The energy & infrastructure M&A market has demonstrated resilience during a year marked by economic and geopolitical challenges. Globally, deal activity in the first quarter of 2024 has been broadly in line with the average quarterly activity seen in 2023, but deal activity has increased in the second half of 2024. While deal volume in the UK has been somewhat weaker compared to other major jurisdictions, it remains largely aligned with the global trend. Recent policy changes, such as the UK Energy Act 2023, are expected to stimulate further investment in clean and renewable energy projects, which suggests increased activity in the energy and infrastructure sector in the coming years. Furthermore, the increasing need for AI is also a major driver in the digital infrastructure space, and increased deal flow is being seen in that sector, particularly in the data centre space, as well as in fibre optics and other digital infrastructure subsectors.

Inflationary pressures have led to increased project costs and rising interest rates, altering the dynamics of deal-making, particularly for leveraged buyouts. The higher cost of debt financing has exerted downward pressure on asset prices and favoured smaller transactions. In this challenging macroeconomic environment, infrastructure assets have attracted greater investor allocations, demonstrating resilience as a hedge against inflation and market volatility.

Geopolitical crises, including the war in Ukraine and the conflict in Gaza, have further shaped market dynamics in 2024. The war in Ukraine, in particular, highlighted the critical importance of energy security and prompted a strategic shift in many countries, including the UK, towards reducing reliance on imported fossil fuels. This shift has accelerated investment in renewable energy, storage, and domestic energy production, with increased activity observed in sectors such as offshore wind and energy storage. Although the conflict in Gaza has not directly impacted the UK energy market to the same extent, it has contributed to broader geopolitical uncertainty and heightened concerns over energy supply disruptions across the Middle East.

Looking ahead, the UK energy and infrastructure M&A market is poised for continued activity, driven by the need for energy security, ongoing investments in clean energy and a focus on resilient infrastructure assets. While challenges remain, including inflationary pressures and geopolitical risks, the sector’s alignment with long-term global trends in sustainability and energy transition offers considerable opportunities for growth and strategic investment.

New UK start-up companies in the sector are typically incorporated domestically. One of the advantages of doing so is that entrepreneurs can benefit from the jurisdiction’s favourable legal framework, particularly for renewable energy initiatives, such as the contracts for difference scheme and Innovate UK grants and funding. In certain instances, there may be specific reasons to choose another jurisdiction, such as tax, regulatory or operational advantages.

The process for incorporating a new company in the UK can take as little as a few hours, and there is no minimum capital requirement for incorporation.

Entrepreneurs in the UK energy and infrastructure sector are typically advised to choose a private limited company (Ltd) as the initial entity for their enterprise, as it offers limited liability for the shareholders, flexibility in terms of governance and financing and tax efficiency.

Depending on the nature and scale of the business, other types of entities may be preferable, such as a public limited company (PLC), which may be suitable if there are plans for a future public offering, or a limited liability partnership (LLP), which can be considered for joint ventures or investment-focused structures.

Early-stage financing (seed investment) for start-ups is typically provided by a mix of sources, including:

• local investors, such as angel investors, family offices and high-net-worth individuals;
• government-sponsored funds, such as the British Business Bank, the UK Innovation and Science Seed Fund and the Enterprise Investment Scheme; and
• foreign investors, such as venture capital (VC) firms, corporate venture arms and strategic partners.

Early-stage financing is usually documented through a term sheet, which sets out the key terms and conditions of the investment, such as the valuation, amount, structure, rights and obligations of the parties. The term sheet is typically followed by more detailed and formal documents, such as a subscription agreement, a shareholders’ agreement and articles of association.

VC is a significant source of financing for start-ups in the UK energy and infrastructure sector, with a range of domestic and foreign investors including:

• home-country VC firms, such as Octopus Ventures, Draper Esprit and Scottish Equity Partners, which may focus on specific stages, sectors or regions of the market;
• government-sponsored funds, such as the Future Fund, the British Patient Capital and the Industrial Strategy Challenge Fund, which co-invest with private investors to support the growth and development of the sector, and to address market gaps and challenges; and
• foreign VC firms, such as Sequoia, Accel and SoftBank, which have increased their activity and presence in the UK market, and which may offer larger amounts of capital, global reach and strategic partnerships.

There are well-developed standards for VC documentation in the UK, which are based on market practice, industry guidelines and legal principles.

One of the main sources is the British Venture Capital Association (BVCA), the industry body and public policy advocate for the private equity and VC industry in the UK. The BVCA publishes model documents, term sheets and best practice guides for VC transactions, and it also plays a critical role in promoting and developing best practices, professional standards and ethical conduct within the private equity and VC industry.

While the private limited company (Ltd) structure works well for early-stage operations and initial rounds of fundraising, in certain cases it may be advisable to change the entity’s corporate form or jurisdiction at some stage of VC financing.

