484m $73,516m


OUTBOUNDINBOUND


CHINA


Common conditions attached to a public takeover offer include: • the buyer’s track record in terms of legal compliance, securities

actions and debt status meeting the applicable legal requirements; • full compliance with the disclosure rules of the stock exchange, such

as public disclosure of further share purchases after a buyer holds5% or more of the shares in a listed company;

• the submission of a takeover offer proposal to the stock exchangeand the CSRC for approval;

• no objection is raised by the CSRC or the relevant stock exchange;and

• the sources of funds meeting applicable requirements.


Given the generally high purchase price involved in public M&A deals,we have seen more and more companies adopt break fee mechanismsto mitigate the risk of the deal falling apart. However, for cross-borderM&A deals, more detailed mechanisms are often included in thetransaction documents which specifically take in to account applicableforeign exchange rules.



Locked box mechanisms, completion accounts, earn-outs and escroware all common consideration payment mechanisms in the PRC. Insome deals, a combination of these may be adopted for various reasons.Strategic investors often focus on the overall growth of the targetcompany and therefore tend to favour earn-out mechanisms tomotivate founder shareholders/management.

Escrow-like arrangements are sometimes used in the PRC, but dueto local restrictions, these are more common in real estate deals andneed to be handled with a local notary (not a bank). As such, where anescrow arrangement is needed, parties tend to arrange for the purchaseprice to be paid at the offshore level.


The conditions attached to a private takeover offer usually include: • consideration amount, form (cash or equity/share), payment

schedule; • key closing conditions, such as obtaining necessary government

approvals (if applicable), completion of company registrationalteration;

• overall closing timeline; • tax obligation allocation; • break fees.


Subject to the Law of the Application of Law for Foreign-related CivilRelations, yes. However, in some cases PRC laws may mandate the useof PRC laws in certain key transaction documents. For instance, wherea purely domestic company is being purchased or invested in by aforeign buyer, the parties must choose PRC law as governing law.Therefore, parties should consult their advisors prior to determiningthe governing law for the transaction’s share purchase agreement.


Currently, it is not common for parties to purchase warranty andindemnity insurance on private M&A transactions in the PRC M&Amarket.


The IPO review process is comparatively lengthy in China which alsoinvolves uncertainties. It is common for a company to wait one to twoyears before it is able to officially submit its IPO application. Recentlythe market has also seen a large number of IPO applications rejected.The official review itself may also take one year or even longer, subjectto legal, financial or other issues raised by the IPO review board.

As a result, trade sales and sales to financial sponsors are morecommon. Those sales are usually dependent on the company’s status,e.g., market share, financial performance, overall growth prospects, etc.,and if selling to a financial investor, the buyers will in turn weigh theirexit possibilities.



We believe that the M&A will continue to grow in 2018. As PRCoutbound investment policies become clearer, we foresee outboundM&A picking up speed. Domestic PE/VC investment activities willremain strong, as the government continues to encourage innovationand entrepreneurship. Certain new technology industries, such as AI,cloud computing, life sciences, advanced manufacturing, etc., willcontinue to experience rapid growth. Publicly listed companies willalso continue to play a significant role in M&A deals.




The Egyptian economy is currently seeing major M&A activity mainlyfuelled by regional, international and local private equity and financialinstitutions. The general expectation is that such activity is likely toincrease during the second part of 2018 after the completion of theupcoming presidential election.The renewable energy sector and consumer focused sectors, such as

food and beverage, healthcare and education, have been the most activesectors during the last period.


In 2017, the Egyptian market aimed to recover from factors that haveseverely affected its conduct, such as the flotation of the Egyptianpound, which translated into clearer market outlooks, andconsequently, more M&A deals.Q4 2017 also saw a bit of a decrease in the rate of inflation. Though

a good sign for the people’s purchasing power, we shall wait and seehow this may affect the financial positions of companies and producersof different commodities, and how, in turn, this may impact M&Aactivity.Hence, we have seen a higher number of transactions in 2017,

especially in the renewable energy sector and consumer focused sectorssuch as food and beverage, healthcare and education, as mentionedabove. However, the value of these transaction is less than those of theprevious year because of the devaluation of the Egyptian pound.

EgyptOmar S Bassiouny and Sahar Badran, Matouk Bassiouny

www.matoukbassiouny.com


EGYPT


Private M&A transactions are more common in the Egyptian market.However, in the past few years, the Egyptian market has started towitness more IPOs, mainly for exit purposes.


This year we have seen a deal flow of 30% in favour of strategicinvestors and 70% for private equity firms. Hence, private equity firmsstill dominate the private M&A scene in the Egyptian market.



Matouk Bassiouny has acted on a number of notable M&Atransactions over the past few months, including the following:

Representing Amazon.com – along with the international counsel –in its acquisition of the Middle East-based e-market platform Souq.comfor $580 million. This is an addition to Matouk Bassiouny’s history ofbeing retained to act in transactions that are taking place worldwide.Representing Neptune Energy Group Holdings in its $3.9 billion

acquisition of Engie S&P. Matouk Bassiouny has also representedAlcazar Capital in the acquisition of two renewable energy SPVs.Moreover, the firm continues to represent clients in a number of

M&A transactions in the energy, oil & gas, pharmaceuticals, andFMCGs.


The most common factors that impact deal structures are restrictionson direct foreign ownership in relation to certain sectors, inter alia,higher education, importing vehicles and commercial agents. Suchrestrictions are usually overcome through restructuring and addingmultiple SPVs. Furthermore, financing can be a challenging factor foracquisitions. However, the constraints of securities and restrictionsadopted by financial institutions may prevent closing the deal.



M&A transactions are regulated in Egypt by diverse legislations. Keyrules pertaining to M&A can be found under the Egyptian Companies

Sahar Badran Of counsel, Matouk Bassiouny Dubai, United Arab Emirates

T: +971 566 010 440F: +202 2795 4221

E: [email protected]: www.matoukbassiouny.com

About the authorSahar Badran’s legal expertise includes providing legal adviceto multinational and national clients across a range of industriesincluding Emaar Properties KSA, Emirates IntegratedTelecommunications Company (du) and to various local andinternational listed companies and authorised persons on theUAE securities laws and regulations. Prior to joining the firm, Badran was with Linklaters Dubai.

Omar S BassiounyFounding partner & head of corporate/M&A, Matouk

BassiounyCairo, Egypt

T: +202 2796 2042F: +202 2795 4221

E: [email protected] W: www.matoukbassiouny.com

About the authorOmar S Bassiouny is the founding partner of MatoukBassiouny. He heads the firm’s corporate/M&A group, and isconsistently ranked in top tiers and bands by legal periodicalsin the areas of corporate law and mergers and acquisitions. Hehas considerable expertise in setting up joint-ventures and newprojects in Egypt, as well as ensuring compliance with locallaws and corporate governance. Bassiouny is also recognised for his negotiations skills and

business sense.


EGYPT

Law No. 159 of 1981 and its Executive Regulations, as amended, theCapital Market Law No. 95 of 1992 (Capital Markets Law) and itsExecutive Regulations, as amended and the Egyptian Exchange ListingRules, as amended. Concerned key regulatory authorities are:

• The Egyptian Exchange;• The Financial Regulatory Authority (FRA); and • The General Authority for Investment and Free Zones.Other sector specific authorities might be involved depending on

the relevant target’s activities.Acquisitions involving transfer of shares of joint stock companies

and quotas of limited liability companies are the most commonacquisition structures in Egypt.


Over the last year, some legislation has been amended, including theInvestment Guarantees and Investment Law by virtue of law No. 72of 2017. The Egyptian Companies’ Law No. 159 of 1981 and itsexecutive regulations were subject to few amendments that includedthe introduction of sole shareholder companies and more regulationsin connection with preferential shares. The Capital Markets Law has recently been amended by virtue of

Law No. 17 of 2018 and the most distinct amendments are theintroduction of new provisions concerning issuance of bonds,debentures and futures exchange. The Executive Regulations to the

Capital Markets Law was subject to amendment. It is worth notingthat investment fund provisions were significantly amended as well asadding chapter 14 to the executive regulation concerning financialauditors.


In February 2018, the law for restructuring and bankruptcy was issued.The new Bankruptcy Law introduces a new approach to dealing withpersons and entities that are facing financial or administrative trouble.For instance, the Law introduces, for the first time in Egypt, theconcept of mediation and restructuring, giving both debtors andcreditors a higher degree of flexibility in dealing with debts. The Lawstates that its executive regulations and other related implementingdecrees are to be issued within three months from the date of its comingto effect (determined as thirty days following the Laws publication);i.e. prior to June 21 2018.It is also worth noting that the mandatory tender offer chapter of

the Executive Regulations to the Capital Market Law is underdiscussion and the market is anticipating the issuance of saidamendment soon, following the publication of the Law No. 17 of 2018amendment to the Capital Markets Law.




OUTBOUND INBOUND

167

69


238

30

INBOUND

$236m $268m


EGYPT



Determination of governing law in shareholders’ agreements and sharepurchase agreements and its relation with the applicable law on thetarget. Many clients think that in cases where English law is thegoverning law for the documents, parties may agree on some provisionswhich are contrary to the mandatory provisions of the Egyptian law(e.g. in connection with convention of general assemblies and Boardmeetings); but this is not permissible in Egypt). In due diligence exercises, sellers do not prepare all required

documents and the data rooms usually lack organisation. Some sellersrequire that the lawyers review the documents physically at the targetfor confidentiality reasons, which causes delays in finalising the duediligence exercise and closing the transaction. Further, in few cases, sellers tend to provide misleading information

or abstain from disclosing specific information during the diligenceprocess and disclose all accurate information in the disclosure letterimmediately before executing the transaction documents. It is alsocommon that, while negotiating the deal and before the due diligencephase, the parties do not conclude the key terms of the said deal in aletter of intent.


Sellers may overlook designating a financial advisor, which may give riseto commercial disputes. Furthermore, non-strategic buyers may omit toappoint a technical advisor during the diligence process. Also, in the eventthe potential buyer is a foreign entity, its main concern would usually berelated to the market’s stability and growth, the payment mechanism ofthe purchase price and, more importantly, the repatriation of funds postacquisition in relation to dividends distributions.


It is highly recommended to conduct a proper legal due diligence overthe target. More importantly is to conduct a tax, commercial andtechnical diligence to avoid last-minute findings that may hinder goingfurther with the envisaged deal. Selection of a tax advisor is crucial asthe Tax Authority’s practice may vary from time to time.



The acquisition of at least one-third of the share capital of companieslisted on the EGX or companies that are unlisted but offer their sharesto the public, triggers a mandatory takeover offer (MTO). Pursuant tothe Capital Market Law, any entity that acquired or wishes to acquire,whether individually or through related parties, one-third or more ofthe issued share capital or voting rights of a target company shall notifythe FRA and undertake an MTO to purchase 100% of the targetcompany’s shares addressed to all shareholders of the respectivecompany. In case the offeror the entity launching the MTO has alreadyacquired the stake, the MTO should be launched within 30 days ofthe date of acquisition. Pursuant to the Capital Market Law, if an entity acquired, whether

individually or through related parties, 90% or more of the issued sharecapital or voting rights, other shareholders who have at least 3% of theshare capital may request from the FRA within the next 12 months tothe acquisition to notify the majority to submit an MTO to buy theminority shares.


Pursuant to the Capital Market Law, the MTO should not beunconditional. However, subject to the FRA’s approval, the MTO maybe exceptionally conditional on the acquisition of at least 51%, toensure control, or 75%, in case of acquisition with ultimate purposeof merger of the target company’s shares. In such case, if the MTO doesnot result in the acquisition of at least 51% or 75% (as the case maybe) of the target company’s shares, the offeror may elect to notperfecting the purchase of the offered shares, without the need toobtaining the FRA’s prior approval.

0

50

100

150

200

250

PUBLICTARGET

PRIVATETARGET

PUBLICTARGET

PRIVATETARGET

$0m$238m $0m $69m


OUTBOUNDINBOUND


EGYPT


The offeror cannot revoke or amend the terms of the MTO draft asapproved by the FRA during its effective term. However, pursuant tothe Capital Market Law, the offeror may withdraw the MTO draft onlyif a fundamental harmful incident occurs after publishing the MTOdraft, which adversely affects the target company, its activities or thevalue of its shares, provided the FRA approves the withdrawal or theamendment of the terms of the MTO. No break fees should beinvolved in case of withdrawal pursuant to the terms of the CapitalMarket Law.However, in private M&A transactions, break fees are commonly

mutually agreed between the parties as a percentage of the purchaseprice, which is usually covered in the transaction documents. Though,under Egyptian law, there is room to claim reduction in the case ofexcessive break fees. Based on the principle of Egyptian Civil Codepacta sunt servanda, break fees are applicable when and if there hasbeen a contractual arrangement to that end.



The most commonly used pricing adjustment mechanism is thecompletion account, which is used on the basis of the estimatedaccounts provided usually by the seller. Locked box mechanisms arealso used but not as commonly as completion accounts, due to leakageindemnity claims. However, there has been a tendency to deductleakage from deferred payments instead of resorting to an indemnityclaim. The foregoing has recently helped in growing an appetite forlocked box mechanisms. Nevertheless, some parties still prefer thecompletion accounts mechanism as it covers any deviation from agreedupon figures (for example net debt, net cash or normalised workingcapital), as opposed to locked box which protects the buyer only fromleakage, which basically encompasses money withdrawn by the selleror its related parties. Though resisted by sellers, deferred componentsare commonly used in relation to the adjustment mechanisms so thatthe purchase price is adjusted through deduction from said deferredcomponent. Such deferred component is usually deposited at an escrowaccount to give the seller certainty and avoid any trust issues. However,earn-outs are not commonly used.


It is customary that each transaction includes a certain number ofconditions that govern the sale of a private entity and once satisfied thedeal is deemed closed. Such conditions depend on the share/assetsubject to the said sale. Typically, conditions may include priorgovernmental approvals, payment of certain debts and non-competition restrictions, among others. This being said, there is noconstant practice in this regard.


Yes, it is common to provide for a foreign governing law in privateM&A share purchase agreements. However, the share purchaseagreements shall not include any provision that is not in compliancewith the mandatory laws applicable on the target to ensure smoothapplication of the share purchase agreements. Consequently, the overwhelming majority of M&A share purchase

agreements refer any disputes arising thereof to arbitration, which is amuch faster and efficient process than normal courts despite beingmore expensive.


Insurance companies in Egypt do not provide their services overwarranties or indemnities, so the parties insisting on having insurancein relation to warranty and indemnity coverage would resort to offshoreinsurers, which is not a common trend.


Since private equity firms are still dominant in the Egyptian M&Ascene, we usually provide for a broad exit provisions that includeoptions for exit by sale of shares or initiating IPOs. As mentioned, weare seeing more IPOs in the last few years that means that investors arecomfortable now to use this way for exit.



We predict that 2018 will be one of the best years in terms of M&Atransactions in Egypt. We can see that a lot of transactions are on theway for the following reasons:• The stabilisation of the Egyptian pound; • The issuance of new laws with the aim of supporting investment inEgypt; and

• The Egyptian demographic, with a population of is over 100million, which makes the market more interesting for new investors. Further, the Egyptian government is growing in willingness and with

blatant attempts to attract international and local investments thatcontribute to increasing employment opportunities and economicgrowth.




Hong Kong experienced a healthy increase in M&A activities in 2017compared to the previous 12 months. The increased deal flow was drivenpartly by mainland firms and private equity investors buying into HongKong listed companies. The most active sectors have been real estate,financial services and energy/infrastructure, although there has also beensignificant interest in the consumer and telecom/technology sectors.


Hong Kong saw an uptick in both M&A deal volume and deal valuein 2017. We have noticed heightened interest in large cap public M&Atransactions with a value of over $1 billion. Both regional and globalprivate equity investors were particularly active and participated insome of the most notable deals in 2017 (as described below).


The market in Hong Kong is driven by both private and public M&Atransactions. However, given the nature of the market, where a largenumber of businesses are or become listed, M&A activities tend toinvolve listed companies. In previous years, take-private transactionswere relatively rare, but it is becoming increasingly common to seeboth conglomerates and private equity-backed consortiums involvedin such transactions.

Hong KongGabriele Antonazzo, Raymond Lam and Grace Yuen,

Cleary Gottlieb Steen & Hamilton

www.clearygottlieb.com



Both strategic and financial investors are active in the Hong KongM&A market. Traditionally, strategic buyers have been more dominantin buyout transactions, whereas financial investors have been moreinvolved in minority investments. However, in recent years, against abackdrop of record levels of dry powder available to Asia-focused fundmanagers, we have seen an increasing number of financial investorsacquiring control of both public and private companies andparticipating in large privatisation transactions.



Notable M&A transactions include: the sale by McDonald’sCorporation of a majority stake in its Greater China business to aconsortium comprising CITIC Limited, CITIC Capital Holdings andThe Carlyle Group, which was undertaken by way of a verycompetitive auction process; the take-private of Belle InternationalHoldings by a consortium led by Hillhouse Capital and CDHInvestments, which was one of the largest privatisations of a Hang SengIndex constituent stock; and the takeover of Yingde Gases GroupCompany by PAG Asia, which was a rare example of a contested

takeover of a Hong Kong listed company and was implementedthrough a general offer and privatisation by way of compulsoryacquisition. These transactions illustrate the continued appetite forlarge acquisitions, the increased activities of private equity investors,and the growing willingness of strategic and financial buyers to formpartnerships to pursue complex transactions.


We have noticed three main trends/factors: the increasing use ofleverage in public and private M&A transactions, including theresurgence of mezzanine financing; the readiness of private equityinvestors to club together with other private equity investors or strategicplayers to undertake consortium deals; and the growing appetite offund investors to have direct exposure to investments through co-investment arrangements.



The key regulations that may be applicable to M&A transactionsare:• The Code on Takeovers and Mergers (the Takeovers Code), whichis administered by the Securities and Futures Commission of HongKong (SFC) and governs the takeover of public companies andcompanies with primary listing in Hong Kong.

• The Rules Governing the Listing of Securities on The Stock

HONG KONG

Gabriele Antonazzo Partner, Cleary Gottlieb Steen & Hamilton

Hong Kong T: + 852 2532 3701F: + 852 2845 9026


About the authorGabriele Antonazzo is a partner based in the Hong Kong officeof Cleary Gottlieb. Antonazzo’s practice focuses on mergersand acquisitions, joint-ventures, private equity transactions andearly stage investments, with an emphasis on pan-Asiatransactions. He has extensive experience representing privateequity funds and corporates in a broad range of M&Atransactions in various sectors, often involving complexmultijurisdictional issues.

Raymond Lam Counsel, Cleary Gottlieb Steen & Hamilton

Hong Kong T: + 852 2532 3766F: + 852 2845 9026E: [email protected]


About the authorRaymond Lam is a counsel based in the Hong Kong office ofCleary Gottlieb. Lam’s practice focuses on public and privatemergers and acquisitions, private equity, joint-ventures,corporate restructurings and IPOs on the Hong Kong StockExchange.


HONG KONG

Exchange of Hong Kong Limited (HKSE), which are administeredby the HKSE and are relevant when one of the parties to atransaction is, or is proposed to be, listed on the HKSE.

• The Companies Ordinance, which regulates general corporatematters in respect of Hong Kong companies, including compulsoryacquisitions.

• The Securities and Futures Ordinance, which contains, amongother things, provisions on insider dealing and disclosurerequirements in respect of listed companies.

• Sector-specific regulations, which govern investments in certainregulated industries (e.g., banking, insurance and communications).


There have been no major changes in 2017.


In a consultation paper dated January 19 2018, the SFC proposed toamend the Takeovers Code to raise the voting approval threshold forwhitewash waivers from a simple majority of independent shareholdervotes to 75%. If this proposal is adopted, it will be more challengingto implement whitewash transactions (i.e., the issue of securities

resulting in the subscriber and the parties acting in concert with itholding 30% or more of the voting rights of a listed company withouttriggering a mandatory offer). The consultation period will end onApril 19 2018. In addition, the HKSE has announced its intention to allow the

listing of (i) biotech issuers with no revenue or profit track record, and(ii) “innovative” and high growth issuers with weighted voting rightstructures, subject to additional disclosures and safeguards. Thesechanges, which are subject to consultation but are expected to becomeeffective in the second half of 2018, are likely to result in a strong IPOpipeline with a corresponding increase in pre-IPO investments.



In many jurisdictions, M&A transactions may be structured as mergersor amalgamations through a combination of two entities into one singleentity. A court-free statutory amalgamation procedure is available inHong Kong, but only in respect of the amalgamation of wholly-ownedHong Kong incorporated companies within the same group. As aresult, M&A transactions involving Hong Kong companies or assetsare implemented by way of share acquisitions or asset acquisitionsrather than through mergers or amalgamations.




OUTBOUND INBOUND


$22,551m$40,448m

3973,148

4,942

1,737

376

10,002

153 1,687

109

4,039

2,332

13,118

13,953

202

5,463

305

536

500


HONG KONG


We are often asked to advise on the utilization of warranty andindemnity insurance (W&I insurance) in the context of private M&Atransactions. This tool is increasingly used for bridging liability gapsbetween the transaction parties and can be structured as a sell-sidepolicy (to allow the seller to achieve a clean break) or a buy-side policy(to allow the buyer to be more competitive in an auction and/or getsufficient recourse). Often, the main factors for determining whetherW&I insurance is appropriate for a particular transaction are premiumsand coverage/exclusions.


Early engagement with advisors, careful transaction planning andunderstanding of the Hong Kong market are key. Particularly in apublic M&A context, where it would be necessary to navigate throughthe Hong Kong regulatory framework, it is advisable to instructexperienced advisors to engage with regulators throughout the processto avoid delays in the deal timetable and ensure a smooth transaction.



In Hong Kong, listed companies are often controlled by families orone or more shareholders holding 30% or more of the voting shares.As a result, hostile offers are very rare, and acquisitions are normallyconducted on a friendly basis. Any person acquiring 30% or more ofthe voting shares is also required to make a mandatory offer for all ofthe target’s outstanding shares. Takeovers are usually implemented by way of a general offer or a

scheme of arrangement. A general offer is an offer for all of theoutstanding shares of the target. If the target is a Hong Kong companyand the offer is accepted in respect of at least 90% of the shares towhich the offer relates, the offeror has the right to compulsorily acquirethe remaining shares. A scheme is a court-approved process based onan “all or nothing” approach – if successfully implemented, the offeroracquires 100% of the target. A scheme relating to a company listed onthe HKSE must be approved by at least 75% of the votes ofdisinterested shareholders, with no more than 10% of the votes of thedisinterested shareholders against the proposed scheme. Additionalrequirements may apply depending on the law of the place ofincorporation of the target. Other possible transaction structures include whitewash transactions

and, less commonly, partial offers. Both of these structures requireapproval of the SFC and a majority of the independent shareholdervotes. They are particularly useful where the offeror intends to acquirecontrol while maintaining the listing status of the target.

Grace Yuen Associate, Cleary Gottlieb Steen & Hamilton

Hong Kong T: + 852 2532 3718F: + 852 2845 9026E: [email protected]


About the authorGrace Yuen is an associate based in the Hong Kong office ofCleary Gottlieb. Yuen’s practice focuses on mergers andacquisitions and corporate finance, particularly pan-Asia privateequity transactions. Yuen regularly advises Asian andinternational clients on a broad range of domestic and cross-border M&A, joint-venture, growth capital and private equityinvestments.

