UK Public M&A Monthly Activity Update: July 2023

In July 2023, there were three Rule 2.7 announcements made across the UK public M&A market and a further four possible offers announced.

Firm Offers announced this month:

• Recommended cash offer by Novacyt S.A. for Yourgene Health plc - £16.7 million
• Recommended cash offer by Searchlight Capital Partners, L.P. for Gresham House plc - £469.8 million – public to private
• Recommended cash offer by Inflexion Private Equity Partners LLP for DWF Group plc - £342 million – public to private

Possible Offers announced this month:

• Possible offer by HeadFirst Global for Impellam Group plc
• Possible offer by Inflexion Private Equity Partners LLP for DWF Group plc - £341.98 million – cash consideration and partial securities alternative
• Possible offer by PSF Capital GP II Limited for STM Group plc - £41.59 million – cash consideration
• Strategic review including formal sale process announced by Aptamer Group plc (withdrawn)

Firm Offers breakdown this month:

July 2023 Updates:

Second Annual Report on the National Security and Investment Act

The Cabinet Office has published the second Annual Report on the National Security and Investment Act 2021 (NSIA), covering the period from 1 April 2022 to 31 March 2023 (the Report).

The NSIA introduced a new framework for the review of transactions and investments on national security grounds in the UK with effect from 4 January 2022, updating the UK regime in line with the global trend to strengthen foreign direct investment screening.

The NSIA requires the Secretary of State to present a report on the operation of the regime to Parliament each year. The first report, published on 16 June 2022, provided a limited overview of the first three months of the NSIA’s operation. The latest Report covers the full 12-month period to 31 March 2023 and offers valuable insights for investors into the work of the newly established Investment Security Unit in enforcing the NSIA regime, including:

• Notifications – There were 866 notifications received in the relevant period, of which 671 were mandatory filings, 180 were voluntary notifications, and 15 were retrospective validation applications. The vast majority (93%) were cleared within the initial 30 working day preliminary review period.
• “Call-ins” – 65 transactions were “called-in” for further investigation by the Secretary of State. Over half of the call-ins related to mandatory filings, and around one quarter were in relation to voluntary notifications. Importantly, 10 non-notified transactions were called-in during the review period, illustrating that the Government is pro-actively monitoring deal activity and making use of its powers to call-in transactions for review on its own initiative. 
• Outcomes – 72 called-in transactions were subject to final determination by the Secretary of State during the relevant period (with 11 transactions being withdrawn before the end of the review process). Most of the called-in transactions eventually received unconditional clearance, with only 20.8% resulting in a final order. There were 15 final orders issued by the Secretary of State during the review period (one of which was subsequently revoked due to the acquirer deciding not to proceed with the transaction). Five of these resulted in prohibition or forced divestment of the acquisition, with the rest involving the imposition of conditions.

Read a more detailed summary of the Report, including key practical takeaways for investors, on our competition team’s blog here.

New notification requirements where foreign “financial contributions” involved

In November 2022, the EU adopted a new Foreign Subsidies Regulation (FSR). The FSR applies to transactions with an EU nexus signing on or after 12 July 2023, with the notification obligations commencing from 12 October 2023.

The FSR is intended to level the playing field between EU operators and their competitors from non-EU Member States which are not subject to the same kind of strict subsidies disciplines as EU Member States are under the EU State Aid rules.

It seeks to do this by creating new subsidy control tools for the European Commission to address foreign subsidies, including a notification-based tool in relation to potentially subsidised mergers and acquisitions, “concentrations”. Concentrations need to be notified to the European Commission where: (i) the undertaking to be acquired, one of the merging undertakings, or the joint venture, is established in the EU and has aggregate EU turnover of €500 million or more; and (ii) the aggregate amount of the foreign “financial contributions” received by the undertakings concerned is more than €50 million over the three years prior to notification.

Although the aim of the FSR is to address foreign subsidies that distort competition in the EU, the notification obligations are triggered by foreign financial contributions, a much wider concept. A foreign “financial contribution” may include any transfer of financial resources from non-EU public authorities to the undertakings concerned, including, for example, payment by a non-EU public authority or state-owned enterprise for goods and services (even where those payments were made on arm’s length market terms so there is therefore no subsidy).

Failure to notify when required could result in significant fines being imposed on companies by the European Commission, as well as a risk that the transaction could subsequently be subject to investigation and ultimately unwound if the Commission concludes that foreign subsidies in the concentration distort the EU internal market.

Read more about the new EU foreign subsidies regime on our competition team’s blog here.

July 2023 Insights:

Public M&A deal activity in July 2023 has increased compared to July 2022, with three firm offers and four possible offers announced. However, the total number of offers announced is still much lower than in the three preceeding years (2019 - 2021) as market conditions continue to be rather subdued. So far, 2023 has seen a greater proportion of private-equity backed bids than in 2022. July is no exception, with two out of the three firm offers involving sponsor bidders – Searchlight Capital Partners, L.P. and Inflexion Private Equity Partners LLP.

The two firm offers by private equity firms talk about the benefit to a company of being taken private. For example, on the offer by Inflexion Private Equity Partners LLP for DWF Group plc, Inflexion states that private ownership would allow DWF to take better advantage of the growth opportunities available to it. On the offer by Searchlight Capital Partners, L.P. for Gresham House plc, the Gresham House board states that being taken private will accelerate: (i) its ability to raise funds consistently; and (ii) its strategy to identify and execute UK and foreign transactions. There has been quite a lot of commentary around this in recent years, in particular that being taken private gives the company the opportunity to grow the business within a private shareholder environment, with fewer reporting requirements meaning that more time and money is available. This has been seen as part of the reason for the significant public M&A activity in recent years.

Useful links

• Herbert Smith Freehills Takeovers Portal.
• Herbert Smith Freehills Public M&A Podcast Series.
• The Takeover Code.
• The Takeover Panel’s Disclosure Table (detailing offeree companies and offerors currently in an offer period).