For instance, a start-up may decide to transition to a PLC to facilitate access to broader sources of capital through an IPO, giving them access to a larger pool of institutional and retail investors; this could be especially relevant for energy and infrastructure companies seeking funds for large-scale projects, such as renewable energy farms or grid infrastructure enhancements.

In some instances, start-ups may decide to change their form or jurisdiction to optimise their tax position and minimise their tax liabilities, in which case they may choose a corporate form or jurisdiction that offers lower corporate tax rates, more favourable tax treaties or more flexible tax regimes, such as an LLP or a community interest company (CIC) in the UK, or a holding company in, for example, Ireland or Luxembourg.

Investors in UK private companies will most commonly run a sale process when they are looking for a liquidity event as opposed to pursuing a listing. However, what is most appropriate will depend on the specific circumstances, and what is anticipated to generate the most demand and drive the highest valuation.

In addition, if the investors are looking to make an immediate complete exit from the company, this will likely drive them towards a sale process. In contrast, if founders or investors wish to retain a material stake in the company, they may consider a listing to be attractive. In exceptional circumstances, a company may be too big to be purchased by M&A buyers or any potential buyers may carry competition law risks, therefore making a listing more attractive. Investors may also consider running a dual-track process (ie, pursue both a private sale and a listing) if it is considered that this will help to create price tension and both tracks are credible options for the relevant company.

If a UK company decides to pursue a listing, its natural listing venue will ordinarily be the London Stock Exchange, and there are many energy and infrastructure companies listed on the London Stock Exchange. However, there may be certain circumstances where a UK company will consider pursuing a listing on a foreign exchange. For example, a company that has a significant expected market capitalisation and a particular US nexus may consider listing in the USA, if it is anticipated that this would lead to a higher valuation and other considerations support a US listing.

When considering on which exchange to be listed, companies will consider various factors such as (among other things) relative valuations, the cost of raising capital and of establishing and maintaining a listing on the relevant exchange, where peer companies are listed, the level of regulatory burden (both in relation to the listing itself as well as continuing obligations) and litigation risk.

The UK listing regime has recently undergone significant change, and new rules came into force on 29 July 2024. The reforms are aimed at encouraging a more diverse range of companies to list and grow on UK markets, while promoting more investment opportunities for investors. Key aspects of the reforms include more flexible eligibility criteria and continuing obligations that are disclosure- rather than shareholder-approval-focused.

If a UK company chooses to list on a foreign (as opposed to its home) exchange, whether the feasibility of a future sale is impacted will depend in large part on the regulatory framework applicable to the foreign exchange. It will still be possible for a bidder to take advantage of UK squeeze-out mechanics (see 6.8 Squeeze-Out Mechanismsfor further details) as they source from UK company law as opposed to exchange rules.

Following changes to the Takeover Code, which take effect on 3 February 2025, the Takeover Code will no longer apply to UK companies trading solely on exchanges outside the UK, Channel Islands and Isle of Man (subject to transitional arrangements). This means that such UK companies, and bidders for such companies, will have more flexibility in relation to the terms of any takeover (for example, see 6.10 Types of Deal Protection Measures in relation to the restrictions on deal protection and frustrating actions that apply under the Takeover Code). However, such UK companies and their shareholders will also not benefit from the protections in the Takeover Code.

If the sale of the company is chosen as a liquidity event, the sale process may be run as either an auction or a bilateral negotiation with a chosen buyer, depending on the market conditions, the company’s performance and the investors’ preferences.

In recent years, sale processes in the UK have more often been run as auctions, where the seller(s) approach a selected number of potential buyers and solicit and evaluate their bids before entering into exclusive negotiations with the preferred bidder. In most cases, this allows the sellers to maximise the value and terms of the deal and reduce the reliance on and risk for a single buyer.

In some instances in which there is a strategic interest in the asset, the sale is carried out as a bilateral negotiation. In general, this achieves a quicker and more certain deal, and also helps address the specific needs and interests of the parties while maintaining a closer and more confidential relationship with the buyer.

Sales of privately held companies with a number of VC investors are typically structured through a share sale in which the buyer acquires all or a majority of the shares of the company from the existing shareholders, including the VC investors, who may exit the investment fully or partially depending on their rights and preferences.

In many cases, VC-backed companies are sold in their entirety. This is usually preferred in the context of strategic acquisitions, when larger companies or strategic buyers look to fully integrate the acquired company into their operations; this can also help maximise returns on investment for the VC funds, and simplify the transaction process.

In other cases, however, the VC funds may prefer to sell a controlling interest while retaining a minority stake, especially if they anticipate future growth and potential appreciation in the company’s value and would like to benefit from it, or if funds want to form a strategic partnership with the new controlling shareholder and benefit from the advantages they bring (including expertise, market access or additional resources) while still remaining invested.