0

5000

10000

15000

20000

25000

30000

PUBLICTARGET

PRIVATETARGET

PUBLICTARGET

PRIVATETARGET

$6,917m$15,685m $6,298m $27,002m


OUTBOUNDINBOUND


HONG KONG


Except with the consent of the SFC, all offers (except for partial offers)must be conditional upon the offeror receiving acceptances in respectof shares which, together with shares acquired or agreed to be acquiredbefore or during the offer, will result in the offeror (and persons actingin concert) holding more than 50% of the voting rights of the target.This is the only condition permitted in a mandatory offer. A voluntaryoffer may be conditional on a higher acceptance threshold, as well asother conditions so long as they do not depend on the offeror’sjudgment and are not within the offeror’s control. All conditions must be satisfied within the time limits imposed by

the Takeovers Code. If there is limited visibility as to the timingrequired to satisfy certain conditions (e.g., anti-trust approvals), theofferor may – after consultation with the SFC – structure thetransaction as a pre-conditional offer, whereby the offer is only madeonce such conditions are satisfied.


Break fees in public M&A transactions are uncommon. The TakeoversCode provides that break fees payable by the offeree should be deminimis (normally no more than 1% of the deal value) and theofferee’s board of directors and financial adviser must confirm to theSFC that the break fee is in the best interest of the shareholders. Reversebreak fees are not subject to these limitations.



The completion accounts mechanism is still the most common pricingmodel, particularly in transactions involving a carve-out element.However, we have noticed an increasing use of the locked boxmechanism, which reflects the seller friendly nature of the M&Amarket. Earn-out structures are relatively uncommon, including in thecontext of venture capital and growth investments, given theuncertainties such structures create for the parties involved. Escrowarrangements and signing deposits are sometimes featured, usually tosecure the payment of a reverse break fee where the buyer is an onshoreChinese entity.


Closing conditions vary depending on the circumstances of eachtransaction. However, in Hong Kong, there is a general movementtowards the US approach to conditionality, which means that we areseeing conditions beyond regulatory approvals. Prospective buyers maybe able to negotiate more extensive and bespoke closing conditions,including no material breach of the seller’s representations and

warranties and/or pre-closing covenants and no material adversechange.


Purchase agreements relating to Hong Kong targets are typicallygoverned by Hong Kong law. However, where one of the parties to thetransaction is foreign, it would not be uncommon to see the purchaseagreement governed by the laws of New York, England or anothercommon law jurisdiction depending on the home jurisdiction orpreference of such party. Increasingly, private equity and other investorsare designating Hong Kong or, occasionally, Singapore arbitration(rather than Hong Kong courts) as the preferred form of disputeresolution.


Parties are increasingly considering the use of W&I insurance in privateM&A transactions, particularly in competitive auctions or privateequity deals. Some of the most notable deals completed in 2017involved the use of buy-side W&I insurance. Hong Kong is generallyviewed as a low risk jurisdiction, which means that insuranceunderwriters are typically able to offer competitive terms (e.g.,premiums are typically 1% to 1.5% of the insured amount).


IPOs and subsequent block trades remain the preferred exit options inthe Hong Kong M&A market, while trade sales and sales to financialsponsors are less common.



As noted above, with the greenlight for listing of pre-revenuecompanies and dual-class share structures and the Hang Seng Indexreaching its all-time high in January 2018, we expect a strong IPOpipeline in 2018 and consequently robust pre-IPO investmentactivities. We also expect that M&A activity will remain strong in 2018and private equity investors, particularly those who completedsuccessful mega fundraises in the last year, will continue to seek largeinvestment opportunities.




India continues to see reasonably high volumes of M&A activity, bothdomestic and cross-border, driven by a relatively stable economy, theliberalisation of government policies and a continued interest fromboth strategic and financial investors. The telecom industry has seenthe largest deals, accounting for 37.30% of all deal activity, followedby the technology sector (17.55%), financial services (12.61%) andenergy, mining and utilities (9.7%).

The main themes which were drivers for M&A activity in 2017were: substantial domestic M&A activity; the prominence of strategicacquirers over financial investors; trend towards “control deals” byfinancial investors; and deals prompted by the distress of the seller orthe target.


2017 saw a higher volume of deals (614 deals worth $77.6 billion),compared to 2016 (421 deals valued at $59.7 billion).


Private deals represent the majority of M&A activity in India.Historically, public M&A has seen higher levels as compared to 2017.That said, the public markets did see some large stock deals in 2017,whereas in the past, cash deals predominated. 2018 is likely to see more

IndiaHarsh Pais and Clarence Anthony, Trilegal

www.trilegal.com


INDIA

public M&A than 2017 and the trend of bulge-bracket private equitysponsors to focus on buyouts is likely to gather momentum.


Recently, strategic acquirers have had the upper hand in acquiringcontrol of large assets, primarily because of their willingness to ascribehigher valuations, justified by synergies and their ability to toleratelonger gestation periods. However, some of these acquirers arethemselves backed by private equity, and private equity players havebeen active sellers in exits over the course of recent years, including2017. Private equity acquirers predominate in non-control deals, andin certain industries like real-estate or infrastructure.



The merger of Idea Cellular and Vodafone (expected to close mid-2018), valued at $23 billion, is set to create India’s largest mobiletelecom operator.


The most significant factors have been a revamped insolvency law andnew loan restructuring guidelines forcing sales by distressed groups;consolidation in the telecom industry; and a shakeout in the e-commerce and online payments industries.



Key legislation and regulatory bodies can be classified as follows:(i) Companies Act, 2013

Administered by the Ministry of Corporate Affairs, theCompanies Act is the primary legislation governing both privateand public companies in India. All corporate mergers areimplemented under the provisions of the Companies Act.

(ii) Securities Regulations The Securities and Exchange Board of India (Sebi) is the securitiesmarkets regulator. Sebi (Substantial Acquisition of Shares andTakeovers) Regulations, 2011, govern M&A transactions thatinvolve the acquisition of a substantial stake of a publicly listedcompany. In parallel, Sebi (Delisting of Equity Shares)Regulations, 2009, govern take-private transactions and Sebi

Harsh PaisPartner, Trilegal

Mumbai and New Delhi, IndiaT + 91 22 4079 1062, + 91 11 4259 9290

E: [email protected] W: www.trilegal.com

About the authorHarsh Pais is a partner in Trilegal with a focus on M&A. In thecourse of his practice, Pais advises corporations andinstitutions extensively on cross-border acquisitions (involvingpublic and private targets) and joint-ventures. He also adviseson transactions in regulated sectors such as telecom andfinancial services.In addition, Pais provides strategic counsel to clients on

matters involving change of control transactions, corporategovernance, securities laws, troubled joint ventures and crisismanagement.Pais has been ranked as a leading lawyer for M&A and private

equity in India by Chambers and Partners, IFLR1000 and RSG.He has past experience at a major international law firm in NewYork and is additionally qualified in the UK and New York.

Clarence AnthonyCounsel, TrilegalNew Delhi, India

T: + 91 11 4163 9393E: [email protected]

W: www.trilegal.com

About the authorClarence Anthony is counsel, Trilegal with a focus on privateequity, mergers and acquisitions and funds. He has extensiveexperience on transactions in regulated sectors, such asinsurance, financial services and real estate. His clients include some of the largest private equity funds

and multinational corporations in India.Anthony is an alumnus of Government Law College, Mumbai

and is a solicitor registered with the Bombay Incorporated LawSociety. Anthony is also qualified to practice in England andWales.


INDIA

(Listing Obligations and Disclosure Requirements) Regulations,2015, regulate Pipes (private investment in public equity) andstock-for-stock mergers.

(iii) Foreign Exchange Management Act, 1999 (Fema) Administered by the Reserve Bank of India (RBI), Fema and theregulations issued by the RBI thereunder regulate all capitalinflows and outflows.

(iv) FDI PolicyIndia’s FDI (foreign direct investment) Policy issued by theCentral Government contains the framework for regulatingforeign investment into India, including sector-specificrestrictions/prohibitions.

(v) Competition Act, 2002Transactions above prescribed thresholds require approval of theanti-trust regulator, the Competition Commission of India (CCI).

(vi) Income Tax Act, 1961Administered by the Income Tax Department, the Income TaxAct along with double tax avoidance treaties entered into by theGovernment of India (if applicable in a given case) govern the taxtreatment of M&A transactions.

(vii) Insolvency and Bankruptcy Code, 2016Administered by the National Company Law Tribunals withrespect to auction sales under a scheme of restructuring.


Recent legislative changes include the following:(i) Companies (Amendment) Act, 2017

The Companies Act, 2013 was a significant piece of legislation asit overhauled the erstwhile Companies Act, 1956. The 2013 Acthas since undergone amendments in 2015 and 2017. The 2017amendment has introduced several changes to the framework ofthe Act – the amendments are being brought into force in aphased manner.

(ii) FemaThe principal regulations governing foreign investment are theForeign Exchange Management (Transfer or Issue of Security bya Person Resident Outside India) Regulations, 2017, which havereplaced an earlier set of regulations. There have been a numberof amendments to these regulations in 2017, which havesimplified and liberalised the regime for foreign investment inIndia.

(iii) Insolvency and Bankruptcy Code, 2016 (IBC) and RestructuringGuidelines of the Reserve Bank of India Implementation of the recently enacted bankruptcy code hasbecome a significant driver for M&A in India, primarily throughauction sale of businesses in bankruptcy, but also, by forcingowners of distressed businesses to aggressively pursue a sale.Simultaneously, loan restructuring guidelines of the RBI have beenoverhauled to encourage lenders of distressed companies to forcea change of control.




OUTBOUND INBOUND

21029

25

644

1,438

231


148 17

$2,764m $17,920m

745

1,984

2,183

660

73

1,482

10,508

273

12

22


INDIA

(iv) Competition Act, 2002 The Central Government has exempted acquisitions involvingtargets with assets of less than $53 million or revenues of less than$153 million from merger control requirements, effectively raisingthe de minimis threshold. This has made smaller acquisitions, aswell as acquisitions of growth-stage technology companies, easierand quicker to complete.

(v) Sebi (Substantial Acquisition of Shares and Takeovers)Regulations, 2011 (Takeover Code)A number of amendments to the Takeover Code were made in2015, 2016 and 2017, with the aim of making it easier andquicker to implement transactions involving the acquisition of asubstantial stake in a publicly listed company, especially in casesof distress.


(i) Imposition of long term capital gains tax:Recent amendments to tax laws have imposed income tax on long-term capital gains on the sale of listed equity shares (previouslymost transfers of listed shares were exempted from capital gainstax). However, notional gains earned on such shares till January31 2018 are exempt irrespective of when they are realized.

(ii) The Union Budget for 2017-18 also proposes to tax all M&Atransactions in which a company with higher accumulated profitsmerges with a company with lower profits to avoid paying

dividend distribution tax. In such cases, dividend calculationwould now include the accumulated profits of the amalgamatingcompany on the date of amalgamation.

(iii) Amendments to the stamp duty regimeVarying rates of stamp duty across Indian states have historicallymade certain states unattractive for M&A activity, particularlyasset sales and mergers. The Ministry of Finance is proposing tobring uniformity in stamp duty in all Indian states, which couldboost M&A activity.



There is a common belief that sale of an overseas holding company isthe better way to effect sale of an Indian company. This may not holdgood in cases where the Indian company represents the primary assetthat is sought to be sold, and particularly if there are there are thirdparty investors at the India level. There is also a strong rationale,pursuant to recent changes to the Mauritius and Singapore tax treaties,for private equity investors to exit their investments in portfoliocompanies directly at the India level.

Similarly, there is a belief that the use of Indian law governedtransaction documents increases the risk of exposure to delays in theIndian legal system. The Indian government has made improvementsto the Indian court system and is actively encouraging arbitration(including through recent amendments to Indian arbitration law) toaddress this concern. This belief does not hold true in cross bordertransactions, which provide for international arbitration seated inlitigation friendly jurisdiction such as London or Singapore.


India has exchange control laws, which regulate how shares of an Indiancompany may be transferred – this represents the biggest area of Indianlaw which gives rise to such questions. Indian antitrust, tax andsecurities laws also provide for long-arm jurisdiction with respect tocertain overseas deals, which involve indirect sale of an Indian business.

Specifically with respect to publicly listed companies, the TakeoverCode provides for a mandatory public tender in connection with anydirect or indirect acquisition of a substantial stake (25%) or control ofa publicly listed company. Delisting regulations pose additionalchallenges in taking a company private.


Legal and tax advice should be sought early on in the process, beforeany heads of terms are agreed.

0

3000

6000

9000

12000

15000

PUBLICTARGET

PRIVATETARGET

PUBLICTARGET

PRIVATETARGET

$954m$4,012m $12,977m $1,591m


OUTBOUNDINBOUND


INDIA



Under the Takeover Code, a person who enters into an agreement toacquire substantial stake (25%) or control of a publicly listed companyis required to make a public tender offer to acquire at least an additional26% of the target company’s shares (from public / institutionalshareholders). At the same time, the acquirer must maintain a publicfloat of at least 25%, unless the company is delisted as part of thetransaction. Delisting a public company is particularly challenging inIndia as the acquirer must do so through a delisting offer, whichinvolves a minimum acceptance level of 90% and a reverse book-building process to determine the offer price, which often results in asignificant premium.


Mandatory regulatory approval, such as merger control approval fromthe Competition Commission.

Except for such regulatory approvals, there is limited scope to imposeadditional conditions in a public tender offer. If the underlyingtransaction is terminated because an essential condition, over whichthe acquirer has no control, is not satisfied, the acquirer is permittedto withdraw the tender offer.


Break fees are not common, nor are go-shop provisions.



Completion accounts are more common than locked boxarrangements. However, locked box mechanisms are gaining popularity.

Earn-outs are quite common (in the range of 10% to 30%), thoughit is worth keeping in mind that there are some regulatory limitations,which apply to earnouts in cross border transaction.

Over the last few years, escrows have become quite standard, intransactions involving both – business owners and private equity sellers.However, the escrow amount tends to be modest (5% to 10%).


There is no practice of private takeover offers in India, except intransactions involving the exercise of tag-along or drag-along rightswith respect to sale by a majority shareholder; or the sale of pledgedshares by lenders. The main reason for this is that the board of directorsof a private company must approve a sale of shares.


It is not common for M&A transactions to be governed by foreign law.However, agreements for cross-border transactions often provide forinternational arbitration seated in Singapore or London.


Warranty and indemnity insurance is not common in India, althoughit is a growing trend, especially in private equity transactions.


2017 was a record-year for IPOs, driven by a buoyant market and richvaluations compared to trade sales. To an extent, this reduced thevolume of trade sales by financial sponsors in 2017 (although it was arelatively healthy year from that perspective as well). 2017 saw furtherdevelopment of the trend for larger financial sponsors to focus on buy-outs as against acquiring minority positions.



M&A volumes are likely to grow in the next 12 months, especiallytransactions involving public companies, infrastructure assets and thesale of distressed or insolvent companies as part of a restructuring.




In terms of volume of deals, fintech has been the most active sectorover the past 12 months, particularly the peer-to-peer lending business.This is due to issuance by the Financial Services Authority (or alsoknown as the OJK) of peer-to-peer lending business regulation in 2016and 2017. Public news shows more than 35 registration licences peerlending business issued up to 2018.

In terms of value of the deals, M&A on industry and energy sectorsstill lead most of the transactions.


M&A deal volume has increased significantly in 2017 compared to theprevious year within the same first semester, reaching up to 2.6%growth or $3.6 billion to $4 billion in value. Out of 81 merger deals,32% came in the technology sector followed by 17% in agriculture.


Private M&A transactions still dominate the market (see also publicdata from the Indonesian Business Competition SupervisoryCommission or KPPU). The most sensible reasons are the complexregulatory framework and procedures for public M&A, which oftenlead to lengthier period and more costly transactions.

IndonesiaLuky Walalangi, Miriam Andreta and Fiesta Victoria, Walalangi & Partners

www.wplaws.com



The Indonesian M&A market is still relatively driven by strategicinvestors, as shown by more private company shares acquisition dealsuntil last year rather than portfolio investments through publiccompany.



The proposed acquisition of PT Bank Sahabat Sampoerna and KoperasiSahabat Sampoerna of an aggregate IDR7 trillion ($550 million) loanportfolio of 80,000 small scale – medium scale loan accounts from anotherlicensed Indonesian bank. The deal is unique as it involves complexstructuring and sophisticated multi-layered financing/fundraising

structures, and a subsequent plan to service the acquired portfolio loans.If it goes through, the deal will represent a breakthrough acquisition of aloan portfolio from a bank by Koperasi (cooperative).


Sudden change of government policies and regulations are the mostcrucial influences to M&A deals, as these would have direct impact tofinancing strategies and how a deal is structured.



Indonesia has a quite unique and complex regulatory system, as wellas government monitoring system. There are many layers of regulationsdepending on the type of business, nature of investment, status ofcompanies (private or public company), as well as areas (central or

INDONESIA

Luky WalalangiFounder and managing partner, Walalangi & Partners

Jakarta, IndonesiaT: +62 21 5080 8600F: +62 21 5080 8601

E: [email protected]: www.wplaws.com

About the authorLuky Walalangi is an expert and a leading lawyer in M&A,banking and finance and real estate, with more than 17 years ofexperience. Asialaw Profiles cites him “one of the bestcorporate lawyers in Indonesia”. He is well-respected andhighly-regarded among leading M&A and finance practitioners,including by the top legal surveys, and continues to berecognised by international law journals such as IFLR1000,Asia Pacific Legal 500 and Asialaw.Walalangi has been assisting various foreign companies in

their complex investments and acquisitions (including assetsand portfolio loans acquisitions), real property projects andcorporate restructurings in Indonesia. He has also representedleading global banking and financial groups on major financetransactions, bond issuance, sophisticated fund-raisingprojects as well as number of major electricity projects inIndonesia.Walalangi advises on major strategic acquisitions in

Indonesia in various sectors, from traditional companyacquisitions to complex assets and portfolio loans acquisitions.

Miriam AndretaPartner, Walalangi & Partners

Jakarta, IndonesiaT: +62 21 5080 8600F: +62 21 5080 8601

E: [email protected]: www.wplaws.com

About the authorMiriam Andreta is an Indonesian qualified lawyer, expert andhas extensive knowledge in M&A, banking and finance, oil andgas and antitrust matters. Before joining W&P, she was a partner in one of the biggest

firms in Jakarta, with 13 years of experience acting for bothforeign and domestic lenders in high profile syndicationfinancing to Indonesian companies (including issuance ofbonds and medium-term notes). She also represents reputableforeign investment companies in upstream and downstream oiland gas projects, multinational companies (including variousJapanese companies) in their investment Indonesia, as well asIndonesian state-owned companies on various legal matters.On Antitrust matters, she has been advising clients both localand foreign companies on various antitrust issues relating totheir business, as well as assisting their merger notificationprocess.


INDONESIA

regional). The government supervising authorities are also divideddepending on the business characteristic. For example, foreigninvestment in Indonesia is subject to the regime of InvestingCoordinating Board or also known as BKPM, while specific types ofbusinesses, particularly banking and non-bank financial institutionsectors as well as public companies, fall within the authority of theOJK. In addition, regional governments also have specificauthorisations for specific areas.

The general regulation on M&A, which is applicable for all limitedliability companies regardless of the type of business activities, is LawNo. 40 of 2007 concerning Limited Liability and its implementingregulations.

M&A relating to foreign investment/foreign investment companiesis, in addition, subject to the rules and regulations of Law No. 25 of2007 concerning Investments and its implementing regulation, as wellas the rules and regulations issued by BKPM. BKPM recently issuedregulation No. 13 of 2017 concerning Guidelines and Procedures forInvestment Licensing and Facilities.

Public companies, bank and non-bank financial institutions aresubject to the regime of the OJK and specific OJK regulations,depending on the type of business activity.


Yes, one significant regulatory update affecting foreign investment, isthe new BKPM regulation No. 13 of 2017 concerning Guidelines andProcedures for Investment Licensing and Facilities, which has the

following notable changes: • Service sectors: possibility of a simplified licensing process by

allowing certain companies to directly obtain a business licence.• Real Property Development sector: introduction of a more relaxed

requirement by allowing property development and managementcompanies to take into account their land and building as part oftheir minimum investment when applying for investment approvals(applicable only for development works involving a whole buildingor integrated real estate).

• Industrial sector: requiring expansion licence for any change ofproduction capacity; in contrast to the previous regulation wherethe expansion licence is required only if the production capacityincreased more than 30%.

• Merger Licensing: simplification from two-stage licensing to one-stage licensing.


The OJK is planning to issue implementing regulation on fintech –peer to peer lending business in 2018, to elaborate the procedures andrequirements in a more detailed manner.

Another development is recent news reports about the Government’splan to introduce more flexibility on foreign manpower permits.

In addition, the KPPU is planning to change the merger notificationrequirement from post-notification to prior approval. The draftregulation is still under discussion but once enacted, this willsignificantly impact the timeline of Indonesian M&A deals.




OUTBOUND INBOUND

10

372

4


94

$488m $6,856m48286

32

439

4,3401,577

0

34100

8


INDONESIA



Different interpretation and understanding of certain regulatoryrequirements between practitioners often lead to common mistakesand the omitting of crucial regulatory requirements for M&A, forexample the announcement requirements for any change of control orthe requirement to sign deed of transfer of shares in notarial deed andIndonesian language.


This depends on the deal characteristics, but commonly, as suggestedin Question 4.1, corporate governance matters are the most overlookedmatters; for example, preparation of shareholders register or acquisitionannouncement.


It is crucial for practitioners to consult Indonesian M&A experts withextensive knowledge on market changes on how to structure a deal andto ensure it is validly and legally completed.

Alternatives to minimise risks vary, including requiring the seller toprovide contractual representation and warranties and indemnificationor requiring payment of the purchase price in instalments within acertain period, which can also be structured through payments in anescrow account.

Fiesta VictoriaSenior associate, Walalangi & Partners

Jakarta, IndonesiaT: +62 21 5080 8600F: + 62 21 5080 8601E: [email protected]: www.wplaws.com

About the authorFiesta Victoria is an Indonesian qualified lawyer and expert inM&A, corporate restructuring, real property investment andemployment issues with over 10 ten years of experience,focusing on finance companies and fintech businesses. Sheobtained her law degree from Pelita Harapan University,majoring in business law and received an award as “the BestLaw Graduate Student of the year 2007”, with cum laudepredicate.Before joining Walalangi & Partners, she pursued her career

in one of the largest corporate law firm in Indonesia for over 10years.Victoria has been assisting various foreign companies

(including Japanese trading and multi-finance companies) andone of the largest Indonesian state-owned banks on theircomplex investments, M&A (including assets and portfolioloans acquisitions), real property projects, and corporaterestructurings. She has also represented leading globalbanking and financial groups on major transactions, fromtraditional acquisitions to complex assets and portfolio loansacquisitions, bond issuance, as well as sophisticatedfundraising projects.

0

1000

2000

3000

4000

5000

PUBLICTARGET

PRIVATETARGET

PUBLICTARGET

PRIVATETARGET

$209m$1,785m $4,844m $279m


OUTBOUNDINBOUND


INDONESIA



Obtaining control of a public company can be conducted either byacquiring the existing controller’s shares or by purchasing sharesthrough a right issue (increase of capital).

Change of control occurs when a party acquires more than 50% ofshares in the public company, or acquired fewer than 50% of the sharesbut can influence or determine, directly or indirectly, the managementand/or policies in the public company.

An acquisition of shares from an existing shareholder will trigger amandatory tender offer (MTO) if there is a change of control, withcertain exemptions set by the regulations. Voluntary tender offers(VTO) and mergers are also ways to obtaining control. However, thesestructures are less popular since a VTO is often used for delisting andprivatisation and due to the intricacies of a merger.


