2024 was, and despite an initial dip in Q1, 2025 continues to be busy for the acquisition of UK public companies in ‘take private’ public M&A transactions. U.S. based bidders and private equity sponsors (“Sponsors”) have continued to be a strong force in UK public M&A. Led by blockbuster transactions from last year including the £4.3 billion takeover bid of Darktrace by a U.S. Sponsor, there still continues to be strong interest from Sponsors for publicly listed UK companies with the following four Sponsor led deals on the horizon, namely, Axle & Manufacturing Holdings, Inc’s offer for Dowlais Group plc, KKR/Stonepeak’s offer for Assura plc, Qualcomm Incorporated’s offer for Alphawave IP Group plc and Advent International’s offer for Spectris plc (some of these having now progressed further at the time of writing).
While strong momentum from 2024 continued into 2025, this was somewhat curtailed in Q1. This was principally due to the volatility caused by the trade wars instigated as a result of the tariffs being implemented globally by the U.S. Trump administration. This cooling down of the global markets and corresponding global economic, political and market volatility initially led to falls in public company equity values however, subsequently it actually has served to increase the relative appeal of UK and European public markets. Therefore, the volatility of the current market presents a unique opportunity for Sponsors to be able to purchase British companies, which are trading at a relatively cheap value when looking at price-to-earnings ratios, in comparison to U.S. companies. The gap between these valuations has made these “take private” routes attractive to Sponsors. When combined with the fact that private equity funds are still sitting on large amounts of undeployed cash and potential further volatility if the U.S. Trump administration goes ahead with threats to reinstate various global tariffs in August, public to private transactions could look set to continue into Q3 and Q4 this year.
In this article we discuss some of the key considerations Sponsors/bidders should take into account when considering a public-to-private transaction involving a UK-listed target against the backdrop of the current market and the ongoing macroeconomic environment in the face of U.S. Trump tariffs, trade wars and global conflicts and resulting supply chain issues.
Key Considerations for Sponsors
Pricing a target company
As a result of the volatility, falling share prices and the decline in global currencies, assessing the price of a target U.K. public company is not a straightforward task. While various sectors have seen share price value drop as a result of the tariffs and broader macroeconomic environment, technology companies in particular have seen large losses (and rebounds) in their share prices as result of tariffs and this can make it difficult to value prospects and price of a target company at this point in time. Some relatively recent market entrants such as Darktrace have decided to take the company back private, and while this is driven by variety of factors and considerations such as the difference in the equity value and the actual enterprise value of a target, it can present an opportunity to Sponsors looking to acquire good companies at a discount. As a result, there are multi-faceted pricing considerations that Sponsors need to consider, including, but not limited to:
the messaging and justification of any valuation and offer price;
the liquidity of the target company;
the shareholders of the target company; and
the composition of the target company’s board.
These are just some of the concerns that will need to be taken into account when considering the pricing of the target company, in light of the current macroeconomic and market conditions and volatility. Pricing is an important step that Sponsors need to carefully consider, in order to make sure that the price of the target company best takes into account and deals with the various points needed to successfully navigate the transaction.
Structuring Public Takeovers in the U.K. - Scheme of Arrangements
One of most common way for a potential bidder to structure a public-to-private transaction in the UK is through a scheme of arrangement. A scheme of arrangement enables the bidder to acquire 100% ownership of the target UK public company. Whilst it is often the most used method, potential bidders should be aware that the scheme of arrangement route requires both shareholder approval at a general meeting of the company and court approval.
Therefore, there is a structured procedure and court application process involved that will require local U.K. advisers for both the bidder and target company. Before proceeding with a scheme of arrangement, Sponsors will need to better understand the overall deal structure and procedural steps involved in a scheme of arrangement, in relation to the suitability of this approach.
Foreign Investments Review and Scrutiny
In recent years, there has been a focus on the review and scrutiny of foreign investment into the UK, which has continued to intensify as a result continuing global issues and conflicts that have made the control of assets in relation to strategically important industries such as health, technology and energy of paramount importance. For example, this continues to be a key consideration in relation to the continued energy crisis in Europe as a result of the ongoing war in Ukraine and the sanctions on Russia. Across the globe, governments have since taken measures to protect industries and companies that are economically or nationally strategic such as those in the health care or energy and power sectors.
Sponsors looking to purchase a UK public company will need to consider the effect of the National Security and Investment Act 2021 (NSIA). This legislation allows the UK government to scrutinize and potentially block acquisitions and investments in certain sectors that could impact national security. Failure to make a notification under the NSIA that was required leaves a transaction null and void and unenforceable so there are serious consequences and Sponsors should take advice early on the NSIA.
Acquiring an Early Stake
It is common for Sponsors bidding for public targets to first look to acquire a small stake in the target. This is often the case with competitive bids. However, Sponsors should be aware that any market purchases they make prior to any later acquisition offer will still be relevant for setting the price that must be offered under a subsequent bid for the same target company under the U.K. City Code on Takeovers and Mergers (the Code).
