Whilst international merger and acquisition activity is nothing new, it is perhaps becoming an increasingly likely exit route for UK companies and non-UK buyers bring with them additional considerations. As transatlantic merger and acquisition activity becomes increasingly common, historic differences between UK and US practice are diminishing but several key distinctions remain, ranging from vocabulary to regulatory matters.
Some of these key differences include the following:
- Deal Certainty: US purchase agreements typically contain more conditions to a buyer’s obligation to complete the transaction than those in the UK. Regulatory approvals and financing conditions, allowing the buyer to withdraw from the deal if it has failed to obtain the necessary financing, are common in US purchase agreements. Consequently, termination fees are more common than in the UK, where if financing is not received, the buyer will pay a fee to the sellers.
- Pricing Mechanisms: A purchase price adjustment mechanism based on completion accounts remains the most common approach for US buyers and sellers are often required to deposit a portion of the purchase price into an escrow account as security for its obligation to pay any “true-up” on the purchase price.
- Sellers’ Liability: Sellers’ liability, including the level of warranty protection given and the limitations on liability for breach by the sellers, are usually heavily negotiated in US and UK transactions alike. However, the risk allocation under the warranties tends to favour the buyer in US purchase agreements and the sellers in UK agreements, as described below.
- Representations and Warranties: The UK distinction between representations and warranties has no practical consequence in the US; whereas in the UK the sellers should generally resist giving representations as opposed to warranties.
- Warranty Coverage: The coverage provided is generally broader in the US than in the UK. Warranties and representations in the US will typically be less qualified by a materiality threshold and the sellers’ knowledge, especially in relation to undisclosed liabilities.