• The MTO – the acquirer undertakes for the existing shareholders(minority shareholders) receive a fair price for their shares inaccordance with the provisions of the regulation.

• Post-merger notification.


Break fees are not regulated under Indonesian law and the arrangementis purely a contractual matter.



This really depends on the characteristics of the business of the targetand negotiation circumstances of the parties.

Locked box mechanisms are more common for deal characteristicsinvolving companies with dynamic business activities and a wide rangeof customers portfolios, such as banks or multi-finance companies.

Escrows are common for specific deals when certain conditions orprocedures are to be fulfilled by the buyer and seller sides within thesame timeframe; in interconnection deals which require payment to befully paid up/made before completion of the other deal completion; orwhere there is a price adjustment agreed by the parties after thecompletion.

Another alternative is price adjustment mechanism, giving rights toparties for purchase price adjustment after completion, if for examplevaluation of the assets/shares decreases.


Fundamentals pre-closing conditions, depending on the characteristicsof the deal and business, are government approvals (if required byspecific regulations), internal corporate approval of the parties andacquired company, creditors’ consent under the existing agreementsand newspaper announcement to creditors and employees.

Post conditions are more administrative requirements by nature andinclude, for example, notification to authorised government, tocreditors and newspaper announcement. Other contractual conditionsbetween shareholders would be non-competition (between business ofshareholders and the acquired company), and price adjustmentconditions.


Yes. It is common to include foreign jurisdiction in the conditionalshare purchase agreement, although for the deed of transfer it must begoverned by Indonesian law.


There have been a few examples, although it is not yet commonpractice.


In a public company takeover, the new controller is required to makean offer to purchase the remaining shares of the public companythrough the MTO. The MTO is also an exit for the existingshareholders (minority shareholders) who disagree with the acquisition;whereby their shares will be purchased at a fair price by the newcontroller.

In addition, Indonesian company law provides rights to shareholdersto request the company for a share buy-back if the shareholder(s)disagree with, among others, a merger, consolidation or acquisitionthat causes losses to the shareholder(s) of the company.



Trends and developments would most likely involve thefintech/technology-related sector. We would expect tightenedsupervision from the OJK in this sector and consequently the issuanceof more implementing regulations. As a result, one would expect banksand multi-finance companies to have some market reactions.




The last 12 months has seen a continued trend towards morenormalised M&A activity with both domestic and international buyersundertaking strategic acquisitions, including the acquisitions of Fyffesby Sumitomo Corporation for €750 million in cash and FleetmaticsGroup by Verizon Communications for $2.4 billion in cash.

2018 has begun on a positive note with the announcement onFebruary 1 2018 that Total Produce has entered into a bindingagreement to acquire a 45% equity stake in Dole Food Company forcash consideration of $300 million.

Other high profile and innovative public company M&Atransactions include:• the merger between Praxair and Linde to form a new $73 billion

Irish holding company which will be listed on the New York StockExchange and the Borse Frankfurt;

• the merger of Kennedy Wilson Europe Real Estate with Kennedy-Wilson Holdings to create a $8 billion global real estate company;and

• the acquisition of Nexvet Biopharma by Zoetis and Zoetis Belgiumfor $85 million in cash.

In the private M&A space, Ireland continues to be an attractivedestination for foreign buyers with both private equity and trade buyersactive in the Irish market. The financial services sector was particularlyactive with 17 transactions for a total aggregate consideration of €7.3billion, while the energy sector was also active with eight transactionsfor a total aggregate consideration of €1.6 billion. In addition, Irishtelecommunications and broadband company Eir announced onDecember 20 2017 that a consortium led by NJJ Telecom Europe,alongside Illiad, had acquired a majority stake in Eir at an enterprisevalue of approximately €3.5 billion.

IrelandMaeve Moran and Cian McCourt, Arthur Cox

www.arthurcox.com


IRELAND

The number of deals was also greatly assisted by the growing strengthin both the domestic and international capital markets.

There has been an increase in partial rather than full acquisitions inthe Irish market over the last 12 months. This is driven by new players,often private equity firms, seeking to enter the Irish market inpartnership with established businesses.


During 2017, there were over 163 private M&A transactions inIreland, with an aggregate value of €13.1 billion (an increase from 2016figures of 136 with an aggregate value of €40.9 billion). After a periodof uncertainty following the Brexit vote and changes in the USadministration, purchasers have taken a proactive approach during thelast 12 months.


Both private and public M&A activity has been strong in recent yearsand this trend continued in 2017, as demonstrated by the volume andvalue of the transactions during the last 12 months. The private equity(PE) sector also gained prominence, with greater internationalinvestment into Ireland and an increased role for Irish PE funds.


The demand for private equity investment continues to grow in Irelandand it has been reported that private equity funding may account forup to 25% of M&A funding over the next 12 months. This reflectsgreater visibility of PE in the market together with increased availabilityof funding. However, despite this increased demand, traditionalbusiness debt remains the main source of M&A funding in recent years.



As stated above, there have been a number of high profile andinnovative public company M&A transactions over the last year,including:

Maeve Moran Partner, Arthur CoxDublin, Ireland

T: + 353 1 920 1000F: + 353 1 920 1020

E: [email protected]: www.arthurcox.com

About the authorMaeve Moran is partner in the corporate department. Moranadvises on public and private mergers and acquisitions, joint-ventures, private equity investments, equity capital markets andcorporate reorganisations. She has advised on domestic andcross-border transactions across various industries. Moran was previously based in the London and New York

offices of Arthur Cox and she has advised international clientson cross-border transactions, inward investment and corporategovernance matters.

Cian McCourtPartner, Arthur CoxDublin, Ireland

T: + 353 1 920 1000F: + 353 1 920 1020

E: [email protected] W: www.arthurcox.com

About the authorCian McCourt is a partner in the corporate department.McCourt specialises in mergers and acquisitions, advising onpublic and private transactions as well as corporate financeand equity capital markets transactions.He has experience advising on domestic and cross-border

transactions in a number of industries including thepharma/healthcare, financial services and technology sectors,as well as advising on corporate migrations, holding companystructures, schemes of arrangement and cross-border mergers.McCourt was previously a partner in another Irish law firm

and was based in London and New York for a number of years.He has advised international clients and boards of directors oninvesting in Ireland and Irish based acquisitions includingadvising on some of the largest and most high profile publictransactions in Irish corporate history. McCourt is a member ofthe firm’s management committee.


IRELAND

• the Praxair – LindeAG merger;• the Kennedy Wilson Europe Real Estate – Kennedy-Wilson

Holdings merger;• the acquisition of Fleetmatics Group by Verizon Communications;

and• the acquisition of Nexvet Biopharma by Zoetis and Zoetis Belgium

SA.Notable private M&A transactions over the past year include:

• the acquisition of a majority stake in Eir by a consortium led byNJJ Telecom Europe, alongside Illiad SA, at enterprise value ofapproximately €3.5 billion;

• Pilgrim’s Pride $1 billion acquisition of Moy Park Group;• Intas Pharmaceuticals/Accord Healthcare’s acquisition of Actavis

UK and Actavis Ireland from Teva Pharmaceutical Industries forenterprise value of approximately £600 million in cash;

• AMP Capital’s acquisition of a majority stake (78%) in Enet(valuing the target between approximately €150-200 million);

• The acquisition of Voxpro by Telus International for estimated €150million;

• The acquisition of Inver Energy by Greenergy International; • the acquisition of the Carechoice group by InfraVia European Fund

III for approximately €70 million;• Fortuna Entertainment Group’s acquisition of Hattrick Sports

Group from Presidio Group for an undisclosed sum;• CIP Capital’s acquisition of The MoneyMate Group.


In private M&A deals, share sales remain the most common structure,especially in light of recent changes to the stamp duty regime (detailedbelow), while cash is the most common consideration. Deferredconsideration remains a common feature of Irish private M&A deals,in particular for high growth companies.

Price adjustment mechanisms are almost invariably used, with nostrong trend towards either completion accounts or locked boxmechanisms, both of which are commonly used.

In public transactions, the scheme of arrangement remains thefavoured transaction structure as purchasers may acquire 100% of theshares in the target on completion, including from minorityshareholders. Schemes of arrangement were used in theFyffes/Sumitomo, Nexvet/Zoetis and the Fleetmatics/Verizontransactions.



The primary laws and regulations that govern M&A transactionsinclude:• The Irish Takeover Panel Act 1997 (the Act), the Irish Takeover

Panel Act 1997 Takeover Rules 2013 (the Irish Takeover Rules), theSubstantial Acquisition Rules (Sars) and the European




OUTBOUND INBOUND

660

2,847

264

389

4,154

590


4,555

458161

1,265

1,995

126

97

0

0

$8,046m $10,458m

654

61228


IRELAND

Communities (Takeover Bids) Regulations (the Regulations),together regulate the M&A activity relating to certain publiccompanies. The provisions of the Act, Rules and Regulations areenforced by the Irish Takeover Panel (the Panel), which isestablished under the Act;

• The Companies Act 2014 governs various aspects of both privateand public M&A activity;

• The Competition Acts 2002 to 2014 require certain M&Atransactions to be reported to the Competition and ConsumerProtection Commission for approval;

• Market Abuse Regulation (EU 596/2014) (MAR) and the MarketAbuse Directive (Directive 2014/57/EU) (CSMAD) implementedin Ireland through European Union (Market Abuse) Regulations2016 (S.I. 349 of 2016) imposes obligations on companies whosesecurity is listed on regulated markets;

• The Irish Listing Rules or ESM Rules apply if the company is listedon the Irish Stock Exchange.


From October 2017, the rate of stamp duty on business and asset saleshas increased from 2% to 6%. Stamp duty on the transfer of shares inIrish companies remains at 1% except for transfers of shares incompanies listed on the Irish Enterprise Securities Market (ESM)(equivalent to the AIM market) and Irish companies that are listed in

the US whose shares are traded through the Depository Trust Company(DTC) which in each case are in general exempt from stamp duty.

Therefore, share purchase structures will continue to be the mostcommon structures for M&A deals and business and asset sales willneed to be carefully structured.


The Companies (Statutory Audits) Bill was introduced to the IrishParliament by the Minister for Business, Enterprise and Innovation onJanuary 23 2018. When enacted, it is expected that the facility forcertain existing Irish incorporated but US listed companies to use USGAAP for financial reporting requirements in Ireland (in lieu of IFRSor Irish GAAP) will be extended for a further 10 years from the currentdeadline of end 2020.

BEPS and the EU Commission’s Anti-Tax Avoidance Package mayhave a material impact on M&A activity across Ireland and the EU.

Brexit and the ongoing negotiation of the UK withdrawal from theEU is likely to impact M&A (positively from an Irish perspective inour view), however until greater clarity is brought to the specific detailsof the UK exit, it is difficult to be definitive on the impact. Similarly,it is too early to assess the impact of recent US tax reforms on the IrishM&A market.



No common mistakes or misconceptions exist about the M&A marketin Ireland. The Irish market is broadly similar to the UK and UScommon law systems with the public takeover framework quite similarto the UK Takeover Code. One issue to be aware of is that the IrishTakeover Rules apply to any Irish incorporated company with an equitylisting on the London Stock Exchange, New York Stock Exchange(NYSE) or Nasdaq.


As mentioned above, Irish incorporated companies listed on theLondon Stock Exchange, Nasdaq or NYSE may be subject to the IrishTakeover Rules and other Irish regulations. A foreign acquirer of anIrish incorporated, US or London listed entity, will invariably requireadvice on the applicability of the Irish Takeover Rules and its impacton transaction structure and timetable.

While not unique to Ireland, the provision for warranty andindemnity insurance is increasing, in circumstances where the sellersare private equity firms and/or where the sellers are trying to de-risktheir position.

0

2000

4000

6000

8000

10000

PUBLICTARGET

PRIVATETARGET

PUBLICTARGET

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$3,757m$70m $9,754m $3,456m


OUTBOUNDINBOUND


IRELAND


Local Irish law advice should be sought in advance of a potential buyeragreeing to a transaction structure or timetable – particularly if thetarget is a public company.



In friendly deals, a scheme of arrangement is most often used and shallrequire approval from: • the target company’s shareholders (being a majority in number and

representing at least 75% in value of those voting at the relevantshareholder meeting); and

• the Irish High Court.A scheme of arrangement is usually structured so no stamp duty is

payable on acquisition and is the most favoured structure as it has theadvantage of acquiring 100% of the target’s shares on completion.

Where a takeover is hostile, a tender offer from buyer to the target’sshareholder is more commonly used as the buyer may use a statutoryprocedure to compulsorily acquire the shares of dissenting shareholders(i.e. a squeeze out). If the target is listed on a regulated market in anyEU/ EEA member state, the buyer must obtain consent from theholders of 90% of the issued share capital in order to avail of thesqueeze out. The threshold is 80% for Irish public companies quotedon secondary markets. In a tender offer, stamp duty on the transfer ofshares is payable at one percent of the deal value.


Whilst it is commonplace for offerors to include a list of conditions inthe terms of an offer, the practical effect of such conditions is limitedby the Irish Takeover Rules. The Irish Takeover Rules restrict the useof subjective conditions in public takeover offers and, other than withthe consent of the Panel, an offer may not be made subject to anycondition the satisfaction of which depends solely on the subjectivejudgment of the bidder, or which is solely within its control. Typically,public takeover offers are conditional upon antitrust clearance (asapplicable), the acceptance of at least 50% of the target’s shareholdersand necessary regulatory approvals being granted.


Break fees are subject to the Irish Takeover Rules, which prohibit atarget company from agreeing to compensate the bidder or indemnifythe bidder for the costs of the transaction, if the payment orindemnification is contingent upon the offer lapsing or not beingmade, except with the prior consent of the Panel. The Panel willnormally only consent to reimbursement of specific quantifiable third-party costs, subject to an upper limit of one percent of the value of theoffer. When seeking the Panel’s approval, the board of the target

company and its financial adviser must confirm to the Panel in writingthat they consider the proposed arrangement to be in the best interestsof the shareholders of the target.

The Panel generally only approves expense reimbursement (subjectto the one percent limit) in circumstances where the target boardwithdraws or modifies its recommendation of the transaction, or wherea competing bidder causes the original bidder’s acquisition to fail.

Please note that a number of recent transactions involving Irishcompanies have been structured as reverse takeovers. The Irish TakeoverRules do not automatically apply in their entirety to a reverse takeoverand, accordingly, the Panel has been more flexible in relation toapplicability of the rules relating to break fees in such transactions.



Completion accounts remain the most commonly used considerationmechanism in Irish M&A transactions. A locked box mechanism isused more frequently in circumstances where the seller has the strongernegotiating position (e.g. an auction process).

Escrow accounts are commonly put in place for a one to two-yearperiod following completion of a private M&A transaction to deal withpotential warranty and indemnity claims or to settle accounts owingto a buyer.

Earn outs are more frequently used where the target company is non-revenue generating but has significant growth potential and/or valuableintellectual property.


The approval of the Competition and Consumer ProtectionCommission and other regulatory bodies (which depend upon theindustry sector of the target company) are usually included asconditions. Depending upon the nature of the target company and thetransaction, a buyer may require certain third-party consents to havebeen granted prior to closing and may also require a condition that nomaterial adverse change has occurred between signing and completion.


It would be standard for Irish law to govern, and the Irish courts tohave jurisdiction in respect of any disputes arising out of, private M&Ashare purchase agreements involving an Irish target company. However,from time to time and depending upon the location of the buyer andseller, a foreign governing law and/or jurisdiction can apply.


IRELAND


Warranty and indemnity insurance is not yet commonplace in privateM&A transactions in Ireland, but it is being used more frequently inrecent times. Consistent with international trends, it is often used inprivate equity transactions where the private equity seller is not willingto provide warranty protection to the buyer or where the sellers areindividuals.


Strategic/trade buyers are seen as the preferred exit strategy in Ireland,but interest in MBOs continues to rise with increased levels of debtfinancing. The last 12 months has also seen a number of significantIPOs including Allied Irish Banks, p.l.c., and Glenveagh Properties andremains a viable exit route.



Whilst the full extent of Brexit and the recent US tax reforms is yet tobe determined, we believe that there will be significant M&A activityin Ireland over the coming 12 months. The Irish economy continuesto expand at one of the fastest rates in the eurozone and we expect thatthis will encourage domestic businesses to continue to expand by wayof acquisition, as evidenced by the recent acquisition of Dole by TotalProduce.




The technology sectors, along with the pharmaceutical and life sciencessectors, continue to lead the Israeli M&A market in terms of bothoverall industry-wide deal value and volume.

The autonomous cars sector was particularly active in 2017, and sawthe acquisition by Intel of Mobileye, a global leader in Advanced DriverAssistance Systems for $15.3 billion; Gett’s purchase of Juno Lab, aride-sharing platform; Lear Corporation’s purchase of ExoTechnologies, a GPS technology company; and substantial investmentrounds in Oryx Vision and Innoviz Technology, both engaged in aLiDAR technology for autonomous vehicles.

Almost half of all 2017 high-tech exits were in IT and enterprisesoftware, reflecting the continued popularity of cyber and cloudtechnologies.

During the past few years, the Israeli M&A market has experiencedan increase in the overall funds expended by foreign investors indomestic targets, especially those from East Asia. However, 2017 sawa drop in the volume of transactions by East Asian investors — $2.7billion compared to $6.4 billion in 2016, which may be attributable,at least in part, to Chinese regulations on foreign investments. Foreigninvestors and acquirers from North America remain the strongestplayers, which may reflect Israeli preferences for the US market.


The Israeli M&A market is at an all-time high, with Israel’s high-techexit activity reaching $23 billion in 2017. Although there was a 7%decline in the number of high-tech deals from 2016, the value of the

IsraelAriella Dreyfuss, Barnea

www.barlaw.co.il


ISRAEL

transactions increased and the exits were larger, the highpoint beingthe acquisition of Mobileye by Intel for $15.3 billion, the largest high-tech acquisition and second largest M&A deal in Israel’s history.

It seems that there may be a new trend among Israeli entrepreneurstowards growing companies and reaching for higher valuations, ratherthan quick exits.

In 2017 pharma deals increased. This rise stemmed in part from thesale by Teva of certain of its assets for $2.5 billion and the secondhighlight of 2017 – the acquisition by Tanabe Mitsubishi PharmaCorporation of NeuroDerm, a clinical stage pharmaceutical companydeveloping drug-device combinations for central nervous systemdisorders, for $1.1 billion.


The Israeli market is dominated by private M&A transactions.


There is an abundance of corporate strategic investors, private equityand venture capital funds investing in and acquiring Israeli companies,as well as operating incubators, accelerators and bridge programs. Thishas led to a mature and sophisticated eco-system in Israel.



Please see Questions 1.1 and 1.2


Many Israeli tech companies secure grants from the Israel InnovationAuthority (formerly known as the Office of the Chief Scientist) (IIA)which are offered under the Encouragement of Research andDevelopment Law 1984 (the Encouragement Law). This financing isfavourable as it is repaid on a royalty basis; however, theEncouragement Law also includes certain restrictions on the transferof financed technology and production outside Israel. Accordingly, aforeign purchaser may consider buying the target or its assets throughan Israeli entity. In general M&A deal structures are guided by taxconsiderations.



The Companies Law 1999, governs all corporate transactions involvingIsraeli incorporated companies. The applicable regulatory body is theCompanies Registrar.

The Securities Law 1968, applies to Israeli publicly tradedcompanies. The applicable regulatory body is the Israel SecuritiesAuthority.

The Restrictive Trade Practices Law 1988, governs all competition-related matters, including mergers, antitrust and restrictivearrangements. The applicable regulatory body is the Israel AntitrustAuthority.

The Encouragement Law (as discussed in Question 2.2). Theapplicable regulatory body is the IIA.

In addition, numerous sector-specific laws and regulations affectM&A transactions, for example government licensing requirements forencryption, dual-use technology, telecommunications, mining,essential infrastructure and power plants. These vary from one deal toanother, depending on the nature of the assets that are being sold.

Ariella Dreyfuss Partner, Barnea Tel Aviv, Israel

T: + 972 36400600F: +972 36400650

E: [email protected]: www.barlaw.co.il/attorneys/ariella-dreyfuss/

About the authorAriella Dreyfuss, originally from England, advises internationaland Israeli clients, including PE funds, VCs, corporate ventures,entrepreneurs and start-ups in the high-tech fields of IOT,communications, life sciences, medtech, internet, fintech,cyber-security, adtech, arts etc., as well as in low-techindustries.From incorporation through to exit, Dreyfuss skilfully guides

companies in drafting and negotiating multi-layered corporateand commercial agreements, establishing strategicpartnerships, raising capital, consummating complex mergersand acquisitions, all the time considering each companies’unique commercial concerns.Dreyfuss has been endorsed by the prestigious ranking

guide Chambers & Partners as one of Israel’s leading lawyersin the field of Corporate/M&A High-tech (Chambers Global2016 and 2017).


ISRAEL


The Law for the Promotion of Competition and Reduction ofCentralisation (2013) (the Centralisation Law) requires that controlgroups holding both substantial real assets (e.g., retail chains andconstruction companies) and substantial financial assets (e.g., banksand insurers) divest and dispose of one of these two classes ofsubstantial asset by 2019, and seeks to break down certain pyramidstructures of concentrated entities. Accordingly, the market is expectingnon-technology based large-cap M&A transactions during 2018 as wellas interesting opportunities for buyers, as corporations will be seekingto sell their assets ahead of the December 2019 compliance date.

In a similar vein in January 2017, the Knesset legislated that Israel’stwo largest banks, Bank Leumi and Bank Hapoalim, had to sell theircredit card businesses within three years, and precluded the sales tolarge Israeli financial and non-financial institutions and corporations.Accordingly, we expect to see foreign private equity funds and moneypursuing these opportunities in 2018.

The Israel Securities Authority has yet to finally settle theapplicability of domestic securities laws to Initial Coin Offerings(ICOs), however the expectation is that ICOs will not be exempt fromthe current securities laws. Accordingly, certain Israeli entrepreneurshave taken and will continue to take their ventures off shore to pursuethis financing route, at the expense of the local traditional M&Amarket.

A recent amendment to the Israeli Income Tax Ordinance fromAugust 2017 seeks to relax tax requirements on corporatereorganizations and make it easier to raise funds and make acquisitionsin the tech industry. We imagine this change will lead to increasedM&A activity and corporate restructuring, including mergers, spin offsand asset transfers.


The Capital Markets, Insurance, and Savings Authority seems to behesitant in approving the purchase of Israeli insurance companies andfinancial institutions by Chinese buyers. Two proposed M&A deals didnot obtain the requisite regulatory approvals last year, the first being asale of Delek’s 52% stake in Phoenix to Yango Investments, China(which Delek also previously failed to sell to Fuson (China)) forNIS2.15 billion ($624 million) and the sale of Meitav DashInvestments to the XIO Group.

There is a bill currently under consideration in the Knesset to amendIsrael’s antitrust laws. One of the proposed provisions is to raise thethreshold required for approval by the Israel Antitrust Authority for amerger, from total sales of the merging parties from NIS150 millionto NIS360 million. If this law passes it would create more flexibility inthe M&A sector.




OUTBOUND INBOUND

$22,474m

682

1,194

672

20

10

790

$3,061m


16,619

3,184

1,842

29

404

59

7410

00


ISRAEL



While Israel is a dynamic, exciting tech hub, engaged in the currentpopular trends of fintech, GPS, IoT, robotics, augmented reality, cybersecurity, life sciences, medtech (medical technology), autonomous carsand much more, it would be a mistake to think technology is all thatIsrael has to offer. In light of the Centralisation Law, the next yearshould see exciting M&A deals in the more traditional markets.