Most transactions in the UK are done as a sale for cash. In the case of a sale of the entire business, this allows VC and private equity investors to achieve a clean and definitive exit, providing immediate liquidity that can be reinvested or distributed to limited partners (although in some cases there might be a component of deferred consideration or earn-out, depending on the dynamics).

Stock-for-stock transactions are less common in the sector and may offer the advantages of tax deferral, alignment of interests and participation in the future upside, but may also entail the disadvantages of valuation uncertainty, illiquidity and dilution. Deals can also be structured as a mix of shares and cash.

It is customary in the UK for the sellers, including founders and VC investors, to stand behind representations and warranties and certain liabilities, such as tax, employee benefits, and environmental liabilities. Liability is typically capped at the amount of the total consideration for a breach of the fundamental warranties; the liability cap varies for a breach of business warranties and is subject to negotiation, but it is usually set between 10% and 30% of the purchase price. In larger deals, warranty and indemnity (W&I) insurance is normally the standard for the purposes of the business warranties.

Parties sometimes use escrow/holdback accounts in UK M&A transactions, which give the buyer additional protection against potential issues that may arise after the transaction has closed. The amount placed in escrow is usually a percentage of the total purchase price, often ranging from 5% to 15%, and the escrow period usually lasts between 12 and 24 months, aligning with the survival period of representations and warranties.

In recent years, the use of W&I insurance has gained popularity in the UK M&A market, especially for larger and more complex transactions, or for transactions involving private equity or institutional sellers who may prefer to limit or avoid their post-closing liability and exposure, and to achieve a cleaner and quicker exit. Its use, however, remains limited in the context of smaller VC transactions.

Spin-offs are not very common in the UK energy and infrastructure sector, as they may involve significant costs, complexity and risks. However, in recent years there have been a few spin-offs in the sector, including:

• SSE’s spin-off of its retail business, SSE Energy Services, and subsequent sale to OVO Energy, a challenger energy supplier, in 2020 as part of its strategy to focus on its core businesses of renewable energy generation and networks, and to address the regulatory and competitive challenges in the retail market; and
• National Grid’s spin-off of its gas distribution business (National Grid Gas Distribution) and subsequent sale to a consortium of infrastructure investors in 2017, as part of its strategy to rebalance its portfolio and create value for its shareholders, and to comply with regulatory requirements for the separation of its gas and electricity businesses.

Some of the reasons to consider a spin-off include:

• strategic realignment;
• regulatory compliance;
• unlocking shareholder value;
• capital raising and financing;
• facilitating future M&A opportunities;
• tax and financial considerations; and
• managing risk profiles.

Spin-offs are generally structured in a way that benefits either from general tax reliefs (eg, participation and dividend exemptions) or from specific UK tax reliefs for company reconstructions and reorganisations. A combination of these reliefs generally means that there is no UK tax payable either at the corporate or shareholder level. The specific requirements will depend on whether the spin-off is in the form of a direct distribution or a three-cornered demerger, and whether the shareholders are individuals or corporations.

A spin-off followed by a business combination is possible in the UK, but it may involve additional tax, legal and regulatory implications and challenges, depending on the timing, structure and purpose of the transaction.

Some of the key requirements and considerations for a spin-off followed by a business combination include:

• being carried out for bona fide commercial reasons, and not for the purpose of tax avoidance or evasion, or for the benefit of connected persons;
• obtaining the necessary board and shareholder approvals, as well as consent from regulators and creditors; and
• complying with the relevant antitrust rules and seeking clearance from the relevant authorities (such as the Competition and Markets Authority (CMA), the Financial Conduct Authority (FCA) and/or the Takeover Panel).

Depending on the structure of the spin-off and the amounts at stake, the parties may wish to obtain either or both of:

• a view from HM Revenue & Customs (HMRC) that the spin-off meets the technical requirements to benefit from the relevant tax reliefs (a non-statutory clearance); and/or
• a statutory clearance that certain anti-avoidance rules will not apply. HMRC has 30 days to respond to the relevant statutory clearances. There is no time limit for HMRC to respond to a non-statutory clearance but they usually respond within 28 days.

Whilst there may be some potential benefits to stakebuilding in a UK public (ie, exchange-listed) company prior to making an offer (eg, because any purchases will likely be at below the offer price and count towards achieving the acceptance condition and may discourage interlopers), it will be necessary for a bidder to consider the following issues (among others) before doing so (and as a result of such considerations, bidders often decide that it is not advantageous to stakebuild in the particular circumstances).

