Investing In... 2024

Last Updated January 18, 2024


Law and Practice


Herbert Smith Freehills is one of the world’s leading international law firms, engaging with the most important challenges and opportunities facing clients around the world. The firm draws on decades of sector focus, tapping into its 24-office global network across Asia‒Pacific, EMEA and the USA when deploying its world-renowned corporate teams. Its global M&A team comprises more than 400 legal professionals (including 150 partners providing market-leading capability on public and private M&A), with extensive experience of acting ‒ both on the buy and sell side ‒ in formal and informal auctions and on bilateral deals. Clients benefit from the firm’s specialist expertise in executing and delivering cross-border transactions, regardless of size or complexity. Herbert Smith Freehills advises many of the world’s leading corporates, investment banks, financial buyers and public sector and government clients, including JP Morgan, Morgan Stanley, SCB, SoftBank, Bharti, Blackstone, GIC, QIA, AustralianSuper, CPPIB, Stonepeak, and Macquarie. Herbert Smith Freehills would like to thank the authors of this chapter and following additional contributors: Veronica Roberts (partner, Competition, Regulation and Trade), Miriam Everett (partner, Data Protection and Privacy), Jonathan Turnbull (partner, Intellectual Property), Michael Jacobs (partner, Equity Capital Markets), and Sarah Ries-Coward (senior associate, Equity Capital Markets).

The UK has three largely separate legal systems for England and Wales, Scotland, and Northern Ireland. Scotland has a mixed common law and civil law system, whereas England and Wales and Northern Ireland have a common law system. The material in this chapter deals primarily with the laws of England and Wales but makes reference to other parts of the UK where relevant.

Sources of Law

The key source of law in the UK is legislation – ie, statutes enacted by Parliament (as the supreme law-making body), in addition to statutory instruments. This is supplemented by the rules of common law and equitable principles, as established and developed over the centuries through decisions of the UK courts.

The interpretation of legislation made by Parliament is for the courts when they hear cases. When conflicts arise between common law and legislation, these are also dealt with by the courts, with legislation taking priority over (and having the ability to amend) common law.

In considering cases, judges are bound by precedent, with decisions of the higher courts (or “courts of record”) being binding on less senior courts. The Supreme Court is the final court of appeal in the UK. It hears appeals on arguable points of law of public importance for the whole of the UK in civil cases, and for England and Wales and Northern Ireland in criminal cases.

European Law Post-Brexit

Prior to the UK’s departure from the EU (“Brexit”), EU law also formed a significant source of law in the UK, either through directly applicable EU regulations or through domestic enactments of EU Directives. Following Brexit, a snapshot of EU law as it applied to the UK at that time was retained and incorporated into UK domestic law (known until the end of 2023 as “retained EU law”). Parliament is now in the process of reforming that retained EU law through various amendments and revocations, and has renamed it “assimilated law” to reflect the significant changes being made.

Rules and Regulators

In addition to legislation, there are various persons and regulatory bodies that have the ability to make rules in the UK. Among them are the Registrar of Companies, the Takeover Panel, the Financial Conduct Authority (FCA) and the Financial Reporting Counsel.

National Security and Investment Act 2021 (NSIA)

The NSIA established a dedicated regime to review transactions on national security grounds. The NSIA is administered by the Investment Security Unit (ISU), the body to whom notifications are made, with decisions taken by the Secretary of State in the Cabinet Office (the “Secretary of State”).

The NSIA allows the Secretary of State to review almost any transaction that they consider may give rise to a risk to UK national security (see 7.2 Criteria for Review). The NSIA also requires mandatory notification of certain transactions concerning target businesses that have activities within one or more of 17 sectors specified in the notifiable acquisition regulations (NARs). Transactions not subject to the mandatory notification requirement may be voluntarily notified to the ISU.

Enterprise Act 2002 (EA02)

The UK government has the power to issue an intervention notice in respect of any transaction meeting certain thresholds – reflecting, for the most part, the thresholds used to determine whether the UK’s Competition and Markets Authority (CMA) has jurisdiction to review the transaction for merger control purposes (see 6.2 Criteria for Review) ‒ on the grounds specified in Section 58 of the EA02 (the public interest intervention notice (PIIN) regime). These grounds include media plurality, stability of the financial system, or public health. (Until the NSIA was introduced, this also included national security.)

Please refer to the UK Trends and Developments chapter in this guide, in which the authors discuss the outlook for 2024 and draw out five key legal developments and five market trends to monitor. This includes discussion on the UK’s proposed new listing regime, potential pro-business amendments to the NSIA, the new regulatory regime for digital markets, upcoming changes to the UK merger control regime, and the possibility of notification requirements for outbound investments to countries of concern.

The way in which a company is acquired in the UK generally depends upon whether the company is a private or public company.

Private Companies

For private companies, it is typical to either acquire the company’s shares or the company’s business/assets. The difference is that ‒ in the case of a share purchase ‒ the ownership of the company as a separate legal entity is acquired, comprising all of its assets and liabilities. However, in the case of a business acquisition, the buyer selects which individual categories of the company’s assets and liabilities it is interested in acquiring.

The main commercial advantage to structuring an acquisition as a share purchase is that continuity of the business is preserved. Both before and after completion, the business is carried on by the same company and ‒ as far as the world at large is concerned – no change has taken place.

The main commercial advantage of a business acquisition is the ability to avoid inheriting the liabilities of the target business. Even though the buyer will be carrying on a business in succession to the seller under the same business name, any debts or other liabilities incurred by the seller before the acquisition of the business by the buyer are not in general automatically transferred to the buyer unless there is a specific agreement to take these on.

One point to consider is that a business acquisition may be much more complex than a share acquisition. In a business acquisition, the buyer must ensure that the ownership of each asset has been correctly transferred (which may require numerous documents and consents), whereas a share acquisition ‒ reduced to the basics ‒ requires only a share transfer form actually to transfer title.

Public Companies

The acquisition of UK public companies is governed by the City Code on Takeovers and Mergers (the “Takeover Code”), which is administered by the Takeover Panel.

There are two principal ways to effect a takeover of a UK public company – namely, a contractual takeover offer by the bidder to acquire the shares of the target (a takeover offer) or a court procedure known as a scheme of arrangement (a scheme).

A takeover offer involves an offer contract (the offer document) between the bidder and the shareholders of the target, which includes the financial terms, conditions and other offer provisions. A minimum condition of the offer must be that sufficient acceptances are received to give the bidder ownership of at least 50% of the target’s voting shares (this is a Takeover Code requirement). However, bidders normally opt for a higher 90% acceptance level in order to use statutory compulsory acquisition/squeeze-out powers under UK law to obtain 100% ownership.

A scheme is a court procedure, proposed by the target company to its shareholders. The shareholders are asked to pass resolutions to approve the scheme at a shareholders’ meeting, requiring a majority in number representing 75% in value of those voting (excluding any shares already held by the bidder). If the resolutions are passed and the scheme is sanctioned, it is binding on all shareholders, regardless of whether they voted in favour of the scheme or not. Schemes are usually used for takeovers recommended by the target board, as they have the advantage of ensuring 100% ownership once approved.

Minority Investments

For minority investments (ie, a shareholding of less than 50%), investors typically acquire their interests through a share transfer from another shareholder or the purchase of new shares issued by the company. It is worth noting that the Takeover Code will require an investor in a public company to make a mandatory offer for the company if it ‒ together with any concert parties (broadly defined) ‒ acquires an interest in 30% or more of the company’s issued share capital.