In addition, while Israel is viewed as a hotbed of opportunity forforeign investment, there is also outbound activity, with Israelisengaging in M&A abroad. For example, in 2017 Delek Group acquiredthe Canadian company Ithaca Energy for $590 million and KeterGroup acquired the Italian company ABM Italia for €400 million($493 million).


Foreign strategic buyers of Israeli tech companies, which intend toultimately transfer the intellectual property of the target companyoutside of Israel, should be careful not to overlook the subsequent taximplications. They should seek advice to avoid the double tax exposurefamously incurred by Microsoft in 2017 in connection with itsacquisition of the Israeli start-up Gteko in 2006.


When negotiating an M&A transaction it is key to give attention toIsrael-specific issues for example, rigorous and very pro-employee Israeliemployment law and the recent wave of employee unionisation, theterms of grants and benefits under the Encouragement of CapitalInvestments Law 1959 and the Encouragement Law, and restrictionson the export of encryption technology. Understanding theseidiosyncrasies will allow investors to structure their investment morewisely and efficiently.



Israeli takeover rules mandate the need for a tender offer when the firstshareholder passes the 25% or 45% holding threshold in a publiccompany. Acquiring full control of a public company is usuallyachieved by way of a reverse triangular merger, which requires theapproval of a simple majority, however it is subject to an assessmentremedy whereby the minority shareholders can challenge theconsideration to be paid.

In general, the local public market is characterised by closely heldcompanies controlled by majority shareholders, so hostile takeovers areuncommon, with a notable exception being the struggle at ADOGroup in 2017.


Most public takeover offers are executed by way of reverse triangularmergers, involving an acquisition of all the outstanding shares of thetarget company in exchange for a cash payment. The main advantageof this route is that merger transactions only require approval by asimple majority at a shareholders’ meeting (other than in specialcircumstances). This is compared to the full tender offer route, whichrequires obtaining consent of 95% of shareholders. However, mergersmay be subject to assessment claims by dissenting shareholders.

0

5000

10000

15000

20000

PUBLICTARGET

PRIVATETARGET

PUBLICTARGET

PRIVATETARGET

$1,115m$17,453m $3,234m $857m


OUTBOUNDINBOUND


ISRAEL


Break-up fees in public M&A are rare.



In Israeli M&A, part of the consideration is typically held in escrow toguarantee the seller’s representations, warranties and obligations underthe transaction documents. In Israeli high-tech deals whereentrepreneurs are being bought out, part of the consideration is alsocustomarily held back and payable as an earn-out, subject toachievement of certain financial or technical milestones. This isparticularly true in early Israeli high-tech exits, where the underlyingtechnology is not always ripe or proven.

Israeli acquisitions often include purchase price adjustmentmechanisms in the event that the financial assumptions on which thepurchase price was determined prove incorrect.


In a private acquisition, the buyer typically demands that the sellersundertake not to compete with the target or solicit its suppliers,customers or employees, and that the sellers waive all claims againstthe target and are bound by confidentiality undertakings. The buyeralso asks that key employees enter into new employment agreementsas a condition to closing, in an effort to retain key talent. On the otherside, the sellers often ask that the target or buyer maintains a directorsand officers tail insurance policy.


If the purchaser is a foreign entity, it will often insist on a foreigngoverning law and/or jurisdiction clause in a private share purchaseagreement.


Warranty and indemnity insurance is very rare in Israeli M&Atransactions.


In addition to the negative trends affecting the global initial publicoffering markets, the Tel Aviv Stock Exchange (Tase) remainsunattractive to local high-tech companies seeking to raise equity capitalat attractive valuations (of the 13 Israeli high-tech IPOs in 2017, onlythree were on Tase). Consequently, M&A deals remain the preferredexit route for Israeli tech companies.

However, in general we saw an increase in companies listing on Tase,from three in 2016 to 20 in 2017 raising approximately $860 million.



Blockchain technology and the autonomous car space will continue tobe fertile ground for investments and M&A deals in 2018.

We expect to see large-cap M&A transactions and attractiveopportunities for foreign private equity funds and money, deriving romthe Centralisation Law and legislation seeking to break up the banksand credit card companies.

The public markets seem to be recovering from the shock of 2016and proving to be a real alternative to the M&A route, and we expectto see an increase in IPOs on Tase this year.




M&A transactions in the telecom and consumer goods sectors havebeen particularly active in the market in the last 12 months.Furthermore, although not common in the Kuwait market, warrantyand indemnity insurance (further discussed in 5.7 below), has beenseen in recent transactions.


This information is not publicly available in Kuwait. That being said,the pace of M&A activity in 2017 remained broadly in line with 2016.


The Kuwaiti market is primarily driven by private M&A transactions.


We are of the view that financial investors have a limited impact onthe M&A market in Kuwait.

KuwaitJohn Cunha and Laurent Levac, ASAR-Al Ruwayeh & Partners

www.asarlegal.com




ASAR assisted the shareholders of a Kuwaiti food delivery start-up inconnection with its sale in June 2017. This transaction set numerouslandmarks in terms of deal structuring and its valuation, which willshape Kuwait’s M&A market going forward. More specifically,innovative structuring was required to enable the acquisition of 100%of a Kuwaiti entity. Furthermore, the sale terms were carefullystructured to satisfy the commercial requirements of the sellers and thebuyer incorporating two payment escrows, holdback arrangements anddetailed earn out arrangements. The valuation makes this the highestvalue exit for a start up in Kuwait. ASAR assisted a foreign purchaser in connection with the acquisition

of shares, the assignment of a shareholders’ loan and a participationinterest in a joint-venture in connection with a private companyoperating in the oil sector in Kuwait. This transaction was of particularinterest in light of the complex legal and financial structure of the targetand its significant impact on the due diligence process (from a legaland financial perspective).ASAR assisted the buyer in connection with the acquisition of shares

and real estate assets relating to the operation of several private Englishschools in Kuwait. This transaction is of particular interest due the

innovative structuring required to enable the acquisition of real estatein light of foreign ownership restrictions.


See our comments with regards to the new special trades regime furtherdescribed in 3.1 below.



Law No. 7 of 2010 as amended (the CML) and its executive bylaws(the CML Bylaws together with the CML, the CML Rules)(particularly Book IX (Mergers and Acquisitions) of the CML Bylaws),is the primary legislation governing public M&A in Kuwait. The CMLRules apply to M&A transactions where there is an acquisition orconsolidation of control of: • a Kuwait incorporated company listed on Boursa Kuwait (formerly

known as the Kuwait Stock Exchange); • a non-Kuwait incorporated company with a secondary listing on

Boursa Kuwait; or • an entity licensed by the Kuwait Capital Markets Authority (CMA)

KUWAIT

John Cunha Partner, ASAR-Al Ruwayeh & Partners

T: +965 2292 2700F: +962 22400064


About the authorJohn Cunha is a partner at ASAR and has been with the firmsince April 2006. He practices in the areas of banking and finance, capital

markets and mergers and acquisitions. Cunha holds a lawdegree awarded by the University of the Free State, SouthAfrica in 1999. In 2002 he was also awarded a master ofbusiness administration degree (MBA) from the University ofthe Free State, South Africa (in collaboration with De PaulUniversity in Chicago, USA). He also holds a master of lawsdegree (international trade law) (LLM) awarded by theUniversity of Stellenbosch, South Africa. Cunha was admittedto the South African bar in 2000 and admitted as a solicitor ofthe Senior Courts of England and Wales in 2007. Cunha’spractice languages are English, Afrikaans and Portuguese.

Laurent Levac Senior associate, ASAR-Al Ruwayeh & Partners

T: +965 2292 2700F: +962 22400064


About the authorLaurent V Levac is a senior associate at ASAR and has beenwith the firm since August 2014. Prior to joining ASAR, Levacworked for international law firms with postings in France, theUnited Kingdom, the Netherlands and Canada. Levac currentlypractices in the areas of mergers and acquisitions, privateequity, corporate law, banking and finance and private clients.He holds a bachelor’s degree in civil law (LLL) and bachelor’sdegree in common law (LLB) awarded by the University ofOttawa, Ontario, Canada, respectively in 2002 and 2003. Healso holds a master’s degree in American common law (LLM),awarded by Cornell Law School, New York, USA in 2005.Levac was admitted to the Quebec Bar (Canada) in 2005 andthe Law Society of England & Wales in 2010. His practicelanguages are English and French.


KUWAIT

to conduct regulated activities subject to the CMA’s oversight (e.g.brokers, portfolio managers, custodians, etc.).The CMA is the primary regulator for public M&A activity in

Kuwait. The CML Rules provide a statutory framework for publicM&A in Kuwait where there is a takeover offer for 100% of the sharecapital of a company listed on Boursa Kuwait; and a mandatorytakeover offer which must be made to remaining shareholders whenthe offeror acquires more than 30% of the shares of a listed company.


The CMA recently issued certain rules with respect to special tradetransactions (STT) in connection with listed securities. Moreover,these rules have been adopted and implemented by Boursa Kuwait (thelocal stock exchange in Kuwait). As STTs only apply to listed securities,any such transaction would also have to comply with the CapitalMarkets Law and its executive regulations as well as the Boursa Kuwaitregulations. The Special Trade Rules (the Rules) were issued by theCMA by way of resolution (the Resolution) to govern STTs in Kuwait.The Resolution indicates that Boursa Kuwait should issue and adoptfurther specific regulations in this regard in the context of the Rules.However, with regard to such specific regulations on executing thespecial trade, the rules/regulations governing same are as set out in theBoursa Kuwait form required to process the transaction (the SaleForm). The Sale Form incorporates certain declarations by the buyer,seller and their brokers. More specifically, the Rules stipulate that STTs

may only be concluded between one buyer and one seller, provided thetargeted shares are less than 5% of the share capital of the targetcompany. In the event a transaction contemplates a transfer of sharesis above the abovementioned threshold, such transfer may be split in aseries of transactions. One of the main benefits of the STT regime is that the relevant sales

will proceed directly between the buyer and the seller without the needfor a screen trade or a block trade auction, which normally applies tothe sale of 5% or more of the shares of a listed company in onetransaction. Special trades should be conducted for cash considerationat a price regulated by the Rules. More specifically, the Rules providethat the price should not fall below or exceed the preceding day’s priceby more than 20%. One other important factor impacting deal structures is that

acquisition finance is generally possible in Kuwait given that there areno financial assistance rules. However, because of corporate benefitconsiderations, the parties to an M&A transaction have to put in placevarious structures in order to ensure the funds obtained through suchfinancing are pushed down the corporate structure.


We understand that amendments to the Competition Law and theexecutive regulations thereto will be forthcoming, however, we notethat to date no such legislative amendments have been promulgatedand/or issued in the Kuwait Official Gazette.




OUTBOUND INBOUND

116


2,360

3

$436m $2,360m

317


KUWAIT



Some of the mistakes or misconceptions with regards to the Kuwaitimarket include: poor disclosure processes because sellers are sometimesinexperienced in the M&A processes, and targets do not keep track ofall the documents needed to be disclosed to the buyers; andmisconceptions about the regulatory processes which are often morecomplicated than what the parties expect. In addition, a commonmistake made by practitioners is to import legal structures anddocumentation developed in other jurisdictions without a properadaptation of same to the peculiarities of the Kuwait legal system. Thiscan lead to complications in the execution phase of the transaction andin the enforcement of rights arising under M&A transactiondocumentation.


An area that is often overlooked and/or paid less attention to is duediligence. In particular, appropriate translation of due diligencefindings into contractual protections, whether by means of pre-closingremedial actions, associated variation of commercial terms, specialindemnities or other methods is deficient. This often arises because the

legal practitioners that carry out the due diligence do not always leadthe negotiation of transaction documentation. Parties involved in anM&A transaction also often overlook certain aspects of the Kuwaitcompetition law. Furthermore, the rendering of M&A/investmentadvisory services with respect to securities onshore of Kuwait is aregulated securities activity under the CML Rules. As such, foreignservices providers should be aware of the restrictions applicable inconnection with the rendering of such services onshore of Kuwait.


The best measures to prepare for the market idiosyncrasies is to performan adequate due diligence of the target, engage well-experienced lawfirms with a proven M&A track record, manage the expectations of thesellers (with respect to timing and requirements specific to thejurisdiction) and encourage parties to retain suitably qualified financialadvisors.



The key factors are the following:• Obtaining all relevant regulatory consents from the applicable

regulatory body, such as for example, the CMA for licensedcompanies and/or (as applicable) the CBK vis-à-vis financialinstitutions which are subject to supervision by the CBK.

• Disclosure of the transaction as required per the CML Rules.• Abiding by the laws and regulations of each sector. For example,

pursuant to the CML Rules, for companies listed on the exchangeof Boursa Kuwait, a mandatory takeover offer (MTO) must belaunched by the bidder once the bidder has come into possessionof more than 30% of the voting shares of a target company listedon the exchange.


An MTO must not be subject to conditions that can only be satisfiedat the discretion, and in the subjective judgment, of the bidder or thetarget company, or where their satisfaction is within the control of thebidder or the target company. Only voluntary takeover offers (VTO)may be subject to conditions required by the bidder. However, in thecase of an MTO takeover offer, no conditions may be imposed by thebidder.


The terms of the agreement are generally left to the discretion of theparties. There are no specific rules in Kuwait dealing with break feesand parties are free to agree specific arrangements to this effect. We arenot aware of any trends/market standards in this regard.

0

500

1000

1500

2000

2500

PUBLICTARGET

PRIVATETARGET

PUBLICTARGET

PRIVATETARGET

$0m$2,195m $0m $100m


OUTBOUNDINBOUND




Locked box mechanisms are common in Kuwait. Earn-outs and escroware very common in large transactions of KD30 million ($100 million)and above, whereas completion accounts are less used in the Kuwaitimarket.


While a private takeover offer is permissible under the law, there is notrend that has been established in the market given that this is relativelynew.


It is quite common to have acquisition documents governed by foreignlaw (for example English law).


Warranty and indemnity insurance, although not common, has beenseen in recent transactions.


Exits in the market are usually structured as trade sales.



We anticipate a steady increase in public M&A activity in Kuwait overthe next 12 months. The outlook for public M&A in Kuwait continuesto benefit from the recent promulgation of the relatively new CMLBylaws and Law No. 1 of 2016 (the Companies Law).

KUWAIT




M&A activity in 2017 was not as active as it was in previous years.However, in 2018 we expect the level of M&A activity in Panama toremain stable or increase in comparison to last year’s activity. Althoughthere are no specific driving factors behind an increase in M&A activityfor the coming year, it is certainly the case that Panama’s economicgrowth makes local companies more attractive targets. We expect formost of the M&A activity to take place in the financial industry(banks, investment advisors, and insurance companies) and the energyindustry (mostly power generation).


The M&A deal flow during the last few years has remained fairlyconstant with a slight decrease in 2017. We do not expect majorchanges in 2018.


There is no clear driver between private or public M&A, and thebalance can change from one year to the next depending on specificdeal flow for any given year.

PanamaEloy Alfaro and Rita de la Guardia, Alemán Cordero Galindo & Lee

www.alcogal.com


PANAMA


We are seeing an increase in activity by financial investors interested inthe purchase of distressed companies or companies in which theybelieve additional efficiencies can be obtained. With respect to financialinvestors, we have mostly seen them in the energy sector, but find thatthis trend has not permeated to other sectors.



Among the most notable M&A transactions in Panama in 2017 wasthe sale of assets belonging to a company previously owned by a persondesignated as a Specially Designated National (SDN) by the Office ofForeign Assets Control of the US Department of Treasury, whichrequired the transfer of the shares of the company to a trust structurefor the benefit of the group’s creditors and structured through the

National Bank of Panama and eventually led to the sale of the assets ofthe company in July 2017. The implementation of the trusts, and thesale process, presented various complex situations above and beyond atypical M&A transaction by having to tackle various issues withcreditors and local and foreign governments.


Recently we have seen a number of financed transactions in which theclosing of the transaction is conditioned upon obtaining the requiredfinancing. This has not been very typical in Panama as we are used toseeing cash offers.



M&A transactions in Panama are undoubtedly impacted by provisionsof the Commercial Code, the Civil Code, and depending on the natureof the target company, by the Corporations Law, Limited Liability

Eloy Alfaro Partner, Alemán Cordero Galindo & Lee

Panama City, PanamaT: +507 269 2620F: +507 264 3692

E: [email protected]: www.alcogal.com

About the authorEloy Alfaro B joined Alemán Cordero Galindo & Lee as anassociate in 2004 and became a partner in 2011. Hisprofessional practice concentrates on banking, finance andcapital markets, corporate and M&A, public bids andconcession contracts and real estate law. Alfaro has beenactive in mergers and acquisitions, assisting clients such asCitibank, the Bank of Nova Scotia and BBVA in bankingacquisitions, mergers and dispositions in Panama, in additionto assisting several other international banks and companies incross-border financing transactions. Alfaro has also advisedPanamanian and international clients in important public bidprojects. Alfaro has a JD from the University of Pennsylvania Law

School and a bachelor of arts in political science fromColumbia University. He is a member of the National BarAssociation of Panama. He is fluent in Spanish and English.

Rita de la GuardiaAssociate, Alemán Cordero Galindo & Lee

Panama City, PanamaT: +507 269 2620F: +507 264 3692

E: [email protected]: www.alcogal.com

About the authorRita de la Guardia joined Alemán Cordero Galindo & Lee in2014. Her professional practice concentrates on banking,finance and capital markets, corporate and M&A. De la Guardiahas been active in mergers and acquisitions, assisting clientssuch as Citibank and Celsia. De la Guardia has a JD fromCornell Law School and a bachelor of science in foreignservice from Georgetown University. She is a member of theNational Bar Association of Panama. She is fluent in Spanishand English.


PANAMA

Company Law and industry-specific regulations (banking, securities,mining, energy, etc.). The primary regulator for M&A activity inPanama will depend on the nature of the business undertaken by thetarget company. So, for example, in the case of banks, the primaryregulator would be the Superintendence of Banks of Panama, and inthe case of broker dealers or investment advisory firms, the primaryregulator would be the Superintendence of the Securities Market(formerly known as the National Securities Commission). In all casesthat may result in an economic concentration, the antitrust authority(known as Acodeco) could play an important role.


There have been no recent changes to regulations or regulators during2017 that would specifically impact M&A transactions or activity in2018 and beyond, and none are expected to be adopted.


To our knowledge, there are no rules, legislation or policy frameworkunder discussion that may impact M&A in Panama in the near future,and none in relation with most regulated industries (telecom, energy,banking, securities, mining, among others).



The most common mistake or misconception is that there are noeconomic concentration regulations in place in Panama that need tobe considered in an M&A transaction. In reality, M&A transactionsin Panama can be directly affected by Law No. 45 of October 31 2007(Consumer Protection and Competition Defence Law), ExecutiveDecree No. 8-A of January 22 2009, which regulates Title I(Monopoly) and other dispositions of Law No. 45 of October 31 2007and Resolution No. A-31-09 of July 16 2009, through which theConsumer Protection and Competition Defence Authority (from hereon, Acodeco) approves the Guide for the Control of EconomicConcentrations even though these regulations do not establish a specificthreshold for review of particular transactions.The types of transactions caught are all transactions that fit into the

economic concentration concept, as established by Law No. 45 of2007, which includes any merger, acquisition of control or any otheract by virtue of which corporations, partnerships, associations, shares,social parties, trusts, establishments, or assets in general are groupedtogether, that takes place between suppliers or potential suppliers,customers or potential customers and other competitors or potentialcompetitors.Certain sectors, such as energy, have specific thresholds. Internal restructurings or reorganisations are not included in the

concept of economic concentrations.




OUTBOUND INBOUND

3

$3m


641

16

$657m


PANAMA

Prior notification of a potential economic concentration is voluntary.If parties decide to voluntarily notify in advance, they must do so beforethe merger has taken effect; that is, before there has been a change incontrol. Parties typically file prior notifications of an economicconcentration when there are circumstances surrounding thetransaction (i.e. market share) that increase the risk of an investigationby Acodeco. Given that it is a voluntary prior notification, there is no prohibition

of closing before clearance, but the transaction may be challenged byAcodeco or third parties within three years if it is not cleared before ittakes place. If the prior notification is filed, Acodeco must reviewwithin 60 days of the date in which the prior notification is filed oradditional information requested by Acodeco is provided. If theAcodeco does not issue a response within that 60-day timeframe, theconcentration is deemed to be approved. If Acodeco reviews thetransaction directly, it has up to three years to complete its review ofthe transaction. Acodeco will have the authority to investigate andchallenge economic concentrations which have not submitted to priorverification, within a three-year period from the date on which changeof control occurred. Acodeco would only have jurisdiction to reviewand impose penalties in case there is an economic concentration inPanama.


Typical questions have to do with the filing of a prior no-objectionrequest from Consumer Protection and Competition DefenceAuthority, and in the case of M&A transactions in regulated industrieslike financial services (banking and securities), questions dealing withthe requirements and timing for applicable prior authorizations.


The most critical measure is making sure that enough time is given forpurposes of sufficiently documenting any regulatory request for priorapproval either from the Consumer Protection and CompetitionDefence Authority, or the specific industry regulatory body, andallowing sufficient time for the approvals to be obtained prior to closingon the M&A transaction.



A takeover offer of a public company must be made to all of theshareholders, with equal terms and conditions and the purchase pricemust be paid to all shareholders who accept the offer. If a bidder offersto purchase more than 25% of the shares of a public company, or offersto purchase any number of shares which, as a result of said purchase,would result in the bidder owning more than 50% of the issued andoutstanding shares of the public company, the offer must be subject tothe public tender offer rules under the securities laws. If the tenderoffer will result in the bidder owning more than 75% of the issued andoutstanding shares of the public company, the offer must be made forall shares of the target which are not owned by the bidder.


In Panama, buyers can make conditional offers. However, in thecontext of public tender offers, the securities law requires committedfunding and the posting of a guarantee (for example cash or bond) tocover the tender offer.


There is no market standard. The parties in an M&A transaction arefree to agree to any preferred break fees, if any.

0

100

200

300

400

500

600

700

800

PUBLICTARGET

PRIVATETARGET

PUBLICTARGET

PRIVATETARGET

$0m$0m $656m $0m


OUTBOUNDINBOUND


PANAMA



In Panama, the use of escrows is perhaps the only current trend withregard to consideration mechanisms. Locked box mechanisms andcompletion accounts are not commonly used.


There are no specific conditions, above and beyond the standard, thatare attached to a private takeover offer in Panama.


While valid and binding under Panama law, it is not common practiceto provide for a foreign governing law and/or jurisdiction in privateM&A share purchase agreements, except from certain larger transactioninvolving a foreign purchaser.


Warranty and indemnity insurance on private M&A transaction is notcommon in Panama.


From a legal perspective, the exit environment is quite flexible. Havingsaid this, in practice, it is not common to see exits in the form of IPOs,trade sales or sales to financial sponsors. The typical exit strategy forfinancial investors has been simple sale transactions. Given that thegrowth of financial investors is fairly recent, we do not have sufficientdata to establish a trend with respect to exits for strategic or financialinvestors.



Our prediction is for the M&A market to remain stable and evenincrease slightly as compared to last year. Panama’s economy is expectedto continue to lead the region in growth, and that should ultimatelytranslate into continued M&A activity.




Romania has witnessed the highest growth in Europe in the secondquarter of 2017, with one of the lowest unemployment rates, andtherefore with interesting prospects. The country also had a good yearon the M&A front due to positive macroeconomic developments andfavourable prospects that have made investors turn their attention toRomania and become willing to invest in the local market.