• Disclosure implications: Disclosure of voting rights in a UK company of 3% or more (and any crossing of a percentage threshold thereafter) is required (in accordance with the Disclosure Guidance and Transparency Rules). Once an offer period commences, an opening position disclosure is required by the bidder and its concert parties, and by any person interested in 1% or more of any relevant securities of a party to the offer (other than relevant securities of a cash bidder), plus disclosure of any dealings in any such relevant securities.
• Voting threshold implications: Any shares held by the bidder cannot be voted in favour of a scheme of arrangement (“scheme”; see 6.3 Transaction Structures) and may make it easier for a dissenting minority to block the scheme.
• Squeeze-out implications: Shares held by the bidder before the offer document is published will not count towards the 90% squeeze-out level (see 6.8 Squeeze-Out Mechanisms) and may make it harder to reach the 90% threshold.
• Insider dealing: It will be necessary to consider whether any stakebuilding would constitute insider dealing or market abuse (if the bidder possesses inside information in relation to the target other than the bidder’s own intention to make an offer).
• Setting the floor price/form of consideration: The acquisition of public company shares will set a floor price for a bid announced within three months of the relevant acquisition, or if the acquisition is made after commencement of the offer period. In addition, if a stake of more than 10% is acquired for cash in the prior 12 months or during the offer period for cash, any offer must be in cash or include a cash alternative at the highest price paid.
• Mandatory offer: A mandatory offer is required if a bidder (and its concert parties) becomes interested in shares carrying 30% or more of the voting rights of the target (see 6.2 Mandatory Offer).

Under the Takeover Code, there is a mandatory requirement to launch an offer if a bidder (and its concert parties) is interested in shares carrying 30% or more of the voting rights of a company subject to the Takeover Code.

A mandatory offer must be in cash (or include a cash alternative) at no less than the highest price paid by the bidder (and its concert parties) during the prior 12 months.

The typical transaction structures for an acquisition of a public company in the UK are:

• a contractual takeover offer; or
• a court-approved scheme.

The acquisition may be recommended or hostile, with most being recommended by the public company’s board of directors.

On a contractual takeover offer, most bidders will set an acceptance level of 90% in order to facilitate a squeeze-out, but bidders can set an acceptance level as low as 50% plus one.

A scheme must be approved by the court and by the public company’s shareholders by a majority in number, representing 75% in value, of those voting. Once approved, a scheme binds all shareholders, so that there is no need to squeeze out minority shareholders (see 6.8 Squeeze-Out Mechanisms). Schemes of arrangement are the customary method of implementing recommended transactions.

Public company acquisitions of UK companies can be structured as cash or securities exchange transactions. Bidders may also offer cash and/or securities in a “mix and match offer”.

See 6.1 Stakebuilding (“Setting the floor price” ) for the circumstances in which a minimum price or cash consideration requirement will apply.

Contingent value rights, which provide target shareholders with the right to an additional cash payment on the happening of a specific event (eg, the successful outcome of material litigation), are a feature of a small number of transactions and can assist in bridging value gaps between the parties where the valuation will be significantly impacted by the outcome of specific events.

An offer will customarily be subject to conditions in respect of:

• acceptance levels in the case of a contractual takeover offer (see 6.7 Minimum Acceptance Conditions) or the scheme becoming effective in the case of a scheme;
• applicable legal or regulatory requirements or approvals;
• long-stop dates; and
• general protective conditions in respect of the continuing nature and condition of the target.

An offer cannot be subject to conditions or pre-conditions (being conditions to the offer formally being made) that depend solely on subjective judgments by the bidder or the target, or the fulfilment of which is in their control. See 6.9 Requirement to Have Certain Funds/Financing to Launch a Takeover Offerand 6.14 Timing of the Takeover Offerin relation to finance conditions and regulatory pre-conditions, respectively.

Before a bidder can invoke a regulatory condition or a general protective condition (such as a material adverse change condition), the Takeover Panel must be satisfied that the relevant circumstances upon which the bidder is seeking to rely are of material significance to it in the context of the offer. This is an extremely high bar in practice.

On a public takeover that is recommended by the board of the target and implemented by way of a scheme or arrangement, it is customary for the bidder and the target to enter into a transaction agreement (often called a “co-operation agreement”) dealing with issues such as co-operating in relation to implementing the scheme and obtaining regulatory clearances. However, the Takeover Code generally prohibits the target (without shareholder approval) from entering into any “offer-related arrangement” with the bidder (see 6.10 Types of Deal Protection Measuresfor further details). The target will not be permitted to agree to any interim operating covenants, and it is not customary for the target to provide warranties in connection with the offer.

On a contractual takeover offer, most bidders will set an acceptance level of 90% in order to facilitate a squeeze-out (see 6.8 Squeeze-Out Mechanisms) but bidders can set an acceptance level as low as 50% plus one. That said, an acceptance level of at least 75% is required in order to be able to delist the target and to pass special resolutions, and any financing banks will generally require at least a 75% acceptance level.

In contrast, a scheme must be approved by the court, and by the public company’s shareholders by a majority in number, representing 75% in value, of those voting.