See 6. Antitrust/Competition for a summary of the key UK merger regimes that apply to domestic M&A transactions and 8. Other Review/Approvals for a summary of other relevant regimes.

Legal Entities

In the UK, the most common forms of legal entities are:

  • private companies limited by shares;
  • public companies limited by shares; and
  • partnerships.

The key factors to consider when determining what form to select are limitations on liabilities, the desired nature of the entity (ie, whether it will be publicly or privately held), and the relevant tax treatment. By way of example, only public companies are permitted to offer their shares to the public.

Corporate Governance Framework

The corporate governance framework in the UK comprises laws, codes of practice, market guidelines and constitutional documents. The key sources for companies are as follows.

  • The UK company law regime is primarily set out in the Companies Act 2006.
  • The Insolvency Act 1986 contains provisions relating to the winding-up of companies.
  • The Financial Services and Markets Act 2000 (FSMA) sets out the UK regime for financial services and securities law. Specifically, there are restrictions on offering or promoting securities and companies need to produce a prospectus when they offer their shares to the public.
  • In addition, public companies whose shares are traded on the Main Market of the London Stock Exchange will need to comply with the Listing Rules, Prospectus Rules, Disclosure Guidance and Transparency Rules (the “LPDT Rules”) issued by the FCA.
  • The internal affairs of companies are governed by their constitutional documents, the key one being its articles of association. These include the rights attached to a company’s shares (including voting rights), the powers of the directors, the regulation of shareholders’ and directors’ meetings, the alteration of capital, and the transfer of shares.
  • Some companies also adopt corporate governance codes ‒ for example, premium listed companies must adopt the UK Corporate Governance Code, which consists of principles and provisions of good governance and apply it on a comply or explain basis.

Minority investors are granted certain basic protections under UK company law, such as:

  • the ability to bring an action on behalf of the company against the company’s directors for negligence, default, breach of duty or breach of trust; and
  • the right to petition the court for an order that the affairs of the company are being conducted by the majority in a way that is unfairly prejudicial (subject to meeting the various requirements for such claims).

A 5% shareholder can require the directors of a company to call a general meeting. And a 25% shareholder can block a special resolution, which can prevent a company from altering its articles of association, removing statutory pre-emption rights, changing its name or passing a winding-up resolution.

This level of protection, while helpful, often falls short of the typical commercial controls sought by minority investors in private companies. As such, it would be usual for investors in private companies to seek to negotiate express contractual and constitutional rights (such as veto rights or reserved matters, board representation, transfer and exit provisions and anti-dilution protections) in order to better protect themselves. These rights often form part of a shareholders’ agreement with other shareholders or are embedded in the company’s articles.

Public Companies

Under Disclosure Guidance and Transparency Rules (DTR) 5, if an investor’s aggregate interest in a listed company reaches, exceeds or falls below 3% (or 5% for certain types of professional investor) or any whole percentage point thereafter, it must notify the company within two trading days. This applies where there is an acquisition or disposal of shares or financial instruments by the investor, or where there is a change in the company’s total voting rights.

If a listed company enters into an offer period under the Takeover Code, additional disclosure rules apply to investors with interests of 1% or more. This includes making a public opening position disclosure within ten business days of the offer period commencing and disclosing any market dealings in the listed company’s shares.

Disclosure obligations under the UK Market Abuse Regulation (the “UK MAR”) ‒ the UK version of the EU Short Selling Regulation and the Alternative Investment Market (AIM) Rules ‒ may also apply, depending on the nature of the investor and the public company. By way of example, if the investor is also a director of a listed company, they will need to notify any dealings in the company’s shares to the company and the FCA under UK MAR.

Private Companies

The people with significant control (PSC) regime applies to all UK companies, apart from listed public companies. It is intended to promote transparency within UK holding structures by making information on beneficial owners publicly available. It requires companies to maintain a register of people with significant influence or control over the company (a “PSC register”, which includes any investor with more than 25% of the company’s shares or voting rights) and to file such PSC information on the public register at Companies House.

Equity and Debt Capital Markets

In the UK, both debt and equity capital markets provide a major source of financing for businesses. Specifically, the significant increase in UK corporate debt in recent years has primarily been funded through the debt capital markets, instead of bank financing. Since the global financial crisis, nearly all of the GBP425 billion net increase in UK corporate debt has come from market-based finance, which now makes up more than half of all UK corporate debt (according to the Bank of England).

In the equity capital markets, there is a divide between public and private companies. Public companies generally generate sufficient cash resources to meet their day-to-day capex and opex requirements without needing to issue new equity; indeed, they focus instead on returning value to shareholders through dividends and share buybacks. Therefore, public companies predominantly only access the equity capital markets where they are making a significant new investment (eg, a major acquisition) or are in financial distress.

That said, during the COVID-19 pandemic, UK public companies used the equity capital markets to raise significant amounts of funding through non-pre-emptive placings, rights issues and open offers. Historically, non-pre-emptive placings have had little opportunity for retail participation. During this period, however, the trend to involve retail shareholders using new platform technology (such as PrimaryBid) became more prevalent.

In contrast, private companies continue to be fuelled by equity investments as well as debt. A growing number of private companies are remaining private for longer and attracting significant investments from venture and growth capital investors. The UK continues to have the most unicorns in Europe (private start-up companies valued at over USD 1 billion), with more than 150 unicorns in 2023. Start-ups and scale-ups in the UK raised USD 31 billion of investment in 2022, according to Dealroom data ‒ being third globally in terms of venture capital (VC) investment.

Ongoing Reforms

It is worth noting that the UK is currently undertaking a radical restructuring of its listing regime, with the new UK Listing Rules (expected to be in force in the second half of 2024) aiming to encourage a greater range of companies to list in the UK. The key proposed reforms will create a single category for UK listings of equity shares of commercial companies and dramatically scale back those aspects of the UK’s listing regime that were seen as uncompetitive compared with other listing venues. See the UK Trends and Developments chapter of this guide for further details.

Furthermore, recommendations from the Secondary Capital Raising Review published in July 2022 are being implemented with the intention of making the process of raising capital for existing listed companies more efficient. Undocumented capital raises are expected to become easier as a result.

Currently, securities offerings in the UK are principally governed by the FSMA, as supplemented by the LPDT Rules. However, significant equity capital markets reforms are ongoing and material changes to the UK prospectus regime, in particular, are expected to take effect in 2025. The Financial Services and Markets Act 2023 provides the new framework and the Public Offers and Admissions to Trading Regulations 2023 will give the FCA discretion on when a prospectus is required.

Until then, a prospectus will be required if a company:

  • makes an offer of transferable securities to the public in the UK; and/or
  • applies for the securities to be admitted to trading on a regulated market in the UK.

Exemptions apply:

  • where the offer is addressed solely to qualified investors or to fewer than 150 persons; or
  • where the securities are already admitted to trading and represent less than 20% of the securities already admitted to trading over a period of 12 months.

Communications of an invitation or inducement to engage in investment activity (“financial promotions”) are strictly regulated (with criminal penalties). Financial promotions must either fall within an exemption or be made or approved by an authorised firm.

