Increased regulation and its impact on M&A

Eric Knai, Partner and Head of M&A (International) at Eversheds Sutherland, opened the third annual M&A conference by outlining how increased nationalism, protectionism, and geopolitical uncertainty has led to greater regulation in M&A. Despite this, he shared the encouraging news that the overwhelming majority of deals are still being closed successfully and without conditions.

This reflects the findings of Eversheds Sutherland’s research, summarized in the M&A report launched at the conference. Eric stressed however, that, in today’s environment, you need strong, experienced practitioners capable of delivering strategic advice and support in key geographies globally to guide you through the challenges resulting from an increasingly regulated M&A process.

In this new world, there is now a greater burden on organizations to not only navigate both new and more stringent regulations that have emerged across antitrust and FDI transactions, but to manage the lengthier processes, more people involved and overall increase in the time to complete a deal that are often the result. Eric explained that it has now become the “new transactional norm” for regulatory and M&A teams to work together hand in hand, at the very start of a deal. Planning ahead and anticipating potential regulatory pitfalls is now vital to mitigate risk, reduce overall time spent, streamline processes and manage the cost of transactions overall.

Over the course of the afternoon we were thrilled to have panelists share their different perspectives on the impact of regulation on M&A, from senior individuals from the Cabinet Office, Rolls-Royce and Rothschild. And given that M&A crosses borders with multiple jurisdictions, it was really important to hear the direct experiences from Eversheds Sutherland’s team who have vast experience working on deals across Asia, North America and Europe.

From The Great Moderation to The Great Fragmentation: Tim Hames, Former Director General at The British Private Equity and Venture Capital Association (BVCA)

Keynote speaker Tim Hames opened by echoing Eric’s optimism. He said there is opportunity in this seminal challenge of our time.  We’re now operating in a world which has recently seen the rise of populist politics, a global pandemic, and the War in Ukraine, which has had a significant effect on the international order. He stated that first we must accept that the world in which we seek to do business has changed. Then we should look at why it has changed and what might be the best response.

With the US presidency and congress race happening just a month after the conference, Tim explored the potential impact to foreign and international economic policy we might see from either a newly elevated President Harris or restored President Trump. Tim’s view was that a Harris presidency would focus on multilateral cooperation, whilst a President Trump would adopt a more protectionist stance. Tim stated that this is a case study in the way geopolitics has been transformed.

“Adapting to a new world order, whatever that may be, will require organizations to reassess their risk and strategy.” Tim Hames, Former Director General at the British Private Equity and Venture Capital Association (BVCA)

The impact of regulation on M&A

For the first panel of the afternoon, chair Peter Harper, Partner and Head of Competition & Antitrust (International) at Eversheds Sutherland was joined by the following expert panel:

• Kathryn Roe, Deputy Director, Investment Security Unit for the Cabinet Office
• Emma Griffiths, Chief Counsel - Competition for Rolls-Royce
• James Lindop, Partner and Global Co-Chair Competition, Trade & Foreign Investment for Eversheds Sutherland in London
• Josh Shapiro, Partner, Competition & Antitrust for Eversheds Sutherland in Washington
• Marjolein De Backer, Partner, Competition, Trade & Foreign Investment for Eversheds Sutherland in Brussels

Together they discussed how changes to the global regulatory environment have impacted M&A over the past five years.

Peter re-iterated Eric’s opening remarks, saying that despite more regulatory hurdles, deals taking longer and a greater desire from some regulators to deter what they view as problematic deals by focusing their public comments on those few deals which are prohibited, ultimately the vast majority of transactions are getting done - as evidenced by the data in Eversheds Sutherland’s M&A report.

Kathryn Roe, Cabinet Office, said that under the National Security & Investment Act in the UK the vast majority of transactions are still cleared within 30 days. Kathryn’s top tip is that if you can, let them (regulators) know about the anticipated transaction timings. Notify them if something is happening on a specific date. And whilst subject to statutory timetables, they, as civil servants, will do their best to help.

Emma Griffiths, Rolls-Royce, outlined the effects changes in regulatory approval processes have had, the prominence of FDI and the need for proactive engagement with regulators. She also shared how regulatory processes are now often a key issue for businesses including at board level.