On a contractual takeover offer, the bidder will have a statutory right under the Companies Act 2006 to compulsorily acquire (or “squeeze out”) shares held by the minority. To take advantage of this right, the bidder needs to have acquired in the offer or unconditionally contracted to acquire:

• 90% in value of the shares to which the offer relates; and
• 90% of the voting rights carried by the shares to which the offer relates.

However, it will not be necessary to exercise squeeze-out rights in the case of a scheme as the bidder will acquire 100% of the shares once the scheme takes effect (see 6.3 Transaction Structuresand 6.7 Minimum Acceptance Conditionsfor the shareholder approval thresholds on a scheme).

A bidder is required to have “certain funds”, being sufficient resources available to satisfy full acceptance of the offer, at the time of its firm intention announcement. The bidder’s financial adviser will be required to provide a formal “cash confirmation” that the certain funds requirement under the Takeover Code has been satisfied.

Therefore, if a bidder is funding a portion of the consideration from debt facilities, it will be necessary to have a certain funds facility in place at the time of its firm intention announcement.

Although financing pre-conditions may be permitted with Takeover Panel consent, financing conditions to the offer are not permitted.

The Takeover Code generally prohibits the target (without shareholder approval) from taking any action that may frustrate an offer and from entering into any offer-related arrangement (including deal protection measures) with the bidder. However, “offer-related arrangements” do not include confidentiality agreements, non-solicit agreements, commitments to provide information or assistance to obtain regulatory approvals, irrevocable commitments or letters of intent from shareholders (see 6.12 Irrevocable Commitments), agreements relating to existing employee incentive arrangements and agreements in relation to the future funding of the target’s pension scheme.

While reverse break fees are permitted, target break fees are not permitted except in very limited circumstances, and where the fee is 1% or less of the offer price. Target poison pills are also generally not permitted, and UK public companies generally do not incorporate poison pill-type defences in their governance documents.

If a bidder cannot obtain 100% ownership of a target as a result of a contractual takeover offer (it being noted that a bidder will obtain 100% ownership of a target if an offer is successfully implemented pursuant to a scheme), the governance rights it obtains in respect of a UK company will be largely dependent on whether it holds more than 50% or at least 75% of the target’s voting rights.

With more than 50%, the bidder will be able to, for example, remove and appoint directors and auditors. With 75% or more, the bidder will be able to, for example, delist the target, amend its articles of association, disapply pre-emption rights and re-register as a private company.

Bidders will customarily seek irrevocable commitments or non-binding letters of intent from the directors and principal shareholders of the target to support the transaction.

Bidders will often seek “hard” irrevocable commitments from director shareholders to vote in favour of the scheme or to accept the contractual takeover offer. Depending on the circumstances, principal shareholders may only be willing to provide “soft” irrevocable commitments providing for an “out” if a better offer is made, “semi-hard” irrevocable commitments providing for an “out” if a better offer above a specified threshold is made or merely a non-binding letter of intent.

The offer or scheme document does not require Takeover Panel approval, but a copy along with specific checklists must be shared with the Panel. Consultation with or consent from the Takeover Panel may be necessary for certain Takeover Code matters.

For a securities exchange offer, the FCA must approve the prospectus or exemption document if required, a process typically taking six to eight weeks.

The Takeover Code sets detailed timelines for contractual takeover offers and schemes of arrangement. If a competing offer arises, the timetable for both offers generally starts from the new competing bidder’s offer document publication date. A bidder may issue an “acceleration statement” to expedite the offer conditions’ satisfaction or waiver date.

For competing offers under a scheme, consultation with the Takeover Panel on the applicable timetable is required.

On a contractual takeover offer, all conditions must be satisfied or waived, or the offer must lapse, by the 60th day following the publication of the offer document. However, the Takeover Panel can agree to a suspension of the offer timetable from the 37th day at the joint request of the bidder and the target or, if one or more of the outstanding conditions relates to an official authorisation or regulatory clearance that the Takeover Panel considers to be “material”, at the request of the bidder or the target.

For both contractual takeover offers and schemes of arrangement, the bidder must provide for a “long-stop date” by which all conditions relating to an official authorisation or regulatory clearance will need to be satisfied.

Except with Takeover Panel consent, the bidder can only include pre-conditions to the making of its offer if such pre-conditions involve an official authorisation or regulatory clearance relating to the offer and either the target agrees or the authorisation or clearance is considered to be material.

New companies in the energy and infrastructure industry must comply with various regulations that are overseen by regulatory bodies on a sector-by-sector basis. The timeframes in which permits or approvals are granted vary and, in many instances, formal timeframes are not publicly available. However, recent examples of licensing rounds provide useful insight where formal timelines are not published by regulators.