For issuers admitted to the Main Market of the London Stock Exchange, the London Stock Exchange’s Admission and Disclosure Standards will also apply. Further issues of shares (ie, by a placing, open offer or rights issue) will also be subject to the requirements of the Companies Act 2006 and will need to consider investor guidelines, principally those of the Investment Association and the Pre-Emption Group.

A foreign investor structured as an investment fund would not be subject to any additional regulatory review, unless – as part of the investment ‒ interests in the relevant fund are offered to UK persons (where marketing restrictions would then apply).

The UK merger regime applies to “relevant merger situations”. A relevant merger situation arises where two or more enterprises cease to be distinct and one or more of the UK jurisdictional thresholds are met. The relevant jurisdictional thresholds are:

  • the turnover test – this is met where the turnover generated by the target enterprise exceeds GBP70 million; or
  • the share of supply test – this is met where the merged entity will, as a result of the transaction, supply 25% or more of goods or services of a particular description in the UK as a whole (or a substantial part of it).

Enterprises “cease to be distinct” if they are brought under common ownership or common control. The EA02 recognises three levels of control, each of which can give rise to a notifiable merger: 

  • legal control – acquired through an interest which carries more than 50% of the voting rights; 
  • de facto control – where an entity controls an enterprise’s activities despite holding less than the majority of voting rights (this concept is similar in nature to the concept of “decisive influence” under the EU Merger Regulation and needs to be assessed on a case by case basis); or 
  • material influence – this is the lowest level of control that may give rise to a relevant merger situation and may capture minority interests where there are factors that enable the acquirer to influence the target’s commercial policy.

Notification Process

There is no obligation to notify mergers in the UK, although in practice many transactions are notified in the interest of legal certainty. The CMA can also review non-notified mergers, including completed mergers, and make a Phase 2 reference up to four months after completion of the transaction is made sufficiently public. The CMA has dedicated mergers intelligence staff responsible for monitoring non-notified merger activity and is therefore likely to pick up on mergers of its own accord.

Notification is made in the form of a statutory Merger Notice, which requires significant amounts of information.

The CMA merger investigation process comprises two stages: Phase 1 and Phase 2. At Phase 1, the CMA has a statutory requirement to refer a transaction for an in-depth Phase 2 investigation where it believes that a relevant merger situation “may” give rise to a substantial lessening of competition (SLC) (or has already done so in the case of completed mergers). For the purposes of Phase 1, the CMA must merely consider the prospect of a SLC to be more than fanciful.

Where the test for a Phase 2 reference is met, the CMA may accept undertakings in lieu of a reference (UILs) from the merging parties as an alternative to making a Phase 2 reference. In order to accept UILs, the CMA must be confident that all potential competition concerns will be resolved by these undertakings without the need for further investigation.

Where the CMA makes a Phase 2 reference, the CMA is required to assess whether a transaction is a relevant merger situation and, if so, whether the SLC test is met. At this stage, the CMA must assess whether on the balance of probabilities the transaction would give rise to a SLC.

If, following a Phase 2 reference, the CMA concludes that a merger has resulted or may result in a SLC then the CMA is required to decide whether action should be taken to remedy, mitigate or prevent the SLC or any adverse effect resulting from the SLC. This could take the form of an absolute prohibition of the transaction (or an unwinding of a completed merger) or structural remedies (eg, divestiture of part of the acquired business). The CMA may also impose behavioural remedies (eg, IP licences, price caps) but these are less common in practice.


  • Phase 1 decision – 40 working days, commencing when the CMA confirms the Merger Notice is complete or (if no Merger Notice) that it has sufficient information to start its investigation
  • Consideration of UILs – if the transaction will be referred to Phase 2, the parties have five working days to offer UILs and the CMA has 10 working days (running in parallel) to decide if UILs are acceptable in principle. Any UILs must be agreed within 50 working days of the Phase 1 decision (extendable by up to 40 working days). Otherwise, transaction is referred to Phase 2.
  • Phase 2 decision – 24 weeks (extendable by up to 8 weeks).
  • Implementation of remedies – 12 weeks (extendable by up to 6 weeks).

The CMA can “stop the clock” and extend the time limits where responses to statutory information requests are outstanding.

The CMA’s assessment of a transaction is separate from any review under the NSIA. (However, the ISU and CMA have an information-sharing arrangement in place through which each agency can become aware of non-notified transactions.)

The term “substantial lessening of competition” is not defined in the EA02 but the CMA will consider whether the merger is expected to weaken rivalry to such an extent that customers would be harmed as a result. The CMA’s Merger Assessment Guidelines provide more detail as to how the CMA will apply the SLC test. A variety of different factors will be considered, including the parties’ market shares, any efficiencies that may result from the merger, and the likely effect of the merger on entry and exit from the relevant market.

In the case of a PIIN, the Secretary of State will commission the CMA (or relevant concurrent regulator – for example, Ofcom in the case of media mergers) to investigate the potential public interest implications of the transaction. For public interest mergers, the Secretary of State is the ultimate decision-maker, but the CMA carries out its review as to whether a SLC may arise in line with its aforementioned usual statutory test. The Secretary of State may intervene to impose additional conditions on mergers to address public interest concerns (irrespective of whether conditions are imposed to address competition concerns) and may also decide to clear a transaction even if the CMA concludes that there is a SLC.

Merger remedies may be structural or behavioural in nature. In most cases, the CMA will prefer structural remedies.

As noted in 6.1 Applicable Regulator and Process Overview, the CMA may prohibit a transaction at Phase 2. Decisions of the CMA can be appealed to the UK’s specialist competition court, the Competition Appeal Tribunal (CAT). As the UK regime is voluntary, there are no penalties for failing to notify a relevant merger situation.

Interim Measures

The CMA has powers to suspend integration while it is reviewing a transaction; it does so via the imposition of an initial enforcement order (IEO). An IEO has the effect of suspending completion (or holding the relevant merger parties separate in the event the transaction has already completed). IEOs are imposed as a matter of course where the CMA investigates completed transactions.

Merging parties may seek to negotiate derogations from an IEO, which takes the form of a standard template. However, the CMA expects requests for derogations to be fully justified.

For anticipated mergers, the CMA has stated that it expects to use IEO powers only where it has concerns that pre-emptive action is difficult or costly to reverse. Despite this, there has been an increasing trend towards the use of such measures in anticipated mergers.

Under its interim measures powers, the CMA can require parties to reverse integration steps already taken at Phase 1 and Phase 2. Penalties of up to 5% of aggregate turnover of the party in breach can be imposed for breach of these interim measures. The CMA has recently significantly stepped up its enforcement activity in this regard.

The NSIA applies equally to foreign and domestic investors. Transactions are within the scope of the NSIA where a “trigger event” (eg, an acquisition) occurs in respect of a “qualifying entity” (broadly, any entity incorporated in the UK) or “qualifying asset” (see 7.2 Criteria for Review for further details).

Trigger events involving qualifying entities that carry out “specified activities” in the UK in one or more sectors specified in the NARs must be notified to the ISU and clearance obtained prior to completion. The mandatory sectors specified under the NARs are:

  • advanced materials;
  • advanced robotics;
  • AI;
  • civil nuclear;
  • communications;
  • computing hardware;
  • critical suppliers to government;
  • cryptographic authentication;
  • data infrastructure;
  • defence;
  • energy;
  • military and dual-use;
  • quantum technologies;
  • satellite and space technology;
  • suppliers to the emergency services;
  • synthetic biology; and
  • transport.