Romania’s other competitive advantages lie in an economy that isdiversified and the good geographical position between the Balkanstates, Central Europe and the former USSR. Moreover, the wide anti-corruption campaign and the public support it received has helpedimprove the image of the country.

In this context, the market was quite boisterous with transactionsdriven by investors and investment funds already present on themarket, which wanted to strengthen their positions through organicgrowth but also through new acquisitions. There were also somenotable new entrants. Additionally, an important role was played bythe generation of local entrepreneurs whose businesses are matureenough and want to further expand or are interested in a total exit.

Healthcare, energy, oil & gas, IT and real estate remain the mostattractive sectors for major investments, together with the continuingconsolidation in the banking sector.


The M&A market in Romania reached €3.8 billion in 2017, accordingto public sources and disclosed transactions. Overall, adding alltransactions with undisclosed values, the total market reached between

RomaniaMiruna Suciu and Andrei Hâncu, Suciu Popa & Asociatii

www.suciupopa.ro


€4 billion and €4.6 billion, 15% higher than 2016. M&A activitycontinued to grow in 2017 but more remarkable was that the numberof transactions reaching between €100 million and €500 millionreached 15, a record performance of the past 10 years.

Overall, there were 105 announced transactions in 2017, includingthose whose value was not formally disclosed, 15% more than in 2016.The energy sector was the busiest in terms of transactions, followed byfinancial services, but increased dynamics were also seen in sectors suchas and TMT (technology, media and telecom), industry and healthcareservices. Investment funds were busier last year, with 13 acquisitions,the biggest of which was the takeover of A&D Pharma by PentaInvestments.


The Romanian market is mostly driven by private deals, with publicinvestment or publicly-driven projects stalled by the Government.


In the deals conducted recently we have often seen competitive,auction-like processes being organised by sellers to maximise profits orminimise conditions precedent or subsequent being imposed bypurchasers. On this backdrop, the influence of strategic and financialinvestors is quite balanced by the growing bargaining power (also

helped by professional consultants employed from a rather early stage)of increasingly educated sellers.



The largest transaction that has skewed the aggregate M&A data is the€401 million acquisition of 13.6% of E-Distributie Muntenia and EnelEnergie Muntenia by Enel, following the conclusion of theinternational arbitration regarding to the privatisation of ElectricaMuntenia Sud.

Among other significant transactions, we can include: • SABMiller’s sale of its beer business in Romania to Asahi Breweries

Europe, a transaction estimated €300 million and making part of aglobal deal including SABMiller’s businesses in Romania, CzechRepublic, Slovak Republic, Poland and Hungary, with a value of€7.3 billion;

• The acquisition of A&D Pharma by the private equity fund PentaInvestments was published at the end of 2017 and was the largesttransaction in the pharma retail and distribution sector (deal valuenot officially announced);

• The transaction in which Banca Transilvania acquired Bancpost,ERB Retail and ERB Leasing stands as the largest transaction in thebanking sector in recent years (deal value not officially announced);

• The takeover of Ecopack and Ecopaper by DS Smith (€208 million)• The listing on the Bucharest Stock Exchange of telecom company

ROMANIA

Miruna SuciuManaging partner, Suciu Popa & Asociatii

Bucharest, RomaniaT: +40 374 494 944F: +40 374 094 490

E: [email protected] W: www.suciupopa.ro

About the authorWith 19 years of experience at the forefront of business law,Miruna Suciu is recognised as one of the most experiencedpractitioners in mergers & acquisitions/privatisations. Suciuregularly advises a significant portfolio of top-tier corporateclients, investment funds, private equity and banks in a varietyof cutting-edge transactions of both domestic and internationaldimension in takeovers, extensive due diligence analysis,regulatory matters and M&A financing, as well as bid andtender preparation and assistance during tender procedures.

Andrei HâncuSenior associate, Suciu Popa & Asociatii

Bucharest, RomaniaT: +40 374 494 944F: +40 374 094 490

E: [email protected] W: www.suciupopa.ro

About the authorAndrei Hâncu’s practice is focused on M&A and corporate andcommercial law, as well as on intellectual property and dataprotection. He has been involved in significant M&Atransactions – share and asset deals, mergers, spin-offs – andhas advised high profile companies on various corporatematters. Hâncu has also been involved in data protection legalmatters, with a special focus on the GDPR and IP, includingdue diligence, management of IP assets, infringement of IPrights and counterfeiting.


ROMANIA

Digi was the highest IPO made by a private company on theBucharest Stock Exchange (€193 million)

• The announced acquisition of the local subsidiary of Piraeus Bankby JC Flowers investment fund, marking the first deal on theRomanian banking market for the fund (deal value not officiallyannounced);

• The largest deal in the hotel industry that took place last year wasthe acquisition by Revetas Capital and Cerberus of a hotel complexincluding Radisson Blu and Park Inn hotels (over €165 million);

• The acquisition by Electrica of the shares held by FondulProprietatea in Electrica Distributie Muntenia Nord, DistributieTransilvania Sud, Distributie Transilvania Nord and ElectricaFurnizare (€165 million);

• The takeover of the Japanese car maker Takata Corporation by KeySafety Systems involved Takata’s local facilities in Arad and Sibiu(the transaction value of $1.58 billion globally)

• The association between Atterbury Europe and Iulius Holding, theIullius malls operator (value not officially disclosed);

• The acquisition by which Vitruvian Partners became one of theshareholders of Bitdefender, the largest Romanian software provider,by acquiring 30% stake into the company was the largest IT&Ctransaction last year (Bitdefender’s value was set at over $600million);

• The takeover of Hungarian operator Invitel Tavkozlesi by DigiHungary (€140 million);

• The agreement between Globalworth real estate investmentcompany and Griffin Premium for the acquisition of a majoritystake in the Polish company (value not officially notified);

• The announced acquisition by Chimcomplex SA Borzeşti of some

of Oltchim’s assets (€127 million); and• The transaction by which OTP will take over Banca Romaneasca,

which awaits the NBR’s approval (value not officially announced).


We have seen a variety of deal structures being shaped and performedin the M&A market, but most often parties elect locked box or debtfree-cash free purchase price mechanisms with holdback amounts,sometimes held in escrow accounts for periods which generally mayrange from six months to three years to cover potential events such astax provisions, major litigation outcome etc. Price adjustments are alsoseen frequently, especially in case of targets acting in highly regulatedenvironments, where financial results depend to a significant extent ona regulatory authority such as in the energy distribution or in thepharma sector.

Other key factors or trends impacting deal structures includefrequent presence of material adverse change or events as well as mergercontrol filing provided as condition precedent (usually as a result ofregulatory requirements) but also a quite frequent expectation fromsellers to contractually treat VDR content as representing disclosedinformation and to limit seller liability by buyer knowledge.Negotiating various caps on seller’s liability has also become a frequenttrend on the market.




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$1.149m

2,014

5

$3,690m


453

111

245

164208

5

130

2


ROMANIA



The key legislation governing M&A transactions is represented by:• Law No. 287/2009 – the Civil Code (Codul Civil);• Law No. 31/1990 – the Companies Law (Legea Societatilor);• Law No. 21/1996 – the Competition Law (Legea Concurentei);• Law No. 227/2015 – the Tax Code (Codul Fiscal).

Specifically, for public M&A transactions, Law No. 24/2017concerning the issuers of financial instruments and market operations(Legea nr. 24/2017 privind emitenţii de instrumente financiare şioperaţiuni de piaţă) is applicable.

The main regulatory bodies governing M&A transactions are:• The Competition Council (Consiliul Concurentei);• The Supreme Council of State Defense (Consiliul Suprem de

Aparare a Tarii)• The Financial Surveillance Authority (Autoritatea de Supraveghere

Financiara) – the supervisory authority regulating listed companiesand financial markets, supervising public takeover offers.


The Romanian legal framework is aligned with the EU legal frameworkand apart from constant changes in tax legislation, it has not sufferedsignificant changes in the last couple of years.


Apart from new amendments to tax legislation, no significant changesof the actual legal framework impacting the M&A market are expectedin the foreseeable future.



Most issues usually arise from poor due diligence, where corporate andintellectual property aspects tend to be overlooked. Furthermore, foreigninvestors tend to impose on the local sellers agreements structured on thecommon law standards. However, such agreements may contain legalobligations which do not always have a correspondent in the Romanianlegal framework, generating misunderstandings which are in turntranslated into a cumbersome negotiation process.

It is therefore advisable to involve a legal counsel in the deal fromthe earliest stages thereof, in order to avoid weaknesses and hiddendangers of clauses which are common law-specific and which have nocorrespondent under the Romanian legislation and also in order tosimplify the contract negotiation process.

The parties to an M&A transaction also tend to focus on thepayment mechanism and representations & warranties. Although theseare vital provisions of a sale-purchase agreement, due care is alsorequired in what the actions at closing and post-closing liabilities &indemnifications are concerned.

Another particularity inherent to M&A transactions refers to theCompetition Council’s merger control as far as transactions subject tonotification to the Supreme Council of State Defence are concerned.Although the legal provisions regulating the operations subject tocontrol from the Supreme Council of State Defence and the inherentprocedure have been introduced in 2011, the procedure is still unclearand there are several contradictions within the legal provisions on thismatter. For example:i. It is still not clear which operations are subject to control from the

Supreme Council of State Defence – all operations posing a risk tothe state security or only those operations subject to merger controlfrom the Competition Council; and

ii. the procedure itself is obscure – what happens in case the SupremeCouncil of State Defence does not issue the clearance within thelegal term for the issuance of the clearance from the CompetitionCouncil). Furthermore, although the Competition Council isbound to notify the Supreme Council of State Defence, in practice,both authorities are notified at the same time.

0

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400

600

800

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1200

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PUBLICTARGET

PRIVATETARGET

$499m$0m $1,037m $1,036m


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ROMANIA


Most questions related to M&A transactions come from foreigninvestors and mainly target corporate and real estate aspects, whichhave some specifics under the Romanian legal framework.

The most overlooked area concerns the seller’s intellectual property.Due diligence in this respect tends to be at a very high level andtherefore fails to expose fundamental issues. This is usually inherent toM&A transactions in the IT sector, where the seller does not alwaysown full intellectual property rights over the software it is developing(intellectual property matters are also overlooked by business ownersand managers) and such issues usually arise shortly after the transactionbecomes public and the actual intellectual property owners begin tomake compensation claims.


Seeking local advice and involving a team of counsels (legal, financialand tax advisors) as early as possible is mandatory for a successfultransaction. Thus, the inherent risks could be successfully mitigatedand the pitfalls and hidden dangers mentioned above could bethoroughly assessed in order to meet the expectations and needs of theparties involved.



A public company is deemed to be controlled, if either of thefollowing conditions is met:a) An individual or a legal entity holds the majority of the voting

rights (50%+1); orb) An individual or a legal entity holds the right to appoint or revoke

the majority of the administration, management or supervisorybodies, being, at the same time, shareholder of said company; or

c) An individual or a legal entity is a shareholder and controls on itsown, based on an agreement concluded with other shareholder ofsaid company, the majority of the shareholders’ voting rights; or

d) An individual or a legal entity has the power to exercise oreffectively exercises a dominant influence or control.


The procedure inherent to a public takeover offer is regulated by LawNo. 24/2017 concerning the issuers of financial instruments andmarket operations (Legea nr. 24/2017 privind emitenţii deinstrumente financiare şi operaţiuni de piaţă). A public takeoveroffer is issued in order to acquire more than 33% of the voting rightsof the public company and is subject to prior approval by the FinancialSurveillance Authority (Autoritatea de Supraveghere Financiara).

Furthermore, depending on the specifics of the transaction, priorclearance from the Competition Council (Consiliul Concurentei) maybe necessary.


Break fees in public M&As tend to have a different regime in Romaniadepending on whether the deal is mandated by Government orGovernment-owned companies or issuers as opposed to cases where theclient is a purely private entity. In the first category, break fees are usuallyexcluded from the outset by relevant tender documentation, while in thesecond category such fees are generally subject to parties’ negotiation.



All consideration mechanisms above are common in M&A transactionstaking place in Romania. However, in specific sectors, locked boxmechanisms are increasingly used in the detriment of classicmechanisms such as completion accounts, since post-closingsubsequent price adjustments are no longer needed, both parties havethe certainty of the transaction price and the negotiation process isusually swifter.

Nevertheless, escrow and earn-outs (especially when there is a highdiscrepancy between the seller’s and the buyer’s expectations in termsof transaction price) are the most used consideration mechanism in theRomanian M&A market.


Within the confines of the applicable legal provisions, the parties arefree to structure the M&A deal according to their best interests and tochoose the mechanisms they deem most appropriate, such process notbeing regulated in any way (opposed to a public takeover offer).

However, depending on the specifics of the transaction, priorclearance from the Competition Council (Consiliul Concurentei) maybe necessary.


Usually, in case the target company is incorporated and functioningunder the Romanian laws, the governing law is the Romanian law andthe competent courts for dispute resolution are the Romanian courts.However, there are transactions where the parties provide a foreigngoverning law which is applicable only for those parts of the agreementwhere, according to the international private law provisions within theCivil Code, the governance of the Romanian law is not mandatory


(e.g., aspects inherent to a Romanian legal entity such as shareholders’rights and obligations, functioning of the management bodies,acquiring and losing the capacity of shareholder, legal entity’s liabilitytowards third parties, etc. are mandatorily governed by the Romanianlaw).

Furthermore, in the recent years, appointing national orinternational arbitral courts for dispute resolution became more andmore common in M&A deals, especially in more complex and highervalued transactions, in order to avoid the usually long timeframes untila final solution is awarded by the common courts of law and to ensurethat the matter is resolved by highly experienced individuals in complexM&A transactions.


Such insurance mechanisms are not widely used because of the usuallyhigh costs imposed by the insurance companies. However, the classicbank performance letters are widely used for warranting the obligationsundertaken by the parties and as the market is maturing and theinsurance companies are becoming more competitive in what suchspecialised products are concerned, the use of such insurancemechanism will definitely become more common.


The local market is becoming increasingly active in transactionsinvolving exits, either via IPOs or otherwise, especially as localbusinesses are evolving and, in some notable cases, expanding outsidethe national borders. In the last years, the market has witnessed totalor partial exits from both initial founders and investment funds (oneof the biggest private equity funds in Romania received €1.1 billionfrom exits in 2017). In the same trend, in 2018 another round of high-profile exits is expected (e.g., a major player in the localtelecommunications industry is contemplating its exit, the value of thetransaction being estimated at around €100 million).

As far as IPOs are concerned, the market is starting to heat up, witha round of high-profile listings on the Bucharest Stock Exchange in2017 (the biggest player in the local telecommunications industry hasmade the largest IPO to date for a private company – more than €200million).

Furthermore, local companies are becoming more active inexpanding their business internationally by acquiring foreigncompanies. For example, the Romanian National Company for theTransport of Natural Gas manifested its interest in the acquisition ofthe majority stake in Greece’s gas pipelines’ operator, as part of thelatter’s privatisation procedure.



For 2018, we predict that M&A activity is going to continue at a steadypace and even increase, driven by both European and non-Europeanbuyers that need to expand into new markets and by Romania’s fast-growing economy and relatively stable environment. On the backdropof a good 2017 from an M&A market perspective, with a strong risein deal numbers (13%) and values (by an impressive 63%) as comparedto the previous year, we expect major deals to continue to take place ina variety of sectors such as energy and utilities, wholesale and retail,finance and manufacturing and IT.

ROMANIA




The M&A market in Spain over the past 12 months has experienceda sharp increase that consolidates the upward trend initiated in previousyears. The robust economic environment and political stability havehelped boost this process, although conversely the political turmoil inCatalonia has been the main concern.

The most active sectors in the M&A field during this period havebeen real estate, technology and internet businesses


According to Transactional Track Record (TTR), 2,185 M&Atransactions have been reported during 2017 for an aggregate amountof €113 billion. This represents an increase by 8.01% in the numberof transactions and by 44.22% in volume as compared to 2016.


The Spanish market is usually driven by both private and public M&Atransactions. Even though the public market has been at a standstillover the last few years, 2017 has seen a substantial recovery with 25IPOs and 48 share capital increases in public companies.

SpainFernando de las Cuevas Castresana and Ignacio de la Fuente Muguruza,

Gómez-Acebo & Pombo

www.ga-p.com



In recent years, both strategic and financial investors have increasedtheir positions in the Spanish market and are key players in M&Ainvestment deals in Spain. It is frequent to see them join forces topursue large M&A transactions.



Some of the most notable M&A transactions during 2017 are:• The acquisition by Blackstone of 100% of HI Partners Holdco

Value Added from Banco Sabadell.

• The takeover bids for Abertis by Hochtief (ACS) and Atlantia.• The acquisition of Banco Popular by Banco Santander.

The acquisition of Banco Popular by Banco Santander has beenespecially relevant from a legal perspective as it was realised for thesymbolic price of €1 and is the first transaction carried out pursuant tothe single resolution mechanism approved by the European authorities.


The Spanish M&A market has become more and more sophisticatedand complex over the last few years. Not only new actors, but also morecomplex deal structures and financing formulas have driven the maintransactions. This complexity obliges investors to seek high-skilled,imaginative and versatile advisors who understand their needs anddesign an ad-hoc, specific structure to protect their interests.



Key legislation of M&A transactions in Spain are:• Ley de Sociedades de Capital (the Corporate Enterprises Act or

CEA) 1/2010 of July 2;• Ley de Modificaciones Estructurales (the Corporate Restructuring

Act or CRA) 3/2009 of April 3; and• Ley del Impuesto sobre Sociedades (the Corporate Income Tax Act

or Cita) 4/2004 of March 5.

SPAIN

Fernando de las Cuevas CastresanaPartner, Gómez-Acebo & Pombo

Madrid, SpainT: +34 91 582 91 32F: + 34 91 582 91 14E: [email protected]

W: www.gomezacebo-pombo.com

About the authorFernando de las Cuevas specialises in M&A, banking law,securities market law, collective investment institutions andfamily and private equity businesses. He is consistentlyrecognised in all prestigious legal directories, including BestLawyers, Chambers and Partners and Legal500. He isparticularly renowned for his commendable M&A and financialknowledge.De las Cuevas joined Gómez-Acebo & Pombo Abogados in

1983. He was a foreign associate at Shearman & Sterling inNew York from 1985 to 1986. He has been a partner ofGómez-Acebo & Pombo Abogados since 1990 and managingpartner from 1998 to 2000. He is currently head of M&A. Heholds a master of law, a bachelor of business science and adiploma in European studies from the Universidad de Deusto(1981), and a diploma in higher European studies from theCollege of Europe, Bruges (1982). He received a researchscholarship from the European Free Trade Association, Geneva(1982-1983), and graduated from the PIL course at HarvardLaw School (1990). He is fluent in Spanish, English andFrench.

Ignacio de la Fuente MuguruzaAssociate, Gómez-Acebo & Pombo

Madrid, SpainT: + 34 91 582 93 87F: + 34 91 582 91 14E: [email protected]

W: www.gomezacebo-pombo.com

About the authorIgnacio de la Fuente graduated in law and business sciencesfrom the Universidad Pontificia de Comillas in Madrid andobtained a scholarship from the University of Texas at Austinwhere he developed his studies in business sciences.De la Fuente is an associate at Gómez-Acebo & Pombo

Abogados, and his specialisations include M&A, family andprivate equity businesses and insolvency proceedings. He hasalso worked as foreign associate at the New York office of thefirm. He is fluent in Spanish, English and German.


SPAIN

Also, when strictly referring to public M&A activity:• Ley del Mercado de Valores (the Securities Market Act or the SMA)

4/2015 of October 23; and• Real Decreto sobre Régimen de las Ofertas Públicas de Adquisición

de Valores (the Royal Decree on the Public Acquisition of Securitiesor the PAS) 1066/2007 of July 27.

The main regulatory bodies that govern M&A transactions are:• The National Securities Market Commission (Comisión Nacional

del Mercado de Valores or CNMV); and• The National Markets and Competition Commission (Comisión

Nacional de los Mercados y La Competencia or CNMC).


At the end of December 2017, in a royal decree the SpanishGovernment approved the transposition into the Spanish legal systemof the regulations of Markets in Financial Instruments Directive II(Mifid II), the European directive on markets in financial instrumentsthat seeks to make the European markets fairer, more competitive, andless likely to collapse.


The Spanish legislative body is currently highly atomised, with nopolitical party or political alliance holding a stable majority to passrelevant legislative resolutions. We do not foresee major legalmodifications to be passed in the near future.



It is notable that most foreign investors tend to approach investmentsin Spain from a common law perspective. This leads to somemisconceptions about alternatives for structuring or negotiating M&Atransactions in Spain. The best way to avoid potential inconsistenciesor ex-post weaknesses in a deal is to involve legal counsel at the earlieststage possible. It is commendable that more and more foreign investorsin Spain tend to realize this and the need to seek proper advice duringthe whole process.




OUTBOUND INBOUND

333 762

1,817

277197

3,586

1,655

1,045


47,102

619

582

3,845

2,6082,774

1,74119

$13,517m $56,374m

269660


SPAIN


From a strictly legal standpoint and without prejudice to the previouscomments about planning in Section 4.1, an overlooked area intransactions in Spain concerns the formalities to be observed. Spanishlegal tradition is very formalistic and consequently not only the contentbut also the formalities for documenting any transaction in Spain needto be strictly observed. The consequences of not observing theseprovisions rank from the imposition of fines to the potential nullity ofan agreement.


Based on the foregoing, seeking local legal advice and involving thelocal counsel in all the phases of the deal (i.e. from the preliminarynegotiations until completion of the relevant post-closing formalities)is crucial. Even if the transaction is not subject to Spanish Law, thereare certain mandatory legal provisions that will apply to any deal thattakes place in Spain.



a) Control of a listed company in Spain is deemed to take place in thefollowing scenarios:

i) direct or indirect acquisition of a percentage of voting rightsequal to, or in excess of 30%; or

ii) holding any interest carrying less than 30% of the voting rightsbut appointing, within 24 months following the acquisition, anumber of directors which, together with those alreadyappointed by the bidder, if any, represent more than one-half ofthe members of the board of directors.

b)Whenever a person gains control of a listed company according tothe parameters mentioned above, that person will be obliged tolaunch a takeover bid for all the securities of the target at a pricethat may be considered equitable.

c) Control of a listed company may be gained by any of the followingmeans:

i) Acquisition of securities that grant direct or indirect voting rightsin the company;

ii) Shareholders´ agreements; oriii) Indirect or unexpected takeovers described in PAS.

d)Hostile bids are permitted.


The structure, content and procedure for formalising a public takeoveroffer are regulated by Spanish Law. The most relevant conditions thatneed to be observed are the following:a) They may be placed in the form of acquisitions, share exchanges or

a combination of both;b)The offer must ensure equal treatment of security holders that are

in the same position;c) Collateral shall be provided to secure the obligations assumed in the

offer.d)The manner in which the offer is filed, along with its content and

requirements, are ruled by PAS.e) Submission of the offer is subject to prior authorisation of the

CNMV.f ) The term to accept the offer is determined by the offeror. However,

it must be between 15 and 70 days.


Break fees are common in public M&A transactions in Spain.However, they are governed by Spanish Law and specifically subject

to the following conditions:a) They can only be agreed with the first offeror;b)The break fee may not exceed an amount equivalent to 1% of the

total amount of the offer;c) The break fee needs to be approved by the management body of the

target company;

0

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20000

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40000

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PRIVATETARGET

PUBLICTARGET

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$1,936m$42,706m $7,961m $6,919m


OUTBOUNDINBOUND


SPAIN

d)The financial advisors of the target need to pass a favourable reporton the break fee; and

e) The break fee needs to be explicitly detailed in the offer document.