Utility Companies

Utility-scale projects in England over 50 MW (or 100 MW for offshore wind) are regulated under the Planning Act 2008, while smaller projects fall under the Electricity Act 1989, both overseen by the Secretary of State for Energy Security and Net Zero. Ofgem, delegated by the Gas and Electricity Markets Authority (GEMA), regulates market functions and licensing, with processing times for electricity generation licences averaging 65 working days.

Offshore Wind

Offshore wind requires a Development Consent Order from the Secretary of State, with seabed rights awarded by the Crown Estate Commissioners following auctions. As an example timeline, the Crown Estate’s Floating Offshore Wind Leasing Round 5 began in December 2023, with the invitation to tender stage starting in August 2024. In a previous Round 4, new sea areas were announced in November 2017, with the leasing round culminating in six leases signed in January 2023.

The UK Takeover Panel is the primary regulator in relation to public M&A transactions in the UK. The Takeover Panel issues and administers the Takeover Code and supervises and regulates takeover bids and merger transactions in relation to:

• companies that have their registered offices in the UK, the Channel Islands or the Isle of Man if any of their securities are admitted to trading on a UK-regulated market, a UK multilateral trading facility or any stock exchange in the Channel Islands or the Isle of Man (a “relevant market”); and
• for public, and in limited circumstances (eg, where shares have been publicly traded on certain markets or matched bargain facilities during the prior 10 years) private, companies that have their registered offices in the UK, the Channel Islands or the Isle of Man and which are considered by the Takeover Panel to have their place of central management and control in the UK, the Channel Islands or the Isle of Man.

However, on 6 November 2024 the Takeover Panel published amendments to the Takeover Code to refocus the application of the Takeover Code on companies that are registered in the UK, the Channel Islands or the Isle of Man and whose securities are, or were recently (within the last two years), admitted to trading on a relevant market in one of those jurisdictions. These amendments will take effect on 3 February 2025, subject to transitional arrangements that will be in place for two years up to 2 February 2027.

Foreign direct investment in the UK is principally governed by the National Security and Investment Act 2021 (NSIA), which allows the UK government to review investments in sectors related to national security. The regime includes a pre-closing, mandatory clearance process for investments exceeding 25%, 50% or 75% of shares/voting rights in companies engaged in 17 specified sensitive sectors, such as robotics, artificial intelligence, space technologies, synthetic biology, export-controlled materials, energy and communications and defence-related contracts. Failure to submit a mandatory notification when required can result in the transaction being void, with potential financial and other (including criminal) penalties.

Voluntary notifications are also possible, enabling government review based on the target’s activities and investment type, and the acquirer’s profile. If deemed a security risk, the government may block, unwind or amend transactions. The NSIA’s broad scope includes minority stakes that grant “material influence”, foreign-based targets with UK connections and internal reorganisations, with some exclusions under consideration.

National Security Review

The NSIA governs the national security review of UK investments, covering any acquirer, domestic or foreign. Some investments require mandatory pre-closing notification and clearance, while the government can broadly investigate investments on national security grounds. Factors for review include:

• the target’s activities, including those adjacent to the 17 sensitive sectors under the NSIA;
• specific investment aspects, such as the access or information rights acquired; and
• the acquirer’s nature, including jurisdiction, foreign government ties and potential hostility towards UK interests.

The UK government also retains authority under the Enterprise Act 2002 to review media acquisitions based on public interest or foreign state involvement.

Export Control

Most aspects of the UK’s export controls regime derive from multilateral agreements (eg, the Wassenaar Arrangement). Controlled items evolve with technological advancements and include military and dual-use items, non-military firearms, items that can be used for capital punishment and items with a radioactive source.

Licensing is required for exporting controlled items, overseen by the Export Control Joint Unit, with enforcement managed by HM Revenue and Customs, Border Force and the Crown Prosecution Service. Violations are criminal offences but may be resolved through civil settlements.

Export restrictions also cover brokering and technical assistance and may intersect with sanctions regimes, necessitating dual compliance for some licences. Trade sanctions are implemented and enforced by the Office of Trade Sanctions Implementation.

UK merger control operates under a voluntary filing system, meaning that parties are not required to notify the CMA or obtain clearance pre-closing. However, the CMA can investigate transactions post-closing, issue “hold separate orders”, and, if competition issues arise, require transaction unwinding. To mitigate risk, parties may choose to engage with the CMA voluntarily.

CMA jurisdiction applies if thresholds are met, such as a UK turnover of GBP70 million for the target or a combined share of supply exceeding 25%. Amendments under the Digital Markets, Competition and Consumers Act 2024 (expected to be operational in December 2024/January 2025) will raise thresholds, allowing reviews of targets with a GBP100 million turnover and transactions involving parties with a 33% UK market share and GBP350 million in turnover.

For regulated entities under the Gas Act 1986 or Electricity Act 1989, the CMA holds additional review powers, including in the water and sewerage sectors.