It is also possible to submit a voluntary notification for transactions not subject to the mandatory regime (eg, where a target does not perform a specified activity under the NARs). Detailed lists, definitions and guidance on each specified activity within these sectors are available to assist parties in assessing whether a transaction is in scope of the NSIA.

Call-In Power

The Secretary of State has the power to issue a “call-in notice” to review any transaction in which a trigger event has taken place (or will take place) where the Secretary of State reasonably considers that this may give rise to a risk to national security. This power is exercisable at any time up to six months after the Secretary of State becomes aware of the transaction, provided that this is also within five years of the relevant trigger event.

The Secretary of State has published a statement of policy intent (known as the “Section 3 Statement”) on the scope and use of the call-in power. This states that the 17 sectors specified in the NARs are also sectors that the government considers to be generally more sensitive in terms of national security. As such, even when mandatory filings are not triggered (eg, because the control thresholds are not met for a trigger event or the target does not carry out specified activities), transactions in these sectors and related sectors are more likely to be called in for review.

Review Process

Notifications are made to the ISU via its online portal. Where a transaction is notified to the ISU (on a voluntary or mandatory basis), the Secretary of State must decide whether to issue a call-in notice or clear the transaction within 30 working days of the notification being accepted (which typically occurs within one week of submission).

Where the Secretary of State issues a call-in notice, the ISU has a further 30 working days in which to review the national security implications of the transaction, extendable by up to 45 working days (or longer with the agreement of the purchaser). This period will usually be used to assess what, if any, remedies are appropriate and to seek representations from the parties. If the Secretary of State considers that a transaction gives rise to national security risks and that it is necessary and proportionate to make a final order for the purpose of preventing, remedying or mitigating that risk, they may issue a final order.

In addition, the NSIA grants the ISU extensive information gathering powers, enabling it to request any information necessary to inform an assessment of the national security risks of a transaction. This may include requesting information where no notification has been submitted to enable the Secretary of State to determine whether to exercise the call-in power.

As noted in 7.1 Applicable Regulator and Process Overview, the NSIA applies to trigger events in respect of a qualifying entity or qualifying asset.

Qualifying Entity/Qualifying Asset

For the purposes of the NSIA, the following definitions apply.

  • A “qualifying entity” means, broadly, any entity that is not an individual and is:
    1. formed or recognised within the UK; or
    2. formed or recognised outside of the UK and either carries out activities in the UK or supplies goods or services to persons in the UK.
  • A “qualifying asset” means land, tangible movable property, or ideas, information or techniques that have industrial, commercial or other economic value, provided that the asset is:
    1. situated within the UK (in the case of land or moveable property only);
    2. situated outside of the UK and used in connection with activities carried out in the UK; or
    3. situated outside of the UK and used in connection with the supply of goods or services to persons in the UK.

Trigger Event

A trigger event includes any of the following events (which are considered in the NSIA to constitute acquisitions of control).

  • In respect of a qualifying entity, a trigger event refers to:
    1. an increase in the percentage of shares or voting rights held by the acquirer from 25% or less to more than 25%, 50% or less to more than 50%, or less than 75% to 75% or more;
    2. an acquisition of voting rights in the qualifying entity that, whether alone or in aggregate with voting rights already held, enable the acquirer to secure or to veto any class of resolution governing the affairs of the qualifying entity; or
    3. an acquisition of rights or interests that, whether alone or in aggregate with rights or interests already held, enable the acquirer to materially influence the policy of the qualifying entity (unless the acquirer already held interests or rights that enabled it to do so) – this may capture minority stakes, including acquisitions of holdings less than 15%.
  • In respect of a qualifying asset, a trigger event refers to an acquisition of rights or interests in relation to the asset that enable the acquirer to:
    1. use the asset (or use it to a greater extent than prior to the acquisition); or
    2. direct or control how the asset is used (or to do so to a greater extent than prior to the acquisition).

Intra-Group Reorganisations

It is also notable that intra-group reorganisations are within the scope of the NSIA. Any transaction in which an immediate controlling interest over an entity or asset changes hands might be reviewable, or even trigger a mandatory filing requirement (if the entity performs a specific activity), even if the transaction is entirely intra-group and does not result in any change in the ultimate ownership of the entity or asset. ISU guidance recognises, however, that it is rare in practice that such transactions will raise substantive national security risks.


The NSIA captures acquisitions outside the UK if the target meets the criteria of a qualifying entity or qualifying asset. These criteria require a connection to the UK but do not require any physical presence.

Remedies orders, where relevant, may apply to a person’s conduct outside the UK if they are a UK national, an individual ordinarily resident in the UK, a body incorporated or constituted under the law of any part of the UK, or carrying out business in the UK.

The UK government considers that acquisitions of entities or assets outside the UK are generally less likely to give rise to national security risks than those located within the UK and are therefore less likely to be called in. The level of national security risk will generally be linked to the strength of the connection of the asset or entity to the UK.

Substantive Review

The ISU’s review process is not public. However, guidance is clear that the ISU consults across the UK government in relation to transactions that it reviews. In particular, the ISU will consult with the government departments relevant to the potential national security interests at hand (eg, the Ministry of Defence may be consulted where a transaction in the defence sector is under review).

As noted in 7.1 Applicable Regulator and Process Overview, the Secretary of State can impose remedies to address any identified risks to national security. The NSIA allows for a broad range of remedies, but in practice the specific remedies will be calibrated to the national security concerns identified in respect of a given transaction.

To date, there have been 12 conditional clearances issued under the NSIA. Example remedies include:

  • information requirements (eg, implementing enhanced controls to protect sensitive information, prohibitions on transferring intellectual property and limiting information flows);
  • prohibitions on future acquisitions in entities engaged in certain activities;
  • governance requirements (eg, appointing a UK government-approved auditor, a chief information officer, or appointing a UK government-appointed board observer); and
  • maintaining R&D/manufacturing capabilities in the UK post-transaction.

Completion without clearance (where the mandatory regime applies) – or failure to comply with an interim or final order ‒ can additionally result in fines of up to 5% of worldwide group turnover or GBP10 million (whichever is the greater), imprisonment of individuals for up to five years, and disqualification of directors for up to 15 years.

As noted in 7.1 Applicable Regulator and Process Overview, decisions under the NSIA are taken by the Secretary of State. These decisions are subject to judicial review before the UK courts. At the time of writing, no judgments have been handed down in respect of challenges of decisions made under the Act (although two challenges are pending before the courts).

Exchange Control and Sanctions

In the UK, there are no exchange control or currency regulations affecting inward or outward investment, the repatriation of income or capital, the holding of currency accounts, or the settlement of currency trading transactions. However, there are separate restrictions relating to the provision of funds/dealing with the assets of sanctioned individuals and entities ‒ for example, financial and trade sanctions, which can either be regime-specific (ie, designations of specific individuals and entities) or non-regime-specific (ie, designations of individuals and entities relating to terrorism and specific terrorist organisations).

Regulated Businesses

Additional specific filings, clearances or consents may be required in order to acquire a company, depending on the nature of the company and the sector in which it operates. By way of example, there are specific rules governing acquisitions of companies operating in regulated business areas, such as financial services, banking, media, broadcasting, telecommunications, energy and utilities. Specific advice should always be sought.

