The current situation:
Over the last few years we have seen mergers and acquisitions make a good recovery in the UK, with banks beginning to lend more and a return in market confidence. In terms of the legal system which underpins this, private company mergers and acquisitions, which don’t have competition law concerns, are mostly free from the scope of EU regulation.
Corporate operations in terms of company law (board decisions, dealing with shares, filings at companies house) are principally governed by the Companies Act 2006, which we would expect to be largely unaffected by Brexit. Areas like tax and especially employment law have to date been particularly influenced by EU law however. What happens in these fields will be dictated, to a large extent, on what form our relationship with Europe takes post exit.
What may change?
Whilst most of the law and practice that surrounds mergers and acquisitions in the UK is based on English common law (the principle of “caveat emptor” (buyer beware), the due diligence process, warranties, indemnities and disclosure and flexible payment options, like deferred consideration, completion accounts, earn outs etc), there are some parts which stem from European law. How these will change once the UK exits the EU is unclear. The government may be able to amend or even repeal altogether certain EU-derived legislation (such as some unduly restrictive aspects of TUPE, which currently protects employees on business transfers and often causes conceptual as well as practical difficulties for buyers and sellers), but would be unlikely to significantly reduce the protection offered by rules on merger control, as these are aimed at promoting competition and regulating markets, with the aim of benefitting the economy as a whole.
Companies Act requirements are unlikely to change even where these have their origins in EU law. This is because the UK government is likely to be even more keen to retain the reputation of the UK outside of the EU as a good place to invest, and will see appropriate legislation, transparency and good governance as being critical to this.
What impact could this have on UK businesses?
There is no immediate effect on the legal position of UK companies as a result of the referendum and what will actually happen will only begin to become clear once we know what a post Brexit Europe will look like. Sale and purchase agreements will not terminate or become unenforceable just because of the vote, unless they specifically provided for this. It is also unlikely that Material Adverse Change (MAC) clauses will be able to be invoked purely as a result of the vote.
What you need to be thinking about now:
No immediate changes are required following the referendum result, but regular reviews of M&A strategy, group structures and operations is always good business practice and companies will want to add the potential implications of Brexit on to that list of considerations.