Unlike many continental European countries, the UK has historically had a weaker culture of trade unions and works councils. However, if an independent trade union or works council exists within a business being acquired or the acquirer’s business, there may be requirements for prior information and consultation with affected employees, though they have less influence under UK employment law compared to continental Europe.

The Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) automatically transfers the employees of a business being acquired to the acquirer, preserving their existing terms and conditions of employment, along with related rights and obligations. This provides enhanced protection against dismissal and changes to terms post-transfer, potentially limiting workforce adjustments. TUPE also mandates prior consultation with employee representatives, with potential liabilities for non-compliance.

Acquirers planning workplace restructuring or harmonising terms must consider additional UK employment laws. The recent UK labour government has also introduced legislation strengthening employee protections and union rights.

The UK does not have any currency control regulations or require any central bank approval for M&A transactions. The UK has a free and open market for foreign exchange, and parties are free to convert and transfer any currency in and out of the UK, subject to compliance with any applicable sanctions or anti-money laundering regulations.

The most recent energy and infrastructure M&A court decision was the English Supreme Court ruling in R (on the application of Finch on behalf of the Weald Action Group) v Surrey County Council and others [2024] UKSC 20, often referred to as “Finch”.

The court, by a three-to-two majority, held that downstream greenhouse gas (GHG) emissions from using oil produced by an expanded Surrey project fall within the scope of the environmental impact assessment (EIA) required under the EIA Directive and related regulations. The decision quashed Surrey County Council’s approval, emphasising that the EIA “must include all effects of the project, whether direct or indirect, immediate or remote”.

This was the first time than an apex court has addressed the interpretation of the EIA Directive in the context of the extraction of hydrocarbons.

Moreover, for UK projects, EIAs must now account for downstream Scope 3 emissions for new or expanded hydrocarbon projects involving combustion. However, its applicability to non-hydrocarbon projects remains uncertain, as highlighted by Lord Leggatt’s distinction of other commodities with less predictable environmental impacts. This will be a space a watch.

The practical effect of Finch does not mandate denial of planning permission for projects with Scope 3 emissions; decision-makers may still grant approval.

The scope of due diligence in relation to a public company acquisition is typically less extensive than for a private company acquisition, and is generally described as being “confirmatory” in nature – ie, confirming what the bidder understands to be the case based on the target’s public disclosures. Under the Takeover Code, if the target provides information to one bidder, it will be required to make the same information available to all other bona fide potential bidders or bidders on request. Given this, a target may want to restrict the extent to which due diligence access is granted to a favoured bidder, in case a less favoured bidder emerges.

The parties will want to consider whether any information to be provided may constitute inside information for the purposes of the Market Abuse Regulation, and, if so, ensure appropriate controls are in place. Where it is envisaged that competitively sensitive information may be shared, a clean team agreement will be required to establish effective procedures and information barriers.

Where the consideration for a bid involves bidder securities, it is customary for the target to conduct reverse due diligence on the bidder.

Data protection laws in the UK, governed by the UK General Data Protection Regulation (GDPR) and the Data Protection Act 2018, impose limitations on handling, sharing and other forms of processing of personal data during a due diligence exercise. For energy and infrastructure companies, these restrictions are particularly relevant in the context of customer data (which may include customer identifiers, billing information or other personal information) and employee data (which may include records such as payroll information, health data or employment contracts), the processing of which must comply with data protection principles.

Under the Takeover Code, an announcement will be required if there is rumour and speculation or untoward movement in the target’s share price, or when negotiations are to be extended beyond a limited group. Such announcements must identify any potential bidder and will trigger a 28-day “put up or shut up” deadline for the bidder to make an announcement of a firm intention to make an offer or to walk away (though an extension may be sought from the Takeover Panel if the target agrees).

An announcement will also be required under the Takeover Code immediately after a firm intention to make an offer has been communicated to the target’s board, or where an acquisition of target shares triggers an obligation to make a mandatory offer (see 6.2 Mandatory Offer).

A firm intention announcement will commit the bidder to proceed with the offer and to post an offer or scheme document (as applicable depending on the transaction structure – see 6.3 Transaction Structures) within 28 days unless, with the consent of the Takeover Panel, a bidder is permitted to invoke a pre-condition or would be permitted to invoke a condition if the offer were actually to be made.

Separate from Takeover Code requirements, if the bidder or target has listed securities, they may have additional disclosure obligations pursuant to the UK Listing Rules or the Market Abuse Regulations, depending on the size of the transaction, whether the transaction constitutes inside information and whether any other specific disclosure obligations apply as a result of the relevant listing.

On a stock-for-stock takeover offer (or a takeover offer with a mix and match facility), the offer of securities to target shareholders will ordinarily constitute an offer of transferable securities to the public requiring an approved prospectus. However, there are exemptions available including on takeovers where the bidder makes an “exemption document” available that has been approved by the FCA and, for a bidder listed on the main market of the London Stock Exchange (rather than AIM), the new shares represent less than 20% of its issued share capital.