Applicability of Merger Control and FDI in Other Jurisdictions

For acquisitions of businesses that operate both within and outside of the UK, it will be necessary to screen for merger control and FDI restrictions in other jurisdictions. This includes the EU, which operates a separate merger control regime to the UK.

Direct Tax

Corporation tax is a direct tax levied on the profits of companies. The current standard rate is 25% for businesses with profits of more than GBP250,000. Companies with profits of less than GBP50,000 pay tax at 19%, whereas those with profits between GBP50,000 and GBP250,000 pay at a tapered rate.

All companies resident in the UK are subject to corporation tax on their worldwide profits, which include trading profits, investment profits, and capital gains (known as “chargeable gains”). Non-UK resident companies are only taxed on trading profits attributable to their UK permanent establishment and on capital gains from the disposal of UK property and shares in land-rich vehicles and certain other assets.

Business organised as a partnership are generally transparent for tax purposes, meaning that each partner is taxed on their share of the partnership’s income or gains.


VAT is charged on supplies of good and services. The standard rate is 20%; however, a reduced rate of 5% applies to certain goods and services, and a zero rate applies to others.

Businesses with taxable turnover above the VAT registration threshold (currently GBP85,000) must register for VAT. Once registered, they must charge VAT on their taxable supplies (sales) and they can reclaim VAT charged on their purchases.

VAT applies equally to UK and foreign companies that make supplies in the UK. However, special rules apply to cross-border transactions, and non-UK established businesses may be required to register for VAT under different rules.

Stamp Duties

Stamp duties are taxes on legal documents relating to the transfer of land and securities. The three main types are Stamp Duty Land Tax (SDLT), stamp duty, and Stamp Duty Reserve Tax (SDRT).

SDLT is charged on purchases of land and property in England and Northern Ireland (with local equivalents in Scotland and Wales). The rate depends on the price and type of property and whether the purchaser is a private individual or a company. Companies generally pay a higher rate and an additional 3% is charged on the purchase of additional residential properties. An additional 2% rate applies to non-residents purchasing residential property. In each case, a number of exemptions are available.

SDRT is charged on paperless transactions involving the transfer of shares and securities. Stamp duty is charged on paper transactions. In each case, the rate is 0.5% of the purchase price.


The UK does not impose withholding tax on dividends (other than on certain distributions paid by UK REITs). This applies regardless of whether the recipient is a UK resident or a foreign investor. Therefore, dividends paid by a UK company can be paid gross, without the deduction of tax.

Property Rental Income

Property rental income paid to non-residents is subject to a withholding tax of 20%. However, this may be relieved if the non-resident registers with His Majesty’s Revenue and Customs (HMRC) and makes appropriate tax returns in respect of that income.

Interest and Royalties

Interest and royalties paid by a UK company to a foreign investor are generally subject to withholding tax at the basic rate of income tax (currently 20%). However, there are several exceptions to this rule.

In both cases, the rate of withholding tax can be reduced or eliminated under a double-tax treaty. The UK has an extensive network of double-tax treaties, many of which reduce the rate of withholding tax to a lower rate or to 0%.

However, the availability of treaty benefits can be subject to “treaty shopping” or similar limitations. The UK’s treaties generally include a “beneficial ownership” condition, which means that the recipient of the interest must be the beneficial owner of the income and not just a conduit or nominee. Some treaties also include a “principal purpose test” or “limitation of benefits” clause, which can deny treaty benefits where one of the main purposes of an arrangement or transaction was to obtain the benefits.

When acquiring a UK business, the structure of the acquisition can have a significant impact on the future tax liabilities. By way of example, acquiring the assets of a business (rather than the shares) can provide a “step up” in the base cost of the assets for capital gains and/or capital allowances (depreciation) purposes. This can result in higher tax deductions in the future. However, asset purchases can have other tax implications (such as VAT and SDLT), as well as chargeable gains for the seller, which need to be considered.

UK business can reduce taxable profits by introducing interest-bearing debt to obtain tax deductions, subject to the application of the corporate interest restriction rules and certain other anti-avoidance rules (see 9.5 Anti-evasion Regimes).

Expenditure on certain items of qualifying capital expenditure can be fully expensed in the period the expenditure is incurred, thus reducing taxable profits.

The UK does not have a system of tax consolidation for corporation tax purposes. However, it does allow group relief for losses between UK-resident companies and certain non-resident companies in the same group. This can reduce the group’s overall tax liability. Losses can also be carried forward indefinitely and used to offset future profits (subject to certain annual limits and other restrictions, including on a change of ownership). However, a company’s available losses may be cancelled if there is a major change in the nature or conduct of its trade three years preceding or five years following a change of ownership.

Capital gains derived by non-UK residents from the disposals of assets are not subject to tax unless:

  • they are carrying on the trade, profession or vocation in the UK through a branch or agency and the asset used for such purposes is situated in the UK;
  • it is a disposal directly or indirectly of an interest in UK land, subject to non-resident capital gains tax (NRCGT) ‒ this includes disposals of assets that that derive at least 75% of their value from UK land where the person making the disposal has a substantial indirect interest in the land (broadly, at least 25%) (certain other disposals related to UK land may be subject to tax under anti-avoidance rules); or 
  • it is a disposal of assets that are or derive their value from UK oil and gas assets.

Exemptions and Reliefs

For corporate foreign investors who are subject to corporation tax, there are a number of exemptions and reliefs which may be available. Certain foreign investors are eligible to make elections that provide an exemption from NRCGT (broadly, if the ultimate beneficial owners are at least 70% tax-exempt). The use of a UK holding company as a blocker vehicle can also provide benefits in terms of accessing the UK’s generous exemption regime for dividends and substantial shareholding regime for chargeable gains, subject to certain conditions.

Additional tax-advantaged structures are available for foreign investment via collective investment vehicles and funds. Each of these depend on a number of conditions being satisfied and are generally subject to a requirement that profits that are not taxed in the structure are distributed to and/or treated as received by the investors.

There are several anti-avoidance rules that may be applicable to multinational transactions, arrangements or groups.

Transfer Pricing Rules

The UK’s transfer pricing rules require transactions between connected parties, whether domestic or international, to be conducted on arm’s length terms. This means that the terms should be the same as they would be between independent parties in comparable circumstances. If not, the UK tax authorities (HMRC) can adjust the taxable profits to reflect arm’s length terms.

The rules apply to all types of transactions, including the sale and purchase of goods and services, loans, and the use of intangible assets. Companies are required to keep documentation to demonstrate that their transfer pricing complies with the arm’s length standard.

Diverted Profits Tax

The diverted profits tax aims to prevent multinational entities from using aggressive tax-planning techniques to divert their profits and reduce their UK tax liability. The diverted profits tax (31% of taxable diverted profits) is levied when arrangements are intended to avoid a UK permanent establishment or when an entity enters into an arrangement with a connected party that lacks economic substance such that taxable profits of the UK entity are reduced.

Anti-hybrid Rules

The anti-hybrid rules address tax mismatches that may arise due to the differences in the tax treatment between the UK and other jurisdictions where there are hybrid entities, hybrid transfers, hybrid financial instruments, or from arrangements that involve permanent establishments. The anti-hybrid rules can deny a tax deduction or bring an amount into charge in order to counteract the tax mismatch.