As already mentioned, private M&A deals have become more and morecomplex over the last few years. This process has led to a plethora ofdifferent structures and especially of mechanisms to determine the priceof the transaction. Differences between sectors in this regard are alsoincreasing. Hence, it is difficult to determine general trends in thewhole M&A market.

In any event, earn-outs and escrows continue to be the mostrecurrent mechanisms for buyers to secure part of their investment,while locked box or completion account mechanisms are morefrequently seen in specific sectors such as M&A transactions related toproject companies.


As opposed to public takeover offers, private offers are not governedby Spanish law and consequently the parties may choose themechanism they find most appropriate to initiate a negotiation. Basedon the foregoing, there is no formal or standard structure for privatetakeover offers. It will vary on a case by case basis depending onmultiple factors such as the profile of the parties, the size of thetransaction, the urgency to close the deal or any other characteristicsof the transaction.

Nevertheless, when it comes to competitive tender processes, andnotwithstanding the preceding paragraph, some common features ofthe process for launching a private takeover offer are:

Bidders are granted access to certain information and documentationof the target to carry out a high level due diligence.

Bidders draft a tentative offer in the form of a head of terms, letterof intent or any other similar document describing the main terms ofits offer (e.g. price and valuation of the target, price adjustmentmechanism, funding sources and/or guarantee for the offered price,potential conditions precedent).

The bidder that has made the best offer is granted an exclusivityperiod by the seller(s) to negotiate the terms of the transaction.


On the one hand, M&A transactions in Spain are seldom subject to aforeign law. There are many reasons for this, such as the fact thatSpanish Law provides for a secure, balanced, fair and stable legalenvironment that investors can completely rely on.

There are provisions of Spanish law, particularly those related to thestructure and governance of limited liability companies such as thosethat most frequently constitute the target companies in M&A deals,which are mandatory and cannot be waived by mutual consent of theparties. Hence, submitting a deal to a foreign law could give rise tovarious conflicts of laws disputes.

On the other hand, it is more frequent to submit M&A deals to aforeign jurisdiction. In this case, it is particularly recurrent for atransaction to be subject to arbitration and specifically to thejurisdiction of international, unbiased, well reputed arbitrators. Themain reasons for this are to avoid the delays that Spanish Courtsexperience nowadays and to ensure that the members of the Court whowill decide on the specific controversy are individuals with reputedexperience and long-term background on the particular subject matter.


Warranty and indemnity insurance on private M&A transactions isalso gaining ground lately. Especially in cases where the sell side isformed by an institutional investor that is looking for a clean exit, theparties agree to insure any liability that could arise for the seller inconnection with the transaction.

This increasing trend is also driving insurance companies to offernew, more specialised and price competitive products to the market.


The robust economic environment and the strong dynamics thatcurrently characterise the M&A market in Spain have providedliquidity and eased the exit environment, which is also positivelyregarded by the market. The venture capital sector in particular hasexperienced this process, along with institutional markets such as publicM&A or financial investors.



We expect the growing trend initiated two years ago to continue in2018 and even increase. Real estate, technological and also financialsectors could be the most dynamic, following the trend of previousyears.

The main indicators for these conclusions may be the predictions ofa stable political background during these years for the reasonsexplained above, the consolidation of Spain as one of the strongesteconomies in the Eurozone and the fact that Spanish companies havegained interest for foreign investors due to the restructuring andconsolidation decisions adopted during the years of the crisis.




Compared to 2016, a robust year for the M&A market in Taiwan,M&A activities were relatively slow in 2017. However, there were stillsome significant transactions in different sectors. While 2016 wascalled “the technology M&A year”, the M&A activities in 2017covered different industries. One of the notable transactions was the privatisation of TCC

International Holdings (TCCI – previously listed on the Hong KongStock Exchange) by Taiwan Cement Corp through a scheme ofarrangement. For this privatisation, Taiwan Cement offered either cashor its shares to the other shareholders of TCCI. Taiwan Cement’soperation in China would then be fully reflected in its financialperformance as the result of the privatisation transaction. Another major transaction was in the energy sector. Three of

Taiwan’s major solar cell and module manufacturers, Gintech EnergyCorp, Neo Solar Power (NSP) and Solartech Energy announced in2017 their plan to merge into one company and exit from the ‘foundry’business model that they adopted, in order to form a solar flagshipcompany with a competitive edge on the global market and verticalintegration into the downstream solar system and power plant markets.NSP will be the surviving company after it merges with the other twocompanies, and the company after the merger will be renamed UnitedRenewable Energy Co (URE). The transaction is expected to close inQ3 2018. With the blessing and capital support from the TaiwanGovernment in URE, this merger is deemed the Taiwan government’ssubstantial effort on assisting the Taiwan clean energy industry players,in line with Taiwan’s energy policy to abandon nuclear power by 2025. As for the technology sector, in late 2017, Google announced the

signing of a definitive agreement with Taiwanese smartphone makerHTC, to bolster its hardware business. Under the agreement, Googlewill acquire a team of HTC employees, many of whom have worked

TaiwanKen-Ying Tseng, Robin Chang, Lihuei Mao and Patricia Lin, Lee and Li

www.leeandli.com


TAIWAN

on its Pixel smartphone. In return, HTC will receive $1.1 billion incash, and Google will also receive a non-exclusive license for HTC’sintellectual property. As for the financial sector, with the Taiwan government’s “move

south” campaign, Taiwan’s financial institutions continued to expandtheir M&A activities in offshore markets; for example, Cathay UnitedBank and Cathay Life Insurance jointly acquired the Malaysian branchof the Bank of Nova Scotia Berhad; while China Trust FinancialHolding Company invested in Thailand LH Financial Group PublicCompany Limited.


There were fewer M&A transactions in 2017 than in 2016 and thetotal value of the transactions decreased a few billion dollars. Accordingto Bloomberg’s M&A Legal League Table Rankings, the total value ofannounced transactions in 2016 was $23.8 billion with a deal countof 241, while the total value of announced transactions in 2017 was$17.13 billion, with a deal count of 202.


Both private and public M&A transactions are the driving force of theM&A market in Taiwan. While there were some notable public M&A

transactions in 2016 and 2017, there have been quite a few privateM&A transactions in the market as well. For example, there have beenseveral acquisitions in the media industry, such as system operators,and small M&As for emerging technology companies. There werefewer investments by PRC/PRC-invested companies in Taiwanesecompanies through M&A due to the change of political climate andthe sensitive cross-strait situation.


Major M&A in Taiwan are mostly driven by strategic investors, suchas the Gintech-NSP- Solartech merger for the energy sector, Google’sacquisition of R&D team of HTC, and privatisation of TCCInternational Holdings by Taiwan Cement. Financial investors willusually participate in M&As as co-investors or acquire a minority stakeof a company.



The three-in-one merger of Gintech, NSP and Solartech Energy,followed the traditional “merger” route under the M&A Act, whereby

Robin ChangPartner, Lee and Li, Attorneys-At-Law

Taipei, TaiwanT: +886 2 2183 2208F: +886 2 2514 9841

E: [email protected]: www.leeandli.com

About the authorRobin Chang is a partner at Lee and Li and the head of thefirm’s banking practice group. His practice focuses on banking,capital market, international finance and mergers &acquisitions. He is a member of the Taipei Bar Association.Chang advises major international commercial banks andinvestment banks on their operations in Taiwan. He alsoadvised six local banks for their customers’ investments instructured notes issued by Lehman Brothers entities. He hasalso been involved in many M&A transactions of financialinstitutions, including AIG’s sale of 97.57% shares of Nan ShanLife Insurance Company Limited.

Patricia LinSenior counsellor, Lee and Li, Attorneys-at-Law

Taipei, TaiwanT: +886 2 2183 2235F: +886 2 2514 9841


About the authorPatricia Lin is a senior counsellor at Lee and Li. Her practicefocuses on banking, securities, capital market, financings(particularly, structured and aircraft financing) and mergers &acquisitions. Lin has assisted many international capital marketofferings (DRs, ECBs and Formosa Bonds).

Lin is an M&A expert in both general and highly regulatedfinancial and telecom industries. She advised on the first PRCinvestment into the LED industry.


TAIWAN

NSP will be the surviving company while Ginteck and Solartech willdissolve on the merger record date. As all three companies are listed,Ginteck and Solartech Energy will delist on the merger record date.The privatisation of TCC International Holdings. is the first cross-

border delisting project in Taiwan with an option of offering differentconsiderations. The transaction is structured as a scheme ofarrangements under the Cayman Islands law, which is also notcommon to see in the Taiwan market.


There have been several driving forces in the structuring of M&A dealsin Taiwan. For example, given that the newly amended M&A Act in2016 allows more flexibility in terms of the form of the considerationthat an acquirer may offer to the shareholders of the target company,it should be easier for an acquirer to achieve the purpose of acquiring100% equity interest in a target company. Meanwhile, given thesensitivity of PRC investments in Taiwan, acquirers and targets shouldalso be spending more time on structuring their transactions to meetthe local restrictions/requirements regarding PRC investment inTaiwan, as well as their M&A goals. Furthermore, following the XPEC Incident, the authorities have

increased the financial burden on tender offerors and thus from nowon, a tender offeror of a public company may need to substantiate itsfinancial plan much earlier than before. Due to the XPEC Incident,how to avoid a tender offer, to the extent possible, becomes one of theconsiderations for proposed buyers of public companies when

structuring a public transaction. Nevertheless, we still saw a few tenderoffers in 2017.



The main statutes governing M&A activities in Taiwan are the M&AAct, the Company Act, the Securities and Exchange Act and the FairTrade Act. In addition, under the Securities and Exchange Act, a set oftender offer rules are prescribed to govern the tender offer of publiccompanies. Other statutes may also be relevant; for example, the LaborStandards Act and the tax laws and regulations. The main regulatory body in charge of public M&A transactions is

the Securities Futures Bureau (SFB) of the Financial SupervisoryCommission (FSC), the government agency in charge of publiccompanies. The other relevant regulatory bodies include the Fair TradeCommission (FTC), the authority in charge of anti-trust clearance,and the Investment Commission (IC), the authority in charge ofreviewing foreign investments. If the target holds any special licence,the authority in charge of such special licence may need to review thetransaction.




OUTBOUND INBOUND

1,919

1,905

17

382

1,327

41


667190

9

1,104

50

49

415

144

430

0

$3,762m $3,009m

0

027


TAIWAN


The 2016 amended M&A Act offers more flexibility in terms of theform of consideration that an acquirer is allowed to offer in statutoryM&A transactions, such as share exchange. It also reinstates thepossibility of structuring a triangular merger under the Taiwan legalsystem. In 2016, we saw the two largest public M&A transactionsadopt the new cash-out share exchange to achieve the purpose ofacquiring 100% equity interest in a public company. Thus far, we haveyet come across a triangular merger.Meanwhile, the tender offer rules were amended following the XPEC

Incident. According to the amended Regulations Governing Tender Offersfor Securities of Public Companies, a tender offeror is required to providedocuments to prove its ability to settle the consideration stated in thetender offer. This means that a tender offeror may be required to have itsacquisition fund in place at a much earlier stage of the tender offer. Furthermore, the 2016 amendments to the Labor Standards Act

caused tremendous controversy. The authorities therefore amended theLabor Standards Act again in January 2018, which will be implementedin March 2018. The change of holiday schedule, overtime payment,work days and work hours are key focuses of the authorities inprotecting employees. As a result, when conducting a due diligence onthe target company, the acquirer may need to pay more attention tosuch areas and carefully evaluate the relevant regulatory risks andcontingent liabilities.


There are a few areas worth observing in this regard. First, with regardto the media industry, the government and the private sector arediscussing whether to loosen the restrictions on government’s andpolitical parties’ investment in companies operating TV channels orTV systems. Currently, the government and political parties areprohibited from investing in any TV channels or TV systems. As aresult, many listed companies are prohibited from investing in suchcompanies, given that government-operated funds would often timesinvest in listed companies by acquiring shares from the local market.Meanwhile, PRC companies and PRC invested companies have been

eager to invest in companies in Taiwan, such as semiconductorcompanies or online gaming companies. The current administration’sposition in this regard would determine whether and how such M&Atransactions could be structured and proceed.The government is also contemplating significant amendments to

the Taiwan Company Act. Given that said Act may be amended to agreat extent, future M&A activities may be impacted by suchfundamental changes as well. However, the private sector has voicedstrong objection against such amendments, and thus it may take sometime for the government and the private sector to reach a consensus onwhether and how the Company Act should be amended.

Ken-Ying TsengPartner, Lee and Li, Attorneys-at-Law

Taipei, TaiwanT: +886 2 2183 2179F: +886 2 2713 3966E: [email protected]: www.leeandli.com

About the authorKen-Ying Tseng currently heads Lee and Li’s M&A practicegroup (non-financial sector). She received an LLM fromHarvard Law School. Having advised on various forms ofmergers and acquisitions, she is experienced in resolving bothlegal and commercial issues. She has assisted manymultinational corporations, such as BASF, Henkel, Yahoo!,AT&T, Arrow, Bureau Veritas, Aleees, DIC, Sony, Micrel, NTTDoCoMo, Energy Absolute, Feima, Qualcomm and Olin, etc, intheir M&A activities.

Ken-Ying has been recognised as a Leading Lawyer in theM&A field by IFLR 1000 from 2014 to 2016 and by Asialaw in2013, 2014, 2016 and 2017.

Lihuei MaoPartner, Lee and Li, Attorneys-At-Law

Taipei, TaiwanT: +886 2 2183 2274F: +886 2 2713 3966


About the authorLihuei (Grace) Mao is a member of the Taiwan Bar Associationas well as the New York State Bar Association, and herpractice area includes corporate and investment, mergers andacquisitions, securities law, anti-trust law and labour law.

Mao has advised many venture capitals clients, PE fundsand international groups in different industries on investmentsof different stages, from early-stage and complex mergers andacquisitions to IPOs. Mao has extensive experience in advisingPRC companies in evaluating and structuring their investmentsin Taiwan. Recently, she has been active in assisting foreigninvestors investing in renewable energy projects in Taiwan. Maohas been recognised as leading lawyer by Asialaw for manyyears.


TAIWAN



Information disclosure and insider trading are important and sensitiveareas for public companies. However, local management sometimesunderestimates their importance and fails to make the properdisclosures. Large public M&A transactions, in many instances, crossedthe red line as regards insider trading and quite a few criminalinvestigations have been launched. There have been many attempts tomanipulate the stock prices of listed companies in order to reapimproper gains. For example, with regard to the XPEC Incident, thechairman of XPEC was accused of assisting others to drive up the stockprices of XPEC via several avenues, including a proposed tender offer,so that they could gain greater profits from selling XPEC’s shares onthe market during the tender offer period.


Information disclosure is an area to which public companies need topay more attention when they plan M&A transactions. This wouldinvolve the proper information to be disclosed, as well as proper timingin disclosing certain information to the market. Most important of all,before proper information disclosure, the insiders in a public companyshould not trade any shares of the public company. Professional adviceshould be sought regarding this issue.Another area that parties to an M&A transaction should pay more

attention to is compliance with labour law requirements. As explainedabove, the Labor Standards Act was amended at the end of 2017, andthe labour authorities have been strengthening the enforcementmeasures to further protect the rights and benefits of employees.Whether a target company is compliant with labour laws and whetherthere is any relevant contingent liability should be carefully assessedand ascertained.


In Taiwan, M&A transactions are often subject to regulatory approvals,such as foreign investment approvals or PRC investment approvals. Forthose industries that are required to hold special license/permit, suchas banks, securities firms, insurance companies, and so on, the approvalfrom the competent authority of such industries, such as the FSC,would need to be obtained in advance. Meanwhile, any M&Atransaction triggering the pre-closing antitrust filing threshold wouldneed to obtain antitrust clearance before closing. Given all theserequirements, whether and how regulatory approvals can be smoothlyobtained are issues critical to the completion of an M&A transactionin Taiwan. As such, it would be advisable for the investors intendingto conduct an M&A transaction in Taiwan to seek professionalassistance in advance, in order to better understand the requiredregulatory approvals and the application process involved.



Given that under the Taiwan Company Act, material decisions wouldrequire the approval from shareholders holding two-thirds of the votingshares of a company, in order to gain an absolute control of a publiccompany, an acquirer should aim to acquire or control at least 67% ofthe shares in a public company. In practice, given that not all of theshareholders attend shareholder meetings, to control the managementor operation of a listed company, sometimes it is sufficient for oneinvestor to control 30% to 40% of the voting rights in a listedcompany. In sum, this would largely depend on the shareholdingstructure of a particular listed company.


In local practice, the conditions of a tender offer usually include theminimum and maximum number of shares that the shareholders ofthe target company shall agree to tender during the tender offer period;the tender offeror obtaining the required government approvals, if any(such as antitrust clearance and foreign investment approval, forexample); and no occurrence of any material adverse event (subject tothe approval of the FSC).

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$1,518m$418m $1,315m $2,163m


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In terms of tender offers and other types of M&A transactions betweenpublic companies, we have rarely seen break fee arrangements.



The large private M&A transactions often adopt a completion accountsmechanism under which the purchase price is adjusted in accordancewith the post-closing audit of the financial status of the target companyas of the closing date. For transactions with a smaller value, it is morecommon for the parties to adopt the locked-box mechanism. The earn-out mechanism and escrow arrangements are commonly seen in privateM&A transactions.


The customary closing conditions attached to a private takeover offerusually include, among others, that the seller’s representations andwarranties remain true and correct; that the required governmentapproval (if any) has been obtained; that the required third partyconsent (if any) has been obtained; that no material adverse event hasoccurred; that no action or government order is seeking to deter orenjoin the proposed M&A transaction; and that other commercialarrangements required by the parties have been completed or achieved(this would usually be structured based on the due diligence findings).


In the event that any party in a private M&A transaction belongs to aforeign corporate group, such a party would normally require that thetransaction documents be governed by the law of the foreign countrywhere the headquarters of the foreign corporate group is located, andthat any dispute arising from the transaction documents be resolvedvia the court of a foreign jurisdiction or an arbitration proceedingconducted outside of Taiwan. Local parties would normally accept sucharrangements.


Warranty and indemnity (W&I) insurance seems to be a better wayfor the seller and buyer to allocate their respective risks in an M&Atransaction. Although we have seen the concept being discussed in localM&A transactions, the actual implementation of such mechanism israre.


The IPO market in Taiwan is generally perceived to serve the purposeof fund-raising more than an exit, due to lock-up requirements,minimum shareholding requirements, and legal requirements andlimitations for selling shares applied to major shareholders, directorsand supervisors. For the major shareholders of a public company thatwish to sell their shares to a potential buyer, a mandatory tender offermay be triggered if more than 20% of the shareholding will betransferred within 50 days. Consequently, major shareholders’ exit inthe open market may be treated as a trade sale. In recent years, due tothe low PE ratio of the Taiwan stock market and the strongperformance of other stock exchanges in Asia (such as Shanghai StockExchange), the Taiwan IPO market has been slow, which is anotherreason why major shareholders usually would not consider Taiwan IPOmarket as way of exit as priority. On the other hand, trade sales or sales to financial sponsors have

always been a major route for exit. Other than highly regulatedindustries (such as media or cable TV) or acquisitions involving PRCfunding, there should be no substantial hurdle for an exit, albeit thatthe regulatory approval process may sometimes take long time. As forthe highly regulated industries and investment involving PRC funding,the Taiwanese government has been criticised for the prolongedregulatory approval process and lack of transparency in its decision-making process.



Due to the sensitivity of the cross-strait relationship and the currentgovernment administration’s conservative attitude toward PRCinvestment in Taiwan, we do not expect major transactions involvingPRC funding taking place in Taiwan. However, it is anticipated thatthere will be more inquiries regarding so-called VIE structures or otheralternative structures to achieve collaboration between PRC investorsand Taiwan companies.Counsels will need to pay more attention in planning such cross-

border M&A activities in terms of coordinating the legal requirementsin different jurisdictions and, more importantly, whether and how thevarious required government approvals can be obtained.




The sector that has been most active in recent years is renewable energy.This is due to the policy of the Thai government that has been drivinga shift from a reliance of fossil fuels towards renewable energy viaincentives and tax benefit schemes. Another sector that has become intensely active recently is tech start-

ups. The total amount of funding in 2017 (excluding initial coinofferings – ICOs) was valued at over $100 million. In addition, wehave seen a number of large companies starting to set up their ownventure capital funds. This movement shows the growing realizationof the potential of tech start-ups in Thailand.


2016 was considered a surge in M&A practice in Thailand with over$10 billion in deal value, which was driven largely by the Big CSupercenter acquisition. As for 2017, Thailand saw a declining numberin the total value of deals. The significant deals, including theacquisition of KFC’s operations in Thailand, were still at lower totalvalue than the total value of deals in 2016. This might be a result ofthe political uncertainty following the passing of His Majesty KingBhumibol Adulyadej in late 2016.

ThailandKudun Sukhumananda and Kom Vachiravarakarn, Kudun and Partners

www.kap.co.th


THAILAND


The Thai M&A market is driven by private M&A transactions wherebythe target companies are mostly private companies but the acquirersare a combination of both public and private companies.


2017 was the year of start-ups in Thailand. There were many financialinvestors investing in start-ups, ranging from private equity firms,venture capital firms and high net worth individuals. Some alsoinvested in pre-IPO companies or in IPOs as cornerstone investors.The deals that involved strategic investors are more complicated interms of structure, tax and other economic conditions.



In public M&A transactions, where a listed company acquires anotherbusiness, the deal can be structured in a way that such listed companycan complete the transaction and expand its business successfully in

compliance with applicable laws but without going through regulatoryapprovals.


Tax and regulatory matters, in particular where a listed company isinvolved. Most deals were structured to facilitate and ease regulatoryconcerns.



The primary legislation that governs private M&A transactions is theCivil and Commercial Code of Thailand. The primary body is theDepartment of Business Development, the Ministry of Commerce.The key pieces of legislation governing public M&A transactions

are: (i) the Public Company Act BE 2535; (ii) the Securities andExchange Act BE 2535; (iii) the Notification of the Capital MarketsSupervisory Board Rules, Conditions and Procedures for theAcquisition of Securities for Business Takeovers; and (iv) theNotification of the board of governors of the stock exchange ofThailand regarding Disclosure of Information and Other Acts of ListedCompanies Concerning the Acquisition and Disposition of Assets,2004. The primary bodies are the Securities and ExchangeCommission, the take-over panel appointed by the Capital MarketSupervisory Board, and the Stock Exchange of Thailand.

Kudun SukhumanandaPartner, Kudun and Partners

Bangkok, ThailandT: +66 88 088 4288 F: +66 02 838 1795E: [email protected]: www.kap.co.th

About the authorKudun Sukhumananda’s principal areas of practice are capitalmarkets and securities, mergers and acquisitions, corporate,and banking and financial services. He has extensiveexperience in advising domestic and international clients oninternational and domestic offerings of shares and debentures,corporate mergers and acquisitions, investments, corporateand debt restructuring, joint-ventures, and commercialtransactions, as well as real estate investment trusts andinfrastructure funds.

Kom VachiravarakarnPartner, Kudun and Partners

Bangkok, Thailand T: +66 61 914 6653F: +66 02 838 1795E: [email protected]: www.kap.co.th

About the authorKom Vachiravarakarn’s principal areas of practice are capitalmarkets, securities regulatory advice and mergers andacquisitions. He has extensive experience in advising domesticand international clients on international and domestic offeringsof shares, corporate mergers and acquisitions, investments,corporate restructuring, joint-ventures, and commercialtransactions, as well as real estate investment trusts andinfrastructure funds.