Where an offer is to be implemented pursuant to a scheme, it is generally accepted that there is no offer of transferable securities to the public such that no prospectus is required. For a mix-and-match offer, the position is less clear as there is conflicting FCA commentary on the point.

It is worth noting that prospectus regime reforms are currently undergoing consultation and that (among other changes) draft regulations published in January 2024 expressly exclude securities issued under a scheme from the definition of public offer.

Under the Takeover Code, where a bidder is UK incorporated and its shares are admitted to trading on a UK-regulated market, AIM or the Aquis Stock Exchange (AQSE) Growth Market, the offer or scheme document must contain details of:

• the website where (i) its audited consolidated accounts for the last two financial years, and (ii) any preliminary statement of annual results, half-yearly financial report or interim financial information, have been published since the date of its last audited accounts; and
• in a securities exchange offer, any known significant change in its financial or trading position since the end of the last financial period for which the accounts/reports/interims referenced in the foregoing have been published (or an appropriate negative statement).

For other bidders, the offer or scheme document must contain this information, so far as is appropriate, and such further information as the Takeover Panel may require.

Where a prospectus or exemption document is required on a securities exchange offer, there may also be additional requirements in respect of the financial information to be disclosed.

A copy of the offer or scheme document will need to be shared with the Takeover Panel. In addition, in the case of a securities exchange offer, it will be necessary for the FCA to approve the prospectus or exemption document if such document is required (see 10.2 Prospectus Requirements).

The Takeover Code also requires various documents to be published on a website in connection with a public takeover including, among other things, any announcement of a possible offer or firm intention to make an offer, any offer or scheme document, irrevocable commitments or letters of intent (see 6.12 Irrevocable Commitments), any permitted offer-related arrangements such as co-operation agreements (see 6.6 Deal Documentationand 6.10 Types of Deal Protection Measures) and any financing documentation.

The statutory general duties of directors in the UK are to:

• act within their powers;
• promote the success of the company;
• exercise independent judgment;
• exercise reasonable care, skill and diligence;
• avoid conflicts of interest;
• not accept benefits from third parties; and
• declare an interest in a proposed transaction or arrangement.

The duty to promote the success of the company is to act in a way a director considers, in good faith, would be most likely to promote the success of the company for the benefit of the shareholders as a whole, and in doing so have regard to, among other matters, the likely consequences of any decision in the long term, the interests of the company’s employees, the need to foster business relationships, the impact of the company’s operations on the community and the environment, the desirability of maintaining a reputation for high standards of business conduct and the need to act fairly as between shareholders.

In general, directors’ duties are owed to the company and not to the shareholders.

It is common in the UK for boards of directors to establish a committee with delegated authority in relation to a transaction, particularly once it has been approved in principle by the board.

Such committees may also be relevant when certain directors have a conflict of interest, for example in the case of a management buy-out.

In relation to a transaction to which the Takeover Code applies, directors must ensure compliance with the Code. Whilst the Takeover Code permits a board to delegate the day-to-day conduct of an offer to particular directors or a committee of the board, the board must monitor the conduct of the transaction effectively so that each director can fulfil their Code responsibilities.

An M&A transaction will typically be negotiated on a day-to-day basis by key executives, under close oversight of the board and with the support of external advisers.

Where the Takeover Code applies, the directors of the bidder and the target must ensure compliance with the Takeover Code. Whilst the Takeover Code permits a board to delegate the day-to-day conduct of an offer to particular directors or a committee of the board, the board must monitor the conduct of the transaction effectively so that each director can fulfil their Takeover Code responsibilities. Under the Takeover Code the target board is also required to provide its recommendation to shareholders in relation to the offer.

Shareholder litigation is relatively uncommon in the UK, in part because in general directors’ duties are owed to the company rather than the shareholders (see 11.1 Principal Directors’ Duties). Where a transaction involves public disclosure, investors may be able to bring a claim to the extent the requisite disclosure standard for the relevant document has not been met.

Directors will typically receive independent advice in a number of areas, which (depending on the particular circumstances and the skill sets available within the company) will commonly include, among other things:

• financial advice (including as to valuation and deal terms);
• legal and regulatory advice (including as to legal due diligence, transaction documentation and regulatory approvals);
• accounting and tax advice; and
• specialised technical advice (including, in the context of energy and infrastructure M&A, from consultants, engineers and environmental experts).

Under the Takeover Code, the board of the target is required to obtain competent independent advice in respect of whether the financial terms of an offer are fair and reasonable, and the substance of that advice must be made known to shareholders.

Outside of the advice provided by a financial adviser in the context of a Takeover Code transaction, it is less common in the UK to seek fairness opinions from financial advisers than in some other jurisdictions, particularly the USA.