Pillar Two

Pillar Two establishes a global minimum tax regime applicable to multinational groups whose consolidated revenue exceeds a certain limit. It will apply to accounting periods commencing on or after 31 December 2023. This aims to ensure that multinational groups operating within the UK pay a global minimum of tax (at 15%). As such, a top-up tax on a UK parent is imposed when a subsidiary is located outside UK and the profits of the group in that jurisdiction are taxed below the minimum rate of tax. The UK will also implement, for accounting periods commencing on or after 31 December 2023, a domestic top-up tax applicable to UK companies that meet certain revenue and other conditions (and whose effective tax rate is less than 15%).

General Anti-Abuse Rule and Mandatory Disclosure Rules

The UK’s General Anti-Abuse Rule (GAAR) aims to counter tax avoidance arrangements that, despite being permitted by the letter of law, were not intended by the legislation. The GAAR applies to arrangements that aim to obtain a tax advantage and do not constitute a reasonable course of action. HMRC can make a just and reasonable adjustment by issuing or amending assessment or disallowing a claim.

The UK has also enacted Mandatory Disclosure Rules (MDR), which require disclosure of arrangements involving an offshore opaque structure or if the arrangement circumvents reporting under the common reporting standard.

In the UK, the employment relationship is governed by a contract of employment (including express and implied terms and terms set by collective bargaining), subject to minimum employment protections set out in legislation and common law (in the form of judicial decisions applying and interpreting the law). Much of UK employment law comes from EU legislation and this has largely been preserved post-Brexit. There are also more limited protections available to “workers” (who are neither employees nor self-employed, but have a contract for personal service).

Notice of termination is set by the contract, subject to a statutory minimum (depending on length of service and subject to a maximum of 12 weeks). Any employees with two or more years of continuous service will have the right to claim unfair dismissal if an employer cannot show that it acted reasonably in dismissing for one of five statutory fair reasons and that it followed a fair process. Workers can bring unlawful discrimination (in relation to nine protected characteristics) or whistle-blowing claims for dismissal or detriment from day one of their employment. While compensation for loss of earnings due to unfair dismissal is capped at the lower of one year’s salary or roughly GBP110,000, compensation for discrimination or whistle-blowing is uncapped.

Trade Unions

Employees have the right to join an independent trade union and employers can be required to recognise a union for collective bargaining rights in relation to pay, hours and holidays if a majority of employees support it. Trade union membership has been generally declining in the UK, although mainly in the private sector. According to Department for Business and Trade statistics, 22.3% of employees in the UK were trade union members as of 2022.

A few UK-based multinational companies have European Works Councils. Employees with sufficient support can also request the creation of a domestic works council or information and consultation process, but this remains rare.

Other Regulations

There are obligations to inform and consult employee representatives (even if there are no recognised unions) on collective redundancies (proposals to make redundant 20 or more employees within a period of 90 days) and business transfers (see 10.2 Employee Compensation). Penalties for breach are financial (up to 13 weeks’ pay per employee) and the employer cannot be prevented from going ahead with the redundancies or transfer.

There is considerable uncertainty around future changes to employment law given the post-Brexit potential to diverge from EU law and the forthcoming general election, as employment law is often heavily influenced by the political party in power.

Employers use a range of different remuneration arrangements to compensate their employees, including ‒ but not limited to ‒ a base salary (which is subject to a national minimum wage rate, set at GBP11.44 per hour for those aged 21 and over from 1 April 2024), variable remuneration (eg, bonuses and/or commission), employee share schemes, and carried interest. Some employers also offer a range of workplace benefits – for example, car allowance, private medical insurance or long-term sickness insurance. There are additional statutory rights ‒ for example, to paid holiday, statutory sick and family-related leave and pay, minimum pension contributions, and statutory redundancy pay.

Employee Compensation in an Acquisition, Change-of-Control or Other Investment Transaction

A share sale will not itself affect the terms of the employment contract (including compensation terms), as the identity of the employer is unchanged. Similarly, where the transaction is by way of a business or assets sale and the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) apply, employees assigned to work in the business sold automatically transfer to the buyer on their existing terms of employment (other than some occupational pension rights) with continuity of service. Rights in relation to an existing share award will depend on the terms of the plan. An employee’s right to participate in a share plan will also transfer under TUPE (subject to the terms of the scheme and any ability to terminate it) and the buyer must offer a “substantially equivalent” scheme.

Senior employees may have agreed terms entitling them to a one-off bonus on successful completion of the transaction. They may also have change-of-control clauses contained in their contract, entitling them to enhanced notice or a lump sum payment in the event their employment is terminated other than for cause within a short period following a share sale.

As set out in 10.2 Employee Compensation, an employee’s employer does not change on a share acquisition so the employee’s terms of employment conditions (including any change-of-control clauses) continue to apply.

Similarly, where TUPE applies, employees assigned to work in the business sold automatically transfer on their existing terms of employment (other than some occupational pension rights). Generally speaking, any dismissals by reason of a TUPE transfer will be automatically unfair (and employees with two years’ service can bring claims) and any variation to the terms and conditions of employment contracts will also be void (even if agreed with the employees) if the reason is the transfer. For all but the smallest transfers, TUPE imposes obligations on both seller and buyer to inform and consult with representatives of affected employees in advance of the transfer (which must include any relevant union representatives).

There may be additional consultation obligations – on share or assets acquisitions – where the employer has a works council or collective bargaining agreement with a recognised union.

The application of NSIA should be considered for transactions involving IP assets, as they have significant potential to be in scope for mandatory or voluntary notification.

As noted in 7.2 Criteria for Review, under the NSIA, a trigger event includes the acquisition of a qualifying asset and this includes “ideas, information or techniques which have industrial, commercial or other economic value”. The NSIA then sets out examples of IP assets falling within this – namely, trade secrets, databases, source code, algorithm, formulae, designs, plans, drawings and specifications and software.

In addition, for the mandatory notification regime, some of the specified sectors under NARs include IP-rich sectors ‒ for example, advanced materials, advanced robotics, AI, computing hardware and synthetic biology. Transactions in these sectors may require mandatory notification or may be to be subject to call-in risk.

The UK is generally considered a well-respected jurisdiction for enforcing IP rights. The key IP rights in the UK are copyright (unregistered), patents (registered), designs and trade marks (in both cases, registered and unregistered). Specialist courts have been established to hear IP disputes ‒ namely, the Patents Court in the High Court Chancery Division and the Intellectual Property Enterprise Court.

Similar to other jurisdictions, there are some sectors or circumstances in which it is more difficult to obtain IP protection, as follows.

  • AI and software – the extent to which the UK patent system supports AI innovation is subject to judicial debate. At the time of writing, the Supreme Court is grappling with the question as to whether AI can be an inventor of a patent. In addition, although it is possible to obtain patent protection for some software-based inventions, the UK approach is not as liberal as that in other jurisdictions (such as the USA). Under UK patent law, competitor programs, mathematical methods and the presentation of information are excluded subject matters. Other forms of IP may, however, be used to protect software – namely, copyright and trade secrets.
  • Crown use – under the UK’s Crown use defence, any government department or any person authorised in writing by a government department can conduct acts that would otherwise constitute patent infringement. There is a non-exhaustive list of the acts that can be done, which includes use of a patent for a specified drug or medicine, or the sale of or the offer to sell of a drug or medicine. In times of emergency, the Crown use defence is more flexible.
  • Compulsory licensing ‒ the UK patent system also provides for compulsory licensing to restore competition (for any invention save for in the field of semi-conductor technology). Note that historically it has been difficult to obtain a compulsory licence under UK patent law.

