The implications from Brexit in this area are as follows:
It is unlikely that the Companies Act 2006 (“CA 2006”) will be subject to a material review or amendment following Brexit. There are some provisions in the CA 2006 that have derived from EU law (including shareholder rights and disclosure of information) however, the impact is thought to be minimal. It is possible that the government may take the opportunity to remove restrictive EU-derived provisions to reduce the regulatory burden on companies.
It is not believed that the current laws and regulations governing this area will be significantly affected by Brexit. However, M&A activity could slow down due to: the current volatility of the markets; possible changes in other areas; and uncertainty as to the ultimate shape and impact of Brexit.
The longer term outlook will depend on: obtaining greater clarity on the ultimate Brexit terms (which may impact on some sectors more than others); investor confidence; and market conditions (including the effect on Sterling which may create opportunities for overseas buyers).
We also see scope for:
- Negotiations and disputes in relation to deals that have been signed but not yet closed (e.g. the triggering of material adverse change clauses);
- Reassessment of unannounced deals resulting in their possible acceleration, postponement or termination;
- Impact on due diligence reporting with specific and discrete attention being given to Brexit related risks;
- Negative impact on deal flow if there is a protracted period of difficulty in raising acquisition funds;
- Use of “Brexit clauses” to permit parties to exit from conditional deals in carefully defined circumstances;
- Increased use of deferred and contingent consideration structures (e.g. earn-outs);
- Use of other mechanisms for adjusting sale terms such as those on which post-completion services are to be provided; and
- A period of uncertainty pending clarification of the post-Brexit merger control and antitrust environments.
It is not expected that there will be significant changes to the UK’s Takeover Code following Brexit.
The Cross-border Merger Regulations established a framework for cross-border mergers between UK companies and those governed by the law of another EEA state. Depending on the outcome of the negotiations, it is possible that UK companies will no longer be able to use this framework.
Equity Capital Markets
This area is heavily influenced by EU legislation in particular, the Prospectus Directive, Transparency Directive and Market Abuse Regulation. In terms of market trends, there is also likely to be a short-term reduction in capital market deal flow.
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