James Lindop, Eversheds Sutherland partner in London, compared the UK’s National Security & Investment Act with the FDI regime of other countries and recognized the increasingly complex FDI regulatory environment with more deals than ever before subject to FDI screening. However, he highlighted the promising high clearance rates in the UK and the importance of transparency from regulators to enable those deals where FDI issues are identified, to move forward.

The impact of antitrust enforcement on M&A was discussed by Josh Shapiro, Eversheds Sutherland. He described that in the US, antitrust agencies are taking a strong approach to enforcement. In particular, the US Department of Justice, has increasingly taken a stance not to negotiate remedies as a means of resolving antitrust concerns. However, he reflected that, as the US agencies have themselves recognized, this impacts very few deals with only 2% of deals getting blocked by the US antitrust agencies.

Marjolein De Backer, who is based in the Eversheds Sutherland office in Brussels, highlighted that in the EU, and in other jurisdictions, timelines are often longer and antitrust regulators are identifying novel types of antitrust concerns. There are also new forms of regulation coming on-stream such as the Foreign Subsidies Regulation. However, as with the US, a reassuring 97% of deals are receiving antitrust clearance from the European Commission.

The panel agreed and emphasized the importance of upfront preparation, engagement with the regulators, and understanding of the broader market dynamics as the key to successfully completing deals.

What’s next for global M&A

Moving on to the final panel of the day, Eric Knai was back to lead a discussion on the increasingly complex geopolitical situation and its impact on the execution of deals. He was joined by the following experts:

• John Deans, Chair, UK Global Advisory for Rothschild
• Catherine Detalle, Partner, M&A and Head of Consumer Sector (International) for Eversheds Sutherland, Paris
• Ted Cominos, Partner, M&A for Eversheds Sutherland, US
• Charles Butcher, Managing Partner at Eversheds Sutherland Asia, Hong Kong

John Deans, Rothschild, shared that the tools have not changed when it comes to how you deal with longer timescales and managing risk for clients. But because those risks are now more real than theoretical, contractual remedies and risk sharing has become more important.

From a US perspective, Ted Cominos, remarked that yes, antitrust scrutiny has increased and is increasing timeframes to close deals. Additionally, the level of regulatory scrutiny of certain sectors has increased with, for example, the private equity sector ‘s influence over certain industries being more closely examined. This is even resulting in members of the boards of directors from the same Private Equity firm, and even non-exec directors, being examined to see where they ‘interlock / intersect’ across multiple companies in the same industry or sector. Ted also added that we are also seeing a rise in FDI scrutiny into newer, specific industries such as real estate and agriculture, with food security is also now increasingly seen as a national security consideration.

In the consumer goods and luxury sectors it’s a similar story, as explained by Catherine Detalle. She highlighted that since the Covid 19 pandemic, the food supply chain is deemed critical for government.  Any potential disruption to food distribution is considered high risk. Catherine also stressed that the new regulatory changes in FDI mean its filings are a grey area right now, so we need to be upfront in discussing any potential challenges with the regulatory authorities.

From an Asia perspective, Charles Butcher, shared how deal timetables have also become elongated in China. Changes in regulation are a part cause of this, for example newly introduced anti-bribery laws. Charles advised that due diligence and thinking upfront about how to address even the most uncomfortable areas of transactions is key to managing expectations all round.

As the afternoon drew to a close, guests headed off for drinks and canapes to consider and discuss questions raised, answers given and lessons shared during the conference sessions.

Achieving success in future M&A

It was wonderful to be joined by so many working within the M&A world, to be able to launch the Eversheds Sutherland 2024 M&A report, and to be able to listen and discuss the latest changes and challenges for all those who navigate M&A transactions. The detailed data and commentary from Eversheds Sutherland partners and clients, that were shared within the report, were brought to life during the day of the conference. With the overriding message that, although the increased regulatory environment has made transactions more challenging, and will almost certainly continue to do so in the future, there are ways of mitigating risk and smoothing the process in order to get deals done. Key to this is upfront planning, and global advisors who have experience with regulators and of this complex regulatory environment, to ensure that potential issues are anticipated, and deals are indeed completed successfully – and with the minimum of disruption.

Read our full report here

Take a look back at our 2024 M&A conference...