Furthermore, the UK courts consider and set global “fair, reasonable, and non-discriminatory” (FRAND) royalty rates and, as such, have become a leading forum for considering standard essential patents (SEPs). SEPs are patents relating to standards and they are particularly relevant in the telecommunications industry. Any competitor that produces a product that complies with the relevant standard will infringe the SEP and so SEP-holders will typically undertake to license their SEPs to third parties.

The principal piece of data protection legislation in the UK is the UK’s version of the EU General Data Protection Regulation (the UK GDPR), which forms part of retained EU law. The UK GDPR is then supplemented in places by the Data Protection Act 2018 (the “DPA 2018”). There are currently proposals going through the UK Parliament (in the form of the Data Protection and Digital Information Bill), which will ‒ if enacted – make some amendments to the UK GDPR. However, broadly speaking, the UK regime will continue to align with the EU GDPR.

Organisations in the UK that process personal data must comply with the full suite of obligations under the UK GDPR and the DPA 2018. In addition, the legislation has extraterritorial effect, meaning that organisations located outside of the UK are also subject to the legislation if they are offering goods and services to individuals in the UK or monitoring their behaviour.

The UK’s data protection legislation is enforced by the Information Commissioner’s Office (the ICO), which is the independent regulator. The ICO is an active regulator and has a range of enforcement powers at its disposal, including the ability to impose fines against organisations in breach of their obligations. The maximum fine that can be imposed is GBP17.5 million or 4% of annual global revenue (whichever is greater). There is no formal multiplier on penalties linked to economic loss but the ICO has published guidance on how it calculates fines and the mitigating and aggravating factors it will take into account. Individuals who suffer “material or non-material damage” (such as distress) as a result of non-compliance by an organisation can also claim compensation from that organisation.

The DPA contains some limited criminal offences of unlawfully obtaining personal data, re-identifying de-identified data, and altering personal data. In addition, where an offence has been committed by a corporate body under the DPA 2018, there can be individual liability for directors of that organisation if:

  • the offence was committed with their consent or connivance; or
  • the offence can be attributed to neglect on the part of the individual director.
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Trends and Developments


Herbert Smith Freehills is one of the world’s leading international law firms, engaging with the most important challenges and opportunities facing clients around the world. The firm draws on decades of sector focus, tapping into its 24-office global network across Asia‒Pacific, EMEA and the USA when deploying its world-renowned corporate teams. Its global M&A team comprises more than 400 legal professionals (including 150 partners providing market-leading capability on public and private M&A), with extensive experience of acting ‒ both on the buy and sell side ‒ in formal and informal auctions and on bilateral deals. Clients benefit from the firm’s specialist expertise in executing and delivering cross-border transactions, regardless of size or complexity. Herbert Smith Freehills advises many of the world’s leading corporates, investment banks, financial buyers and public sector and government clients, including JP Morgan, Morgan Stanley, SCB, SoftBank, Bharti, Blackstone, GIC, QIA, AustralianSuper, CPPIB, Stonepeak, and Macquarie.

UK M&A: Five Key Legal Developments and Five Market Trends to Monitor in 2024

2023 was a challenging year for M&A in the UK, as economic pressures and geopolitical tensions slowed activity. This article looks back at some of the headwinds faced by the market in 2023 and explains why 2024 looks set to be a stronger year for deals, drawing out five key legal developments and five market trends to monitor this year.

M&A activity in 2023

Market participants in the UK continued to feel the effects of persisting inflation, rising interest rates and lower debt availability in 2023. Geopolitical difficulties, including the fallout from the conflicts in Ukraine and the Middle East, also added to the uncertain deal-making conditions and contributed to ongoing volatility in the UK markets.

This resulted in reduced M&A volumes and aggregate values for the year ‒ with a noticeable drop in transactions of less than GBP1 billion, in particular. Recent figures compiled by the London Stock Exchange Group’s Deal Intelligence team show that the total number of UK deals in 2023 fell by almost a fifth from 2022, to around 5,500 in total. The total value of M&A involving UK firms also fell almost a third to just GBP207 billion – down from GBP288 billion in 2022 and well below the post-pandemic lockdown rebound levels seen in 2021.

Against this backdrop, deal teams have spent increased time addressing due diligence issues, navigating the gap in valuation expectations between buyers and sellers, and negotiating deal conditionality and gap period terms (particularly in transactions at risk of increased scrutiny by regulatory authorities or with vocal investors and third parties, leading to prolonged deal timetables and more execution risk). Many processes were more tentative and a significant number either stalled or aborted in the early stages or required more creativity and complexity to move the transaction forward, such as different forms of contingent consideration, rollover stakes and vendor financing.

However, activity was not completely flat. Highlights included private M&A appetite from well-capitalised strategic buyers. After many years of private equity dominating deal headlines, the weight of activity rebalanced somewhat towards corporates, who showed continued enthusiasm for transformational deals and carve-outs to accelerate portfolio realignment, as well as acquisitions and divestments more weighted towards the mid-market.

Meanwhile, private equity sponsors did remain more active than strategics in UK public M&A, notwithstanding the lower levels of debt availability. Although average deal values for takeovers were down this year, an uptick in activity in the second half of 2023 meant that there were more firm offers in total in 2023 than in 2022. This included a significant number of mid-market take-private transactions by private capital buyers. More broadly, there was also an increase by private equity sponsors in pursuing roll-up strategies for existing portfolio companies, as they looked to expand their existing platforms to increase market share.

Significant demand and competition also remained for the best assets – including those in hot sectors (such as technology and healthcare) or those aligned with global and regional macro trends (such as energy transition and AI).

Outlook for 2024

There are good reasons to believe that 2024 will be a busier year for UK M&A, in the context of a “soft landing” rather than recession for the broader economic outlook. At the time of writing (January 2024), UK inflation had fallen to 3.9%, which the ONS says is the lowest figure since September 2021. According to analysts, interest rates have now peaked, with a fall of 1% indicated for this year. The interest rate swap market is pricing in this projected decrease and borrowers can already benefit from the ability to fix medium-term rates at more than 1% below spot. All of this demonstrates improved market confidence in the financial outlook for 2024.

In 2024, there is expected to be more appetite for M&A from market participants with pent-up demand both for private capital and strategics. On the one hand, there is a volume of unutilised commitments available to private capital and private equity sponsors are actively gearing up with advisers for more buyouts. On the other hand, with the historically low interest period seemingly over, there will be pressure for private equity sponsors to divest of long-held assets and provide liquidity to investors. Corporates still need to transform their businesses and to access new technologies at pace, and M&A is a clear strategic option for that. The authors also expect big sector themes to continue to drive M&A in the medium term, including:

  • the need for capital investment in infrastructure;
  • digital transformation;
  • energy transition and the attention on critical minerals; and
  • the ESG imperative.

With more certainty in relation to the costs of borrowing, this should also act as a catalyst for more activity in 2024. Nevertheless, there is always wariness in calling the timing and speed of sustained recovery in activity levels, particularly when the UK’s economy still faces the risk of a technical recession.

It will also be interesting to see the impact of political elections on M&A this year. 2024 is a general election year for the UK and the biggest global election year in history (by number of people voting), with major elections in the USA, India, Brazil, Indonesia, Mexico and Russia among other countries as well.