THAILAND


The new competition legislation, namely the Trade Competition ActBE 2560 (2017) (the New Trade Competition Act), was recently issuedand came into effect on October 5 2017. The New Trade CompetitionAct repealed and replaced the former legislation (i.e. the TradeCompetition Act BE 2542, 1999) in its entirety. One of the key areasthat the New Competition Act focuses on is the supervision of businessmergers and acquisitions that restrict trade competition or the mergerand acquisition of dominant business operators. In this respect, anymerger or acquisition that falls within the prescribed criteria wouldrequire prior approval from the Trade Competition Committee. Eventhough the procedure for seeking approval is clearly specified in theAct, the criteria of the mergers and acquisitions that would requireapproval has not been issued. In addition, the Trade CompetitionCommittee, which is the body responsible for the supervision ofcompliance with the New Trade Competition Act, as well as theissuance of secondary legislation, has not been formed. Therefore,uncertainties regarding the directions of implementation andenforcement of this law in the future still exist.


We are not aware of any legislation currently under discussion that mayimpact M&A transactions in the near future.



There are no significant mistakes or misconceptions about the M&Amarket in Thailand. However, the most overlooked area is the foreignownership limit, which we describe in detail in 4.2 below.


The most frequently asked questions for inbound M&A are in regardto the foreign ownership restrictions under Thai law. In Thailand,foreign companies are prohibited from engaging in certain restrictedbusinesses. Accordingly, a foreign acquirer may be barred if the targetcompany is engaging in a restricted business and the acquisition of thetarget company by such a foreign acquirer will render the targetcompany a foreign entity.The main legislation governing the business of foreign entities is the

Foreign Business Act (FBA), which limits foreign participation incertain financial business activities, including wholesale and retail,brokerages or agents and any type of service activities (includinglending, leasing, and consultancy). The FBA limits foreign ownershipto 49.99% of shares in the target company conducting a restrictedbusiness. Approval from the Ministry of Commerce is required priorto conducting any such business. The target company may also apply




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340

44


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for an investment promotion certificate from the Board of Investmentfor certain promoted businesses to benefit from a relaxation of thisforeign ownership restriction.Apart from the FBA, certain industries have specific regulations

which may have separate requirements on foreign shareholding. Forexample, the laws governing commercial banking businesses orinsurance businesses stipulate a foreign shareholding limitation of 25%,with certain exceptions. In addition, the Land Code of Thailand prohibits foreign entities

from owning land unless, among other things, an investmentpromotion certificate is granted by the Board of Investment.


We believe Thailand’s market is still affected by the change of regulatorymeasures, as a result of the current military government’s policies.Therefore, investors should monitor the dynamics in changing oflegislation on a regular basis. Consultation with a legal advisor on thecurrent legal situation is also highly recommended.



When obtaining control of a listed company, the most important factoris in relation to the tender offer rules under the Securities and ExchangeAct (SEC Act) and the Notification of the Capital Market SupervisoryBoard Rules, Conditions and Procedures for the Acquisition ofSecurities for Business Takeovers (CMSB Notification). According tothe tender offer rules, if an acquirer obtains shares of any listedcompany which constitute up to or more than 25%, 50% or 75% ofthe total voting rights of such listed company, the acquirer will berequired to make a mandatory offer for all the securities of the listedcompany. In the tender offer, an offered price must not be less thanthe highest price paid for shares of such class by the acquirer duringthe period of 90 days prior to the date on which the tender offerdocument was submitted to the SEC. Another factor is foreign ownership restriction, as detailed under the

Foreign Business Act (FBA). Under the FBA, a foreigner is prohibitedfrom participating in certain businesses that fall within any of therestricted categories under the FBA, including the catch-all category“other services”. For this purpose, a “foreigner” includes a companyincorporated in Thailand that is majority-owned by foreignindividuals/companies. In order to comply with such foreign ownershiprestrictions, a foreign acquirer may make a partial tender offer (PTO)for less than 50% of the voting shares of the listed company. However,this PTO structure may only work in a friendly acquisition, as itrequires approval from a shareholders’ meeting of the target companysupported by not less than 50% of the total votes of the shareholderspresent at the meeting and having the right to vote. The approval ofthe Office of the SEC is also required, and certain conditions providedunder the CMSB Notification need to be satisfied.


A mandatory tender offer must be unconditional. However, pursuantto the CMSB Notification, the acquirer is permitted to cancel thetender offer upon the occurrence of one or more of the followingevents: (i) the occurrence of an event, after submission of the tenderoffer document to the SEC but within the tender offer period, whichcauses, or may cause, severe damage to the status or to the assets of thetarget company, which does not result from the acts of the acquirer orany act for which the acquirer must be responsible; and (ii) any actionconducted by the target company after submission of the tender offerdocument to the SEC but within the offer period, which causes, ormay cause, a significant decrease in its shares’ value, provided that theseevents are stated clearly in the tender offer document. In a voluntary tender offer, in addition to the aforementioned

conditions provided under the CMSB Notification, it is common thatthe acquirer includes a condition that the tender offer can be cancelledif the number of shares tendered is less than the number of sharesspecified by the acquirer.

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A break-fee provision can be regarded as one of the main options fordeal protection. However, the most common mechanism is anexclusivity arrangement. We note that break-fees are regarded asliquidated damages in Thailand and may be reduced by the Thai courtif they are considered disproportionately high.



Both locked box and completion accounts are the most commonconsideration mechanisms for private M&A in Thailand. Neither ofthem can be regarded as a dominant approach. In recent years, however,we have noticed a slight increase in the use of locked box or even fixedprice consideration mechanisms, especially for individual sellers whoneed to speed up negotiations and conclude their deals.


Unlike with public M&A, there is no concept of taking over a privatecompany under Thai law. Therefore the private M&A must be carriedout through a share sale agreement containing terms and conditions asmutually agreed by the parties. The share sale agreement shall containgeneral conditions, including: (i) warranties given by the parties beingtrue and accurate; (ii) no occurrence of any event resulting in anymaterial adverse change; and (iii) necessary corporate approvals beingobtained.


Yes. It is common to use the laws of a neutral jurisdiction as thegoverning law in a private M&A share purchase agreement.


We rarely see this practice in Thailand.


The most common exit strategy for the owner of a private business isto seek a larger company to buy its business through an M&Atransaction. This is a win-win situation for the parties, where the sellercan easily cash out and, for the buyer, it a more efficient way to growits business than creating new products from scratch.


6.1 What are your predictions for the next 12 monthsin the M&A market and how do you expect the legalpractice to respond?

We believe Thailand’s prospects for 2018 will remain strong due to itspositive economic fundamentals. This results from a number of positivefactors, including the government’s Thailand 4.0 economic plan andthe continual integration of the ASEAN Economic Community. TheThai economy should grow about 4% in 2018 according to the currentestimation of financial advisors and it is expected that the stock marketwould still reach a new high, as it did during 2017. This shouldpromote both outbound and inbound investments. We thereforeexpect to see active M&A transactions throughout 2018.

M & A R E p O R t 2 01 8 | i f L R . c O M | 97



The Annual Turkish M&A Review 2017 by Deloitte reports thataround 298 transactions were realized in 2017 with a total value of$10.3 billion. Leading sectors for the M&A market in 2017 were thetechnology, internet and energy sectors. While the internet andtechnology sectors hosted the deal activity in terms of deal number,the energy sector was leading in terms of deal value. European investorswere the most active buyers and took part in 36 transactions andrepresented 55% of the foreign investors’ annual deal volume.


M&A value increased significantly by 41% compared to 2016. Thetotal deal number reached an all-time high with an increase of 21%.


The market has been dominated by private M&A transactions in 2017similar to 2016. Fourteen privatisations at the total value of $700million were completed in the energy, infrastructure, chemicals andmining sectors, while private transactions had a total value of $9.6billion. Privatisations corresponded to 7% of the total transactionvalue.

TurkeyErcüment Erdem and Özgür Kocabaşoğlu, Erdem & Erdem Law Office

www.erdem-erdem.av.tr

9 8 | i f L R . c O M | M & A R E p O R t 2 01 8


The Annual Turkish M&A Review 2017 by Deloitte reports that totaldeal volume generated by financial investors stood at $2.6 billion,private equity was involved in 20 acquisitions in 2017 correspondingto $2.15 billion and 12 exits took place, mostly to strategic investorsin entertainment, manufacturing, food and beverage and educationsectors through sales to strategic or financial sponsors and publicofferings.



The acquisition of Mersin Uluslararası Liman İşletmeciliği was one ofthe most significant deals due to the deal value and the fact that it wasthe largest financial investor transaction of the year in Turkey.


IPOs are expected to increase significantly in 2018. Additionally, lockedbox and earn-out mechanisms are common in M&A transactionswhere buyers are cautious.

TURKEY

Ercüment ErdemFounder and senior partner, Erdem & Erdem Law Office

istanbul, turkeyt: +90 212 291 73 83f: +90 212 291 73 82

E: [email protected]: www.erdem-erdem.av.tr

About the authorprofessor Dr H Ercüment Erdem is the founder and seniorpartner of Erdem & Erdem. He has more than 30 years ofexperience in M&A, international commercial law, privatisations,corporate finance and arbitration. He serves international andnational clients in a variety of industries including energy,construction, finance, retail, real estate, aerospace, healthcareand insurance.

Erdem is a member of istanbul Bar Association, the co-chairof the icc commercial Law and practice commission and amember of the icc court of Arbitration, icc institute council,icc incoterms Expert Group, and icc turkish Nationalcommittee Arbitration council, as well as a member of severalicc task forces. He is a member of the Association Suisse del’Arbitrage (ASA), international Bar Association (iBA),Association Henri capitant des amis de la culture juridiquefrançaise, and the Research institute of Banking andcommercial Law.

Erdem has strong academic background. He is an emeritusprofessor and still continues to lecture in leading universitiessuch as Galatasaray University, turkey and fribourg University,Switzerland. He has authored books on M&A, internationaltrade law, competition law, commercial law, cif sales etc. inaddition, he has authored numerous articles in national orinternational publications related to commercial law,competition and antitrust law, contracts law, arbitration,complex business litigation issues, dispute resolution etc.

Özgür KocabaşoğluPartner – head of corporate, Erdem & Erdem Law Office

istanbul, turkeyt: +90 212 291 73 83f: +90 212 291 73 82

E: [email protected]: www.erdem-erdem.av.tr

About the authorÖzgür Kocabaşoğlu is a partner and the head of corporate ofErdem & Erdem Law Office. Kocabaşoğlu has nearly 20 yearsof experience in national and multijurisdictional complex M&A,structuring, banking, capital markets transactions, corporateand project finance.

He has extensive experience of international transactionsinvolving a number of overseas jurisdictions in a variety ofbusiness sectors including energy, mining, transportation,ports, airports, construction, finance, retail and real estate.

He focuses on privatisations and public private partnershipmodels and complex cross-border transactions involvingcommercial banks, corporate entities, public and privatecompanies.

in recent years, he has led M&A deals in a wide geographyincluding Europe, Latin America, Russia, ciS countries, Africaand Asia. Moreover, he regularly provides consultancy tomultinational corporations on every aspect of commercial law,contract law, capital markets and merger and acquisitions.

He is a member of istanbul Bar Association and internationalBar Association (iBA).

M & A R E p O R t 2 01 8 | i f L R . c O M | 9 9

TURKEY



The key legislation governing M&A activity is the Turkish CommercialCode No. 6102, published in the Official Gazette dated February 142011 and numbered 27846 (Turkish Commercial Code) for privatelyheld companies; and the Capital Markets Law numbered 6362,published in the Official Gazette dated December 30 2012 andnumbered 28513 (Capital Markets Law) for the public companies.

The Law on Protection of Competition No. 4054, published in theOfficial Gazette dated December 13 1994 and numbered 22140 alsogoverns certain M&A transactions depending on volume oftransactions and the dominance of the parties involved. Accordingly,certain transactions regulated under the Communique on Mergers andAcquisitions are subject to the clearance of the Turkish CompetitionAuthority No. 2010/4.

In this regard, depending on the sector involved in the transactions,approvals of different regulatory bodies would be required.


Capital markets regulation concerning crowd funding is legislated in2017. Such alternative financing method is expected to activate themarket for start-ups.


An amendment concerning the Law on Enforcement and BankruptcyNo. 2004 is expected to be introduced in 2018 with respect tobankruptcy and debt restructuring (konkordato) procedures.Additionally, various incentive packages for investors are expected tobe granted similar to recent years.



The discrepancies between common law and civil law give rise tovarious misconceptions in the Turkish M&A market. The use of someboiler plate provisions of Turkish law (such as good faith and fairdealing, frustration or force majeure) in an English law governedagreement creates problems of interpretation.




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Usually, dispute resolution is overlooked during the negotiation ofdeals. Consequently, in the event of a dispute between the parties, thedelay in the decision-making process of the courts causes parties to faceadditional financial losses.

Competition requirements and administrative requirements, such asworkplace opening and operating licence and additional benefitsgranted to employees of target companies, are usually overlooked.


The abovementioned idiosyncrasies may be handled through obtainingwell-experienced legal consultancy services.

Choice of arbitration as a means of dispute resolution betweenparties may be suggested in order to resolve such disputes diligentlyand eliminate the risk of financial losses arising from disputes.

Turkish legislation allows international arbitration in the event thatthe dispute involves a foreign element (such as having the businessplaces or habitual residences in different states, or one of the partieshaving a foreign shareholder bringing foreign investment or thedisputed contractual relationship creates a flow of investment from onecountry to another). Turkey is party to the New York Convention andforeign arbitral awards are enforceable in Turkey in accordance withthe New York Convention. As regards the enforcement procedure,Turkey is an arbitration-friendly country.



The main legislative text governing public companies is the CapitalMarkets Law. According to the Capital Markets Law, public companieswhich either have more than 500 shareholders or are publicly tradedare joint stock companies.

Pursuant to Article 12 of the Communiqué on Takeover Bids No.II-26.1, published in the Official Gazette no 28891 dated January 232014 (Communiqué on Takeover Bids) issued by the Capital MarketsBoard, control is defined as holding either or both of: over 50% of thevoting rights of a corporation directly or indirectly; and/or privilegedshares enabling their holder to appoint the simple majority of themembers of the board of directors or to nominate such majority ofdirectors in the general assembly meeting.


Pursuant to Article 11(4) of the Communiqué on Takeover Bids, amandatory takeover bid cannot be subject to any conditions. However,under Article 20 of the Communiqué on Takeover Bid, a voluntarytakeover bid may be submitted for all or some of shares of a publiclyheld corporation. If a voluntary takeover bid is submitted for some of

the shares and the number of shares covered by the demands forparticipation in the takeover bid is greater than the number of sharescovered by the takeover bid, then the voluntary takeover bid process isconducted in accordance to a pro rata distribution method; in orderto eliminate any inequality between the demanding shareholders. Sincethe form to be submitted to the Capital Markets Board requires thebidder to submit information on the conditions of a bid, it is impliedthat certain restrictions may be imposed on voluntary takeover bidsupon the approval of the Capital Markets Board.

Furthermore, under the Communiqué on Material EventsDisclosure No. II-15.1 published in the Official Gazette dated January23 2014 and numbered 28891, tender offers and public takeovers aresubject to certain disclosure requirements.

It is also noteworthy that following the enactment of Law No. 6728,a 10% threshold has been determined for purposes of defining a relatedparty with regards to transfer pricing requirements. In the meantime,the threshold for the rate of shareholding that can be subject to buybackby a company with regards to its own shares is 10%, under the TurkishCommercial Code.


There is no specific regulation as per break fees under the capital marketslegislation. Therefore, the Turkish Code of Obligations, numbered 6098published in the Official Gazette dated February 4 2011 and numbered27836 (TCO), will be applicable. There is no restriction with regards toa break fees under the TCO between merchants.

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PRIVATETARGET

$0m$1,525m $1,562m $3m


OUTBOUNDINBOUND

M & A R E p O R t 2 01 8 | i f L R . c O M | 101

TURKEY

Especially in private deals, where the target is sold by means of atender, break fees are frequently used for violation of exclusivity or lackof closing, for instance unsuccessful tenders. However, break fees arenot very commonly seen for public M&A deals.



As per the Turkish private M&A markets, purchase price adjustmentshave been the most popular mechanism for pricing and payment.

Recently, the locked box mechanism was offered by a greater numberof sellers, where a correspondingly increasing number of buyersaccepted such alternative consideration mechanism.

On the other hand, the earn-out method was not as commonlyresorted to as the aforementioned and used generally for partial shareacquisitions where one of the parties maintains its presence in thetarget.

Finally, an escrow mechanism has been seldom come across in theTurkish M&A market, since Turkish banks are not very enthusiasticabout the application of such a mechanism and its facilitation.


The most used conditions precedents for a private takeover offer areregulatory authority clearances and approvals from regulatoryauthorities. Among these clearances and approvals, the most ubiquitouscondition precedent is merger clearance to from the TurkishCompetition Authority. There might also be regulatory authorityclearances required from other regulatory authorities, such as theEnergy Market Regulatory Authority and Information andCommunication Technologies Authority designated as conditionsprecedent depending of the activities of the target companies.

Another often used type of condition precedent is the approval orconsent of third parties, where a change of control clause requires suchapproval or consent, with regard to the contracts, where the buyer willbecome a party. In relation to such consent / approval, if the targetcompany holds certain licences or permits, such as an electricitydistribution licence, approval must be obtained for certain changes inthe shareholding structure of the licence-holder target company.

Among other examples of conditions precedents are the resignationof the current board structure of the target and its replacement withnew members appointed by the buyer; undertakings with regard to thepost-signing and pre-closing interim period; disclosure of transactionsout of ordinary course of business during such interim period; transferof loan agreements and the security agreements in connection withsuch loans; exclusivity and break fee with regard to such exclusivity andnon-occurrence of material adverse events.


Under Turkish law, parties to an agreement with a foreign element canchoose the governing law for the agreement. Choice of Turkish law asgoverning law for Turkish target companies is general market practice.However, during the recent years, it has been more frequently seen thata foreign, non-Turkish, jurisdiction was designated as the governinglaw in order to eliminate the difficulties of recognition andenforceability of court decisions. In addition, arbitration became morepreferable as the means of dispute resolution, including bothinternational commercial arbitration, such as ICC and Uncitralarbitration, and arbitration by the recently established IstanbulArbitration Centre.


Professional liability insurance and director’s and officer’s liabilityinsurance is available under the Turkish Commercial Code. However,warranty and indemnity (W&I) insurance is not available underTurkish law.


IPOs are the most common exit strategy foreseen for the transactionsin which financial investors are involved. Additionally, optionagreements are common. However, enforceability of option agreementsunder Turkish law is quite questionable.



Almost 20 public offerings are expected to be realised in 2018. Theprivatisation of Eskişehir coal reserve field and renewable energyresource projects are likely to bring significant activity to the energysector in 2018. Additionally, 14 sugar refineries are expected to beprivatised.

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Brexit continues to shape the UK M&A market with the depressedvalue of sterling helping to drive international interest. Despiteuncertainty surrounding Brexit, the UK was the most targeted countryfor inbound investment in Europe in 2017, indicating that, in additionto favourable currency terms, buyers remain optimistic about UKassets. In addition, UK based companies seeking to minimize theirBrexit risk have resulted in an increase in UK originated bids,particularly in the US where UK companies were the top acquirers ofUS targets, by both deal value and number in the first three monthsof 2017. Whilst US/UK deal flow remains generally strong in 2017, with the

US remaining the originator for a large proportion of in-boundinvestment to the UK and the principle market for outbound UKM&A, there has been a more cautious approach taken by US investorswho are still trying to understand the impact of recent domestic taxreforms and perceived political uncertainty in continental Europe.2017 has also seen a substantial fall in in-bound Chinese M&A inEurope and the UK following attempts by Beijing to curb levels ofoutbound investment, combined with some political concern inEurope about the level of foreign investment in strategic sectors of theeconomy.The technology, media and telecommunications sector remains one

of the most active sectors for UK M&A in 2017, reflecting thecontinued strategic importance for companies to acquire data assetsand benefit from digital innovation to enhance their business offering.In addition, the energy, mining and utilities sector has also been highlyactive in 2017, in part due to strengthening energy and commodityprices from a period of sustained weakness.

UKSimon Jay and Michael Preston, Cleary Gottlieb Steen & Hamilton



UK


UK M&A was resilient in 2017, with 3,458 deals worth £233.9 billion($325 billion) compared with 3,016 deals worth £306.9 billion in 2016.Although deal value was lower compared to 2016, deal volume wasnoticeably higher, reflecting a general shift away from large transactionsin the private M&A space to more numerous mid-market deals.


Both public and private M&A play an important role in the UK market.Private M&A deals typically constitute the bulk of UK target deals by

volume with approximately 3,331 announced deals worth roughly£116.2 billion in 2017, compared with approximately 113 public M&Adeals worth roughly £113.9 billion. Whilst the volume and value ofpublic M&A deals in 2017 was down on 2016, the number of deals witha value of £1 billion or more was significantly higher.


Financial investors continue to be prominent in the UK M&A market,with an appetite for transactions driven by sterling’s continuedweakness, relatively low interest rates and record levels of unspentcapital commitments. In this context, sponsors have been facing ahighly competitive and seller friendly market. Strategic investors remain active in the UK M&A market as they

Simon JayPartner, Cleary Gottlieb Steen & Hamilton

London, UKT: + 44 20 7614 2316F: + 44 20 7600 1698


About the authorSimon Jay advises on all types of mergers and acquisitions, aswell as joint-ventures and restructurings. He has representedboth corporates and private equity funds on a broad range ofpublic and private M&A transactions, often involving cross-border issues.

Jay is recognized as a leading M&A lawyer by ChambersGlobal, Chambers Europe, Chambers UK, the Legal 500 UKand IFLR1000.

His experience includes advising Fidessa in the on-going£1.4 billion recommended takeover offer from Temenos;Google in its tender offer for all the shares of Global IPSolutions (GIPS) Holding AB; TPG in its acquisition of Prezzo;Coca-Cola on the combination of the businesses to form anew Western European bottler, Coca-Cola European Partners;Raine Group as financial adviser to SoftBank in its acquisitionof ARM Holdings; Sony in its acquisition of Ericsson’s 50%stake in Sony Ericsson Mobile Communications; WarburgPincus and General Atlantic in the joint acquisition from BancoSantander of a 50% stake in Santander Asset Managementand the subsequent divestment; Santander Asset Managementin its proposed merger with Unicredit’s Pioneer Investments;and Bank of America Merrill Lynch in the sale of its non-USwealth management business to Julius Baer Group.

Michael PrestonPartner, Cleary Gottlieb Steen & Hamilton

London, UKT: + 44 20 7614 2255F: + 44 20 7600 1698E: [email protected]


About the authorMichael J Preston advises a broad range of private equity andcorporate clients on mergers and acquisitions, co-investments,joint-ventures and other commercial transactions.

He has experience across a range of business sectors, withparticular experience in financial services, healthcare, naturalresources and technology, and he has worked extensively inthe emerging markets. Michael also has significant experienceadvising clients on issues related to investment funds,acquisition finance and alternative investment structures.

Preston joined the firm in 2005 and became a partner in2011. From 2011 to 2015, he was resident in the Hong Kongoffice. Preston is recognised as a leading M&A lawyer byChambers Global, Chambers Asia, Asian Lawyer andIFLR1000.

