New Takeover Code divides opinion

Reforms to the Takeover Code appear to have split the views of M&A advisers, with 59 per cent believing that target companies should not be forced into revealing who potential bidders are, new research shows.

The study, conducted by virtual data room provider Imprima, suggests that the modifications, which came into effect on 19 September, make the process of M&A more difficult in an environment which already presents sufficient challenges to deal flow.

According to the survey, 40 per cent state that the new rules make M&A transactions more expensive, while 43 per cent say that the amendments will result in the bid process being more time-consuming.

Additionally, 16 per cent see the updated Takeover Code as posing a risk to UK M&A activity, with deals driven away from Britain to other financial centres.

The issue was examined by M&A Deals in September, with M&A practitioners pointing towards the private equity market as the sector which would be most affected by the changes.

In changing the code, three key amendments were made:

Naming – Bidders to be publicly identified by prospective target at an early stage, removing the ability to ‘stalk’ targets.

28-day bid period – Potential buyer has four weeks after its name becomes public to formally declare intention to make offer or not (‘put up or shut up’ period). If bidder withdraws then target cannot be pursued for six months.

Transparency – Disclosure of finance arrangements: source of funds, terms, interest payments, debt refinancing as well as advisory fees to be published. Buyers also held to account on commitments made in bid process.

Meredith Foster, of Imprima, says that although the changes have been introduced for ‘valid’ reasons, the new findings suggest that attitudes vary towards the affect on the flow and efficiency of doing M&A deals in the UK.

She explains: ‘People are clearly concerned about the extra time and expense in complying with the new regulations and many would like the choice to keep details under wraps.

‘While it appears that some potential targets may be able to win dispensation from the panel over the requirements to name bidders, in most cases they will have to adapt to the new rules.’

In looking at the ability for the new rules to be enforced, 36 per cent of those surveyed say the code won’t be easy to implement.

Foster concludes: ‘These new rules put the final nail in the coffin of old fashioned, paper-based due diligence in favour of virtual rooms.’

The research surveyed 100 sell-side institutions, law firms and corporate advisers.

Todd Cardy

Todd Cardy

Todd was Editor of between 2010 and 2011 as well as being responsible for publishing our digital and printed magazines focusing on private equity and venture capital.

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