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Brexit: M&A


The impact of Brexit on private M&A has principally been to add complexity, most notably in relation to competition clearances and due diligence as a result of parallel but diverging regimes in some areas. The EU-UK Trade and Cooperation Agreement of 30 December 2020 may have resolved some of the immediate uncertainty, improving the momentum of deal-making, but there of course remains considerable uncertainty over what the UK Government's longer term post-Brexit strategy will be and which areas of UK law will be "de-Europeanised".

While it may not be possible to ascertain the full impact of Brexit on a potential target business (in the UK and further afield), there are certainly some practical considerations which buyers and their advisers can and should bear in mind when contemplating, negotiating and documenting M&A transactions.

We highlight below some of the key areas for consideration during a buyer's due diligence process which will help ascertain the degree of a target's exposure to Brexit-related risks. We also consider Brexit-related issues that may be relevant to the negotiation of commercial terms on an M&A transaction and subsequent documentation.

Brexit due diligence

Contingency planning for Brexit continues to be an important part of the due diligence process on M&A transactions, although its significance varies depending on the nature and footprint of the target business' operations as well as those of its customers and suppliers. As a general guide, key areas for consideration include: 

  • Geographic structure and potential for business interruption: dependence on EU markets for customers or supplies and the strategic, financial and practical impact of additional tariffs, border checks/border red tape and/or diminished market access on those trading relationships;
  • Potential loss of recognition of limited liability: UK incorporated companies operating in certain states which follow the "real seat" principle of incorporation may not have their limited liability recognised, which may result in personal liability of shareholders – this is true of Germany and Austria.
  • Passporting/licensing: reliance on any EU passporting or licensing rights allowing supply across the EU from the UK (or vice versa);

  • Key contracts: potential impact on the performance and value of EU-wide contracts;

  • Staffing: dependence on employees who are EU nationals and position of UK staff based in the EU, pending clarification of their immigration status;

  • EU funding: any reliance on, or benefit from, EU funding or other EU advantages;

  • Governing law and dispute resolution: governing law and dispute resolution mechanisms in contracts, particularly where there are overseas parties (for more on this see below);

  • IP rights: dependence on EU-wide intellectual property rights, such as EU trade mark registrations, Community design right registrations, unregistered Community design rights, or database rights, held by the target company; and

  • Data Protection: the target company's material personal data flows, taking into account the diverging regimes under EU GDPR and UK GDPR,

and whether appropriate measures have been taken by the target business to minimise exposure to Brexit-related risks and ensure the effective operation of the business in the post-Brexit world. We can provide standard wording for due diligence questions to assist with this should you need it and, where issues are identified, we can explore contingency planning strategies.  As noted above, some target businesses will have more exposure to Brexit risks than others, for example, if they are particularly reliant on labour or supplies of goods or services from the EU, or on regulatory passporting into the EU, and in those cases, we can provide a more in-depth analysis and DD report if required. 

Issues to consider when negotiating and documenting a transaction

Merger clearance: As alluded to above, obtaining merger clearances for certain transactions has become more complex and onerous (see "UK and EU merger control after Brexit").

Brexit-proofing M&A documents: When drafting the transactional documentation, it is important to carefully consider specific statutory and regulatory references to ensure that they correctly reflect the post-Brexit legal landscape (this is particularly relevant in relation to legislative references in warranties).

Governing law and dispute resolution: If the transaction involves r.EU-based parties or assets, and in particular if any judgment which may be obtained in respect of it is likely to need to be enforced throughout the r.EU, consider carefully which governing law and dispute resolution mechanism to include in the M&A documents.  Following the end of the transition period, English jurisdiction clauses are no longer automatically respected in the r.EU in the way that they were previously, and English court judgments are no longer automatically enforceable in r.EU states. For more on this, see "Beyond Brexit: Dispute Resolution".

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