His experience includes advising TPG in a range oftransactions including its acquisition of DTZ, Cushman &Wakefield and Cassidy Turley, its equity investment in ChinaInternational Capital Corporation and its investment inMoroccan schools operator Ecoles Yassamine; Hillhouse in arange of investments in Europe and Asia; Alnair CapitalHoldings JSC in the acquisition of an approximately 25% stakein JSC Kazkommertsbank; Mittal Investments in the acquisitionof an interest in Ophir Energy; and African Minerals in a $1.5billion investment by Shandong Iron & Steel Group.


UK

look to diversify in the face of political and regulatory uncertainty. Incertain cases, strategic investors are adopting more aggressive positionsin transactions which are more commonly associated with financialinvestors.



The acquisitions by a consortium comprising Macquarie Group, QIA,China Investment Corporation, Allianz Capital, Hermes InvestmentManagement, Dalmore Capital and Amber Infrastructure of a 61%stake in National Grid’s gas distribution business reflects renewedenthusiasm for energy, mining and utilities assets. The investment alsoattracted considerable media and political interest, suggesting there willbe continued political scrutiny and potentially action in relation toinvestments in strategic assets.The recent sale by General Motors of its Opel and Vauxhall

businesses and its GM Financial European operations to PSA Groupis illustrative of a trend of US corporates re-focusing on domesticconsolidation and rationalization of their investments and operationsoverseas.


Both financial sponsors and strategic buyers use a variety of methodsto structure and finance acquisitions. The nature of the financing usedwill, to a large extent, depend on the sort of transaction that the buyeris entering into (for example, the acquisition of control or a minorityinterest), as well as its ability to draw on its own reserves to finance thedeal. As noted above, financial sponsors are increasingly faced with a

competitive seller-friendly market and have started to adopt differentapproaches to structuring their acquisitions such as entering into clubdeals, making more minority investments and are showing anincreasing willingness to commit higher levels of equity in the pursuitof better returns.



The Companies Act 2006 applies to public and private companiesregistered in the UK. The Companies Act does not govern M&Aactivity directly but its requirements do dictate the way that dealsinvolving UK companies are structured.The acquisition of private companies is generally a matter of

negotiation between the buyer and seller and no regulated offer processis required. In non-regulated industries (i.e. other than financial




OUTBOUND INBOUND

28,979

9,014

1,305

8,711

5,922

4,546


9,964

1,4455,483

7,335

37,038

3,1236,045

1,785 1,035 7,284

29,461

357

$67,342m $101,510m


UK

services, telecoms, media etc.), deals are not typically subject to inputfrom regulatory bodies, save for competition matters.Public acquisitions are governed by the City Code on Takeovers and

Mergers (the Takeover Code), as administered by the Panel onTakeovers and Mergers.


The regulatory environment for UK M&A remains relatively stable,although regulatory aspects are often at the forefront of bids in certainsectors such as the financial services or energy and utilities sectors.


Historically, the UK Government has not intervened in non-domestictakeovers. However, in 2017 the Government proposed new lawsaimed at increasing its power to intervene formally in acquisitions ofcertain strategic assets (e.g. those related to advanced technology, criticalinfrastructure and/or military application) on national securitygrounds.In addition, the UK Takeover Panel has updated its rules on public

takeovers to require bidders to: (i) make clear their intentions regardingthe target’s employees, headquarters and research and development

functions at the outset of the bid process; and (ii) disclose publicly 12months after a bid has completed whether they adhered to thoseintention statements or departed from them.



UK businesses are principally acquired by way of a share purchase (i.e.purchasing shares of the target company) or an asset purchase (i.e.purchasing individual assets of the target company). Unlike manyEuropean jurisdictions, it is not possible to implement a transfer of agoing concern by the operation of law so parties have to individuallyidentify and transfer appropriate assets and liabilities. In addition, as amatter of UK domestic law, mergers by absorption (where one of thebidders or the target ceases to exist as a result) are generally not availableas a structure for M&A transactions between private UK companies.Such transaction structures are only possible where there is acombination of a UK private company with a company incorporatedin the European Economic Area, however the use of such structures isnot common in practice. In comparison to many other jurisdictions, the UK has a relatively

liberal overseas investment restrictions regime, although as noted above,this position may be changing to an extent in light of political pressure.The UK has a voluntary merger control regime which means that

there is no formal obligation for the notification of mergers in the UK.That said, in reality, many transactions are notified to the Competitionand Markets Authority (CMA) to avoid any potential disruptioncaused by intervention or enforcement. If a transaction has a EU nexus,formal notification will need to be made to the European Commissionfollowing the signing and announcement of the transaction.


See above.


Obtaining a detailed understanding of both the relevant legal marketsand applicable regulatory frameworks through early engagement withlegal and financial advisors are highly important along with carefultransaction structuring. In particular, any investor considering a publiccompany target should take urgent legal advice before taking any steps,as the operation of the Takeover Code may be unfamiliar to manyoverseas investors.

0

10000

20000

30000

40000

50000

PUBLICTARGET

PRIVATETARGET

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PRIVATETARGET

$29,823m$31,972m $44,974m $29,204m


OUTBOUNDINBOUND


UK



A bidder may obtain control of a target company by launching avoluntary offer to target shareholders (in which case it must secureacceptances in respect of at least a simple majority of the target’s votingrights to succeed) or by means of a court-sanctioned scheme ofarrangement under Part 26 of the UK Companies Act 2006 (whichrequires the approval of a majority in number, representing 75% invalue, of target shareholders who vote at the relevant meeting, butallows the bidder to acquire 100% of the target’s shares in a single step).Stake-building in support of an offer is possible but will set a floor pricefor the offer. Additionally, if the bidder and its concert parties acquireshares carrying in aggregate 30% or more of the target’s voting rights,this triggers a requirement to make a mandatory offer at the highestprice paid by the bidder and its concert parties in the 12 monthspreceding the bid. Unlike a voluntary offer, a mandatory offer can beconditional only on the bidder securing acceptances in respect of asimple majority of the target’s voting rights (including existing holdingsof the bidder and its concert parties).


A takeover offer will usually be subject to an extensive set of conditionsincluding: securing acceptances carrying more than 50% of the votingrights in the target, antitrust and regulatory approvals, bidder’sshareholder approvals, listing of consideration shares (whereappropriate), as well as conditions dealing with the state of the target’sbusiness. However, the UK Takeover Code permits a bidder to invokea condition to cause an offer to lapse only where the circumstancesgiving rise to the right to invoke the condition are of materialsignificance to the bidder in the context of the bid. The UK TakeoverPanel applies a high threshold and, consequently, it is rare for a bidderin a UK bid to rely on any conditions other than the acceptancecondition or conditions relating to material regulatory clearances. Abid cannot be subject to a financing condition or to conditions thatdepend on the subjective judgement of the bidder. On occasion, abidder will announce a firm intention to bid on a pre-conditional basis,where posting of the bid document is suspended pending satisfactionof stated pre-conditions, often material antitrust conditions where it isanticipated that these will involve protracted processes.


In public takeover offers, break fees (where the target pays theprospective buyer) and all other forms of deal protection which imposeobligations on a target in the UK are subject to a general prohibitionunder the Takeover Code whereas reverse break fees (where theprospective buyer pays the target) are not prohibited. 2017 saw six firmoffers in which a bidder agreed a reverse break fee, up from just one in2016.If the bidder is a UK public company and subject to the UK Listing

Rules and the total value of the reverse break fee(s) exceeds 1% of the

market capitalisation of the bidder, the bidder’s directors will need totreat the reverse break fee as a material transaction (which amongstother things, requires shareholder approval). If the bidder controls morethan 10% of the target, a reverse break fee may also constitute a relatedparty transaction for the purposes of the UK Listing Rules. If such abidder already has an equity interest in the target they must also beconscious of related party transaction issues.2017 also saw the first example since 2013 of a shareholder agreeing

to pay a form of break fee to a bidder (Eurovestech plc).



Roughly half of all private transactions contain a locked boxmechanism. This trend reflects the continuing seller friendly nature ofthe M&A market and the high levels of deal activity involving financialsponsors. Completion accounts are relatively common in trade dealsor where business carve outs make it more difficult to accurately definethe box. Deals which include some element of contingent considerationtend to be sector specific (for example, pharmaceuticals) or be incircumstances where the parties were unable to reconcile differingfinancial projections for the target business.


The conditions to closing included in a purchase agreement willgenerally vary based on the circumstances of each transaction. In UKdeals, these conditions generally tend to focus on regulatory and anti-trust clearances, however US acquirers in the UK market sometimesrequest additional conditions such as a requirement for the seller’swarranties to be materially accurate at closing, absence of materialbreaches of the seller’s covenants, absence of material adverse changeand completion of a marketing period to obtain financing andregulatory and anti-trust clearances. Whilst such US-style conditionsare seen in certain UK M&A transactions, they are not common andthe competitive nature of sale processes has resulted in a decline in thenumber of conditions being sought by prospective buyers, evenamongst US financial sponsors.


Generally, purchase agreements relating to UK assets will be governedby English law and subject to the jurisdiction of the English courts.For many global transactions, English law is widely perceived asconsistent, impartial and commercial so purchase agreements relatingto non-UK based companies and assets will commonly also begoverned by English law and subject to the jurisdiction of the Englishcourts, particularly where there is a nexus with Eastern Europe, theMiddle East, certain parts of Asia or Commonwealth jurisdictions. In


UK

some circumstances, however, purchase agreements may be governedby the laws and courts of another jurisdiction, such as New York orFrance.


The use of warranty and indemnity (W&I) insurance policies in UKtransactions has become increasingly popular in recent years,particularly in connection with sales by financial sponsors. The rise hasbeen driven by falling premiums and increasing flexibility of theinsurance products available, in particular a broadening of the type andscope of cover being offered (e.g. zero recourse policies are nowcommonly available to sellers).


The factors and limitations which influence the choice and timing ofa financial sponsor’s exit strategy in the UK are common to mostjurisdictions.In the context of increasing competition amongst financial sponsors,

many sponsors are taking the opportunity to exit portfolio companiesthrough auction sales in a strong seller friendly market. Typically, thesewill be secondary and tertiary buyouts, although sales to corporates arenot uncommon. A number of sponsors are expressing caution thatincreased market volatility and the possibility of higher interest ratesin 2018 may cause such elevated valuations to plateau in 2018.



UK M&A remained resilient in 2017, despite a level of political andeconomic uncertainty. Investors and advisors remain hopeful that UKinvestment activity will remain robust and even accelerate in 2018 asChina starts to re-assert itself on the global M&A stage and the politicalclimate in the UK, Europe and the US begins to stabilise. It is likelythat highly competitive auction processes will continue to define theM&A market as both strategic and financial investors alike look tospend high levels of cash reserves and capital commitments, althoughsome advisors suspect that high valuations may start to cool during2018.

10 8 | I F LR .COM | M&A R E PORT 2018 M&A R E PORT 2018 | I F LR .COM | 10 8



Record levels of capital held by financial sponsors and strategicacquirers looking to offset low growth prospects prompted fiercecompetition in 2017 for quality assets, forcing buyers to offer higherpremiums.

Buyer enthusiasm has also resulted in more seller-favourable dealterms. Deal structures that originated with private equity (PE) sellers,involving limited or no post-closing indemnification and the use ofrepresentations and warranties insurance (RWI) as the primary sourceof post-closing recourse for buyers, have become commonplace inprivate deals in recent years. At the same time, forced to pay highprices, buyers have become more discriminating, placing increasedpressure on due diligence.

According to Mergermarket, telecom, media and technology led allindustries by volume, accounting for 23% of total deals, while energy,mining and utilities dominated activity by value with 20% of totalvalue.


2017 ended strong with December announcements of the year’s twolargest deals, CVS Health’s $67.8 billion acquisition of Aetna, followedby Walt Disney’s $68.4 billion acquisition of certain assets of 21stCentury Fox, not to mention Broadcom’s hostile bid to acquireQualcomm for $130 billion. Despite these high-profile deals,according to Mergermarket, the aggregate value of deals involving UStargets fell to $1.3 trillion from $1.5 trillion in 2016 and a record-setting $1.9 trillion in 2015.

USGlenn McGrory and Paul Tiger, Cleary Gottlieb Steen & Hamilton



US

Deal volume, however, actually increased slightly from 5,325 dealsin 2016 to 5,347 deals in 2017. This uptick suggests 2017 did not seean overall decline in M&A activity but rather fewer mega deals, likelydriven by uncertainty over tax policy and deregulation following the2016 US presidential election.


Both are prevalent in the US. In recent years, however, private dealshave been increasingly driven by PE sellers with greater sensitivitytoward post-closing risks, which has caused private deals to bestructured more like public deals, with limited or no post-closing sellerexposure.


Strategic investors, many with surplus cash and looking to M&A tooffset low growth, typically drive competition for deals, but recordlevels of dry powder made well-funded financial investors formidablerivals to their strategic counterparts in 2017. In particular, accordingto Mergermarket, PE buyouts of domestic targets rose 12.3% by valueand 10.4% by volume compared to 2016.



Several notable 2017 M&A transactions involved splitting-up thesurviving company after closing to unlock additional value. Followingthe closing of the Dow Chemical/DuPont merger in August 2017 aftera 21-month regulatory approval process, the combined business willbe split into three independent public companies. Similarly, Humana’spartnership with two PE firms to acquire Kindred Healthcare,announced in December 2017, will result in the consortium splittingKindred into two businesses at closing, with the resulting hospitalcompany 100% owned by the PE firms and the resulting homecarecompany owned initially by all three, but with put/call arrangementsallowing Humana to take out the financial sponsors over time.

General Motors’ sale of its Opel/Vauxhall automotive business toGroupe PSA in August 2017 was also notable for having been designedto address certain regulatory hurdles, as the accompanying sale ofOpel/Vauxhall’s financing operations was structured to close separatelyin October 2017 due to longer regulatory approval timelines.

Glenn P McGroryPartner, Cleary Gottlieb Steen & Hamilton

New York, UST: +1 212 225 2686E: [email protected]

W: www.clearygottlieb.com/professionals/glenn-p-mcgrory

About the authorGlenn P McGrory is a partner in Cleary Gottlieb’s New Yorkoffice. His practice focuses on public and private mergers andacquisitions, private equity investments and corporategovernance matters. In 2016, The National Law Journal namedhim a “Mergers & Acquisitions and Antitrust Trailblazer”.McGrory joined the firm in 2000 and became a partner in2009. He was resident in the Frankfurt office in 2001 and theLondon office from 2003-2005. He received a JD from YaleLaw School, and an MS and a BS, magna cum laude, fromGeorgetown University.

Paul M TigerPartner, Cleary Gottlieb Steen & Hamilton

New York, UST: +1 212 225 2495E: [email protected]

W: www.clearygottlieb.com/professionals/paul-m-tiger

About the authorPaul Tiger is a partner in Cleary Gottlieb’s New York office. Hispractice focuses on public and private merger and acquisitiontransactions and private equity investments. He also providesadvice regarding stockholder activism, corporate governancematters, and fiduciary duties of officers and directors tocorporations and their boards. Tiger is recognised as a “RisingStar” in M&A by IFLR1000 (2018) and Law360 (2015), and asa “Next Generation Lawyer” for Private Equity by Legal 500 US(2017). Tiger is licensed as a certified public accountant inOregon (inactive). He received a JD, with distinction and Orderof the Coif, from Stanford Law School and a BA, summa cumlaude, from the University of Oregon.


US


See Questions 1.1 and 1.3.



US M&A activity is governed by both federal and state law. Applicable federal laws and regulation may include:

• Federal securities laws enforced by the US Securities and ExchangeCommission

• Antitrust laws enforced by the US Department of Justice andFederal Trade Commission

• Federal tax laws enforced by the Internal Revenue Service • Foreign investment laws enforced by the Committee on Foreign

Investment in the US (CFIUS) which reviews transactions thatcould result in a foreign investor holding significant influence overa US businessState laws typically address corporate governance matters, including

fiduciary duties, stockholder rights, voting requirements and state taxes.M&A transactions are usually governed by the laws of the state inwhich the target company is incorporated, although targetsincorporated outside of Delaware or New York often elect for theirtransaction to be governed by Delaware or New York law given themore extensive caselaw in those states.

Stock exchange listing requirements may also be implicated intransactions involving listed companies.


Among the most watched M&A developments on the regulatory frontin 2017 were: (1) federal tax reform, (2) antitrust enforcement and (3)CFIUS practices.

Although the highly anticipated Tax Cut and Jobs Act (TCJA) didnot go into effect until January 1 2018, uncertainty surrounding taxreform throughout 2017 likely put many deals, especially mega deals,on hold. See Question 6.1 for more details on the TCJA’s potentialimpact.

With respect to antitrust enforcement, recent developments suggestonly a modest shift away from the aggressive merger enforcement ofthe Obama administration. The administration has nominatedmainstream enforcers to lead antitrust agencies and has shown itswillingness to block some deals deemed to be anticompetitive, such asthe Department of Justice’s suit to block AT&T’s $85 billionacquisition of Time Warner. However, it’s still too early in Trump’stenure to identify how much antitrust enforcement may change.

With respect to CFIUS, the Trump administration has shown itswillingness to block transactions that it deems a threat to nationalsecurity, including barring the proposed sale of Lattice Semiconductorto a Chinese PE firm in September 2017 and MoneyGram’s proposedsale to a Chinese acquirer in December 2017.




OUTBOUND INBOUND

45,974

32,373

12,456

42,291

19,742

11,668


11,357

59,368

17,3908,342 4,760

2,440

73,276

28,640

6,751 2,837

35,851

$176,532m

INBOUND

$277,431m

38,447


US


See Question 3.2 for a discussion of federal regulations.At the state level, Delaware courts have continued to transform the

landscape of stockholder litigation in public M&A.Two key appraisal decisions were issued in 2017 that granted

significant weight to the market-based merger price in determining“fair value” where a public company is sold pursuant to a competitivearms-length bidding process, indicating that appraisal claims will likelybecome limited to controller transactions, management buyouts andtransactions involving a flawed sale process.

Delaware courts also continue to dismiss post-closing fiduciary dutyactions based on a 2015 ruling that change-of-control transactions willbe reviewed under the highly deferential “business judgment rule”(BJR) once approved by a majority of disinterested shareholders in a“fully-informed” and “uncoerced” vote. Following that ruling, 2017decisions applied BJR even when the directors approving thetransaction were not independent and disinterested and found itinapplicable only in egregious instances of coercion, making futurechallenges to mergers much more difficult once ratified bystockholders.



In the US, information disclosed through due diligence only limits theseller’s liability to the extent that it is also disclosed in the correspondingdisclosure schedules to the acquisition agreement and, contrary to whatmany foreign acquirers expect, information provided in the data roomtypically does not qualify a seller’s representations and warranties.


Foreign buyers in markets that use a locked box approach to purchaseprice often have questions regarding post-closing purchase priceadjustments commonly used in the US (see Question 5.4).

The trend toward using RWI as a backstop or substitute for sellerindemnities is also sometimes unfamiliar to non-US buyers (seeQuestion 5.7).


Buyers and sellers should consult with US M&A counsel early tounderstand what practices are typical for the US market.



In order to close a negotiated public company merger in the US, thetransaction must typically be recommended by the target board andapproved by a majority vote of the target’s stockholders. Thisstockholder approval requirement poses a closing risk because it isusually satisfied after public announcement and state law generallyrequires the target to have a “fiduciary out” to permit consideration ofunsolicited competing offers.

Activist investors may sometimes quietly acquire influence over a USpublic company without board or stockholder approval byaccumulating shares through trading in the market and entry intoswaps or other derivative transactions as a means to press for boardrepresentation or change in company policy.


Common closing conditions in public deals include:• Bring-down of representations and warranties and compliance with

pre-closing covenants, usually subject to a materiality standard• No material adverse effect since signing

0

30000

60000

90000

120000

150000

PUBLICTARGET

PRIVATETARGET

PUBLICTARGET

PRIVATETARGET

$95,623m$123,258m $103,374m $57,345m


OUTBOUNDINBOUND


US

• Receipt of any necessary shareholder approval and requiredregulatory approvals

• Absence of any governmental order or legal impediment preventingthe transactionOnce common, financing conditions are now very rare in US public

deals and were included in only 2% of 2016 deals according to theABA’s 2017 public M&A study.


The average fiduciary termination fee paid to buyer, typically as a resultof taking certain actions in respect of competing offers, decreasedslightly in size to 3.39% of equity value in 2016 from 3.51% in 2015according to the 2017 ABA study. Break fees or expense reimbursementis sometimes also payable upon a “naked no vote” (i.e., where targetstockholders vote down the deal or the minimum tender condition failsin the absence of a competing offer); such fees appeared in 26% ofdeals in 2016, 3% more than in 2015.

Reverse break fees (RBFs) paid by buyer to seller are often used toaddress the risk of financing failure, particularly where the buyer is afinancial sponsor, or to address significant regulatory or antitrust risks.RBFs to address financing failures usually range from 5-7% of equityvalue, while regulatory or antitrust RBFs vary widely.



Unlike locked box mechanisms, which are more common in Europeand provide for a fixed purchase price at signing using a historical targetbalance sheet, completion accounts are predominately used in USprivate company transactions and allow the final purchase price to beadjusted based on the balance sheet as of closing to account for changesin the target’s financial position since signing. The purchase price istypically determined on a cash-free, debt-free basis with an adjustmentfor closing net working capital, against an agreed “normalised” level ofworking capital. As a result, interim results are generally considered tobe for the benefit of the seller, whereas under a locked box approach,the buyer generally obtains the benefit, and bears the risk, of interimoperations.

Earn-out provisions are rarer, as they are often difficult to negotiate,necessitate periodic monitoring and usually require continued sellerinvolvement in the business.


Other than stockholder approval, which is frequently obtained atsigning in private deals, most of the closing conditions for public dealsdiscussed in Question 5.2 also apply to private company M&A.


No. Such agreements are typically governed by Delaware or New Yorklaw.


RWI policies continue to rise in popularity. The ABA’s 2017 privateM&A study found that 29% of transaction agreements contemplatedRWI, with 23% using it as the sole source of recovery for breaches ofrepresentations.

Relatedly, indemnity escrow size fell from an average of 9.15% in2014 to 6.66% in 2016/2017, possibly because many deals used smallescrows for sellers to bear the first dollars of loss until the deductibleunder the RWI policy was met.


Financial sponsors often utilise dual track processes for their exits,exploring sales while simultaneously preparing for an IPO. In theM&A track, there’s a robust market for sales from one PE sponsor toanother, typically on seller-friendly deal terms.

Financial sponsors will generally prefer an M&A exit as pricing isagreed and the seller can liquidate its entire position at the time of thesale. In an IPO, pre-IPO investors are typically unable to participatefully or at all in the IPO and are only able to sell down their block overtime following the IPO.



US tax reform under the TCJA, effective January 1 2018, will likelyhave a significant impact on US M&A activity. The considerablecorporate tax rate reduction from 35% to 21% is expected to make USinvestment more attractive while the tax holiday on repatriatingoverseas earnings will provide additional sources of capital to alreadycash-heavy corporates. However, new limits on the deductibility ofinterest expense and net operating losses may temper target valuationsand disfavour highly leveraged deals.

With tax reform a reality, a robust economy and the Trumpadministration’s trade and antitrust policies leaning less radical thaninitially feared, there’s general consensus that US M&A in 2018 ispoised to move past the uncertainty that characterised much of 2017.In particular, PE investors with record amounts of capital will likelycontinue to play a big role in 2018 deals.

Documents

M&A Report 2018 - DaHui Lawyers · jumping by 14% on a global basis against 2016. Asia led the way, reflecting a maturing PE market, with PE deal value nearly doubling. European deal