What this means in practical terms is, if a bidder or its ‘concert party’ (as defined under the Code) acquires an interest in shares of a target during a three-month period;
prior to the offer period; or
during any period between the commencement of the offer period and the announcement by the bidder of an intention to make an offer,
then the offer is required to not be on less favourable terms (i.e., the price per share offered must be no less than the highest amount paid for any shares previously acquired by the Sponsor during this period). In a market with increasing volatility and where prices could continue to fall, an earlier stake could bind a company to a minimum price that hinders a Sponsor’s ability to secure the best terms for an acquisition.
This point arises in relation to Rule 9 mandatory bids under the Code. As any acquisition (even just one share) might result in a requirement for a mandatory bid to be made for the target company, if that acquisition takes the shareholder's/concert party’s aggregate holding to 30% or more or, if they are interested in more than 30% but less than 50%, and that acquisition increases the percentage of shares carrying voting rights in which they/concert party are interested. Therefore, bidders should review their previous acquisitions (including concert party members) as they could find themselves bound to an earlier unfavourable price if an acquisition takes them over certain thresholds under the Code. These types of Code considerations are a key part of transactions and bidders should engage advisers at an early stage when considering acquiring stakes.
Acquisition Financing
With public company share values being felt across all markets, particularly the FTSE 100 and S&P 500 where prices have fallen and then rebounded in recent months, as well the general volatility globally, lenders may be unlikely or unwilling to provide debt financing to Sponsors as the cost of debt increases.
Due to the increased market volatility and uncertainty, it becomes difficult for lenders to predict a Sponsor’s ability to repay the debt in the future, largely because of the uncertainty of the financial performance of any target businesses. Therefore, Sponsors should carefully consider debt backed acquisitions.
It is also worth noting that under the Code, the financing for an acquisition is to be made on a “certain funds” basis, to which there are limited exceptions. As such, the volatility combined with requirements under the Code may mean there is a scarcity of available financing for any transaction. Therefore, Sponsors need to carefully consider financing options as a part of their plans for any acquisition.
Due Diligence
As a result of applicable listing rules and ongoing disclosure requirements placed on a U.K.-listed company, a lot of information is already in the public domain and only confirmatory/high-level due diligence is usually necessary or entertained by the board of the target company. Furthermore, any competing bidders have the right to equal access to information supplied to another bidder under the Code, which can restrain co-operation with the target company.
In certain industries, Sponsors in the US looking to purchase a UK-listed company may need to consider the sets of sanctions that are put in place by the UK and the US. The countries have differing sanctions regimes and Sponsors should consider if any assets of a target might be owned by sanctioned companies or individuals falling within either country’s sanction regimes. With each country having their own list of sanctioned companies and individuals, Sponsors should carefully consider whether something permitted under the UK sanctions is also permitted under U.S. sanctions and vice versa.
Due diligence becomes a key process for Sponsors to understand ownership of a company, and consider their obligations under the sanction regimes in both countries and how the acquisition of the target company might affect those obligations.
Break Fees
Sponsors may be familiar with the concept of a break fee which is a fee that is payable by a target to a bidder in the event of a takeover offer not proceeding. However, Sponsors should be aware that generally break fees are prohibited under the Code. The only exceptions to this prohibition is:
when the target has announced that it is seeking one or more potential bidders by means of a formal sale process; or
where a hostile firm offer has been announced, in which case the target company can agree to pay a break fee to a recommended "white knight" (i.e., a possible counter-bidder) if the target company is in serious financial difficulties.
In each case, the break fee can only be entered into at the time that a firm offer for the target is announced, further it must be limited to no more than 1% of the aggregate offer value of the offer (on a fully diluted basis), and must be payable only if another offer becomes wholly unconditional. However, there is no prohibition under the Code on a bidder agreeing to pay a reverse break fee (i.e., a fee payable by a proposed bidder to a target if the offer does not proceed for specified reasons). Accordingly, break fees need to be carefully crafted by the Sponsor pursuant to professional advice.
Timeline for Acquisition
With continuing issues related to the tariffs, global conflicts, as well as the continuing effects of the Russian sanctions, Sponsors need to be prepared that timelines for acquisitions may be extended or protracted in response to navigating these issues. We have seen in the market transaction having longer lead times which need to be considered and prepared for as well as funded.
It becomes imperative at an early stage for Sponsors to consult legal counsel for any proposed transaction to ensure any legal or regulatory filings/requirements can be dealt with as expediently. Particular timing considerations will also apply where regulatory or merger control conditions need to be satisfied before completion takes place and early consultation with legal counsel is advisable in these instances – a particular example is NSIA notifications which if required must be done prior to completion.
How Can Laytons Help
Laytons ETL is experienced in advising on public-to-private transactions, and our experienced Equity Capital Markets team is able to guide any interested Sponsors or Rule 3 advisers through the process of acquiring a publicly listed UK company, including the necessary legal and regulatory advice before, during and after the acquisition.
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Disclaimer: This publication is provided by Laytons LLP for informational purposes only. The information contained in this publication should not be construed as legal advice. Any questions or further information regarding the matters discussed in this publication can be directed to your regular contact at Laytons LLP or Laytons’ Equity Capital Markets team.