There are mixed views on how a UK general election, expected to be held in the second half of 2024, will impact the M&A market. Some argue it could cause certain deals to slow down and wait for a period of less political uncertainty ‒ for example, large-cap transactions involving well-known consumer brands or big UK employers that are likely to catch the public and political eyes. Others argue it could act as an extra activity stimulus in the first half of the year, with sellers looking to complete deals ahead of any changes to capital gains tax that may follow if a new government is formed.

Overall, M&A volumes and values are expected to trend upwards in the first half of the year, to a busier second half (when compared with 2023). Although that uptick is expected to remain particularly sensitive to economic headwinds and macro disruptive events.

Five key legal developments to monitor in 2024

New proposed listing regime for the UK

The UK is currently undertaking a radical restructuring of its listing regime, which is actively seeking to encourage the listing in London of more high-growth, founder-led businesses. The reforms will create one main commercial company listing category and dramatically scale back those aspects of the UK’s listing regime that were seen as uncompetitive when compared with other listing venues.

The new UK Listing Rules are expected to come into force in the second half of 2024. Key changes include the removal of existing requirements for shareholder votes for significant transactions or related-party transactions, as well as significant changes to the eligibility requirements for prospective IPO candidates, moving to a disclosure-based rather than rules-based regime. This is an important step towards improving the competitiveness of the UK market, which should have the dual benefits of making the UK a more attractive listing destination and allowing UK listed companies to be more agile in M&A processes.

However, challenges remain ‒ in particular, as regards the depth of liquidity, perceptions of valuation gaps, the extent and quality of research coverage, and the consistency of investor appetite for IPOs in the UK. The next stage is therefore for the UK government to press ahead with its broader attempts to jump-start the UK’s investment culture, which is arguably more important if the UK is to materially improve its competitive position as a listing venue.

Potential pro-business amendments to the UK’s National Security and Investment (NSI) regime

In November 2023, the UK government issued a Call for Evidence on the scope and implementation of the UK’s NSI regime, which governs the screening of transactions on national security grounds for both foreign and UK investors. This is a very welcome review, given that the NSI regime has seen significantly more filings being made than under many other foreign direct investment regimes since coming into force two years ago. Despite depressed deal volumes, 866 filings were made in the UK in the year ending March 2023, which is almost double that of filings made under the Committee on Foreign Investment in the United States (CFIUS) regime in the USA (around 440). Concerns have also been raised by investors and advisors that the NSI regime places disproportionate burdens on companies/investors and operates without sufficient transparency.

The UK government appears to have taken this feedback on board and is now inviting comments on the operation of the regime to date, with the stated aim of making it “as pro-business and pro-investment as possible”. The foreword to the Call for Evidence expressly advocates following a “small garden, high fence” approach ‒ ie, safeguarding against the small number of deals that genuinely threaten UK national security while leaving the vast majority of transactions unaffected.

The UK government is not currently considering any changes to primary legislation ‒ for example, changing the shareholding thresholds for mandatory notification (passing through the 25%/50%/75% shareholding levels). However, it sets out various possible changes to the regime that would involve secondary legislation, including targeted exemptions from the mandatory notification obligation and amendments to the definitions of specified activities, which are key to determining when the mandatory notification obligation will be triggered. It also proposes providing additional guidance to investors and making changes to the operation of the NSI review process to improve transparency of decision-making. An update on next steps is expected after responses close.

New regulatory regime for digital markets

Another key development for 2024 will be the commencement of the UK’s new regulatory regime relating to digital markets, set out in the Digital Markets, Competition and Consumers Bill (the “DMCC Bill”). Once in force, the digital markets regime will be a step change in the way large digital technology companies are regulated in the UK.

The DMCC Bill will see the most powerful technology firms with strategic market status having their conduct regulated by the UK Competition and Markets Authority (the CMA). Those firms will also be subject to a new mandatory merger reporting requirement applicable when:

  • acquiring 15% or more of shares in a target that carries out digital activities in the UK or supplies digital goods or services to a person in the UK (or passing through 25%/50% shareholding levels); and
  • the value of all consideration for such shares is at least GBP25 million.

This mandatory reporting requirement will also be met when entering into a joint venture with at least 15% of the shares or voting rights, with the same consideration threshold.

The CMA will then undertake an initial assessment of the merger in order to determine whether or not the transaction warrants further investigation before it can be completed.

Changes to the UK merger control regime

The DMCC Bill also brings significant changes to the UK’s merger control regime, following on from a previous UK government consultation in this area. The UK merger control regime will remain voluntary and non-suspensory. However, the following material amendments will be made including to the current jurisdictional thresholds.

  • The turnover-based threshold relating to the target of a merger will be raised from the current GBP70 million to GBP100 million. This a welcome change that reflects, in part, inflation over the 21 years since the current regime was introduced.
  • A new “small merger safe harbour” will be introduced exempting transactions from review where each party’s UK turnover does not exceed GBP10 million. This is targeted at reducing the regulatory burden faced by small and micro businesses.
  • A new additional merger control threshold will be created, under which the CMA will have jurisdiction where the following conditions are satisfied:
    1. existing share of supply of goods or services of at least 33% in the UK or a substantial part of the UK;
    2. UK turnover exceeding GBP350 million; and
    3. a UK nexus criterion.

This builds on the robust approach the CMA has taken recently to merger investigations and is aimed at capturing certain vertical and conglomerate mergers ‒ in particular, acquisitions perceived as reducing dynamic competition and risking the development of new products or services.

Establishment of outbound foreign investment regimes in the USA and potentially the EU and elsewhere

Businesses in the West are being encouraged to go “risk-off China”, with the USA leading the initiative. This is due in part to the latest changes to the US foreign investment regime. Traditionally, only inbound investment into the USA has been reviewed (by CFIUS). However, in August 2023, the Biden administration issued an executive order directing the US Treasury Department to prohibit certain investments in some entities located or organised in ‒ or, in some cases, owned by foreign persons of ‒ a “country of concern” (currently just China) where these relate to specified national security technologies or products. The executive order also called on the Treasury Department to establish requirements for notification of US outbound investments in other specified technologies and products that may also present US national security concerns. This is the first step in what is being called “reverse CFIUS”.

Similarly in the EU, in June 2023, the EC announced an initiative on outbound investments to address the risk of leakage of sensitive emerging technologies ‒ as well as dual-use items ‒ to destinations of concern and appears to be contemplating its own equivalent regime. There is a real possibility that other countries may follow suit and the UK is among those reported to be considering taking a similar approach.

Five market trends of which all market participants in the UK should be aware

Rise of hybrid sale processes

Bilateral processes continue to be a key feature of the UK market, especially where there is an obvious interested and motivated buyer or where a transaction is initiated by a buyer.

For multi-buyer deals, auctions are firmly established as the preferred process for sellers. This is to maintain competitive tension for as long as possible and also to make participation in the process smooth and easy ‒ for example, by providing vendor due diligence reports to enable buyers to jump-start their due diligence processes without incurring the full costs of such an exercise.

However, with the pace of M&A having cooled, a hybrid approach ‒ featuring aspects of both an auction and a bilateral process ‒ is also now being seen more frequently. Usually, these appear to be similar to a normal auction process at the outset, with a number of parties being invited to participate in a traditional two-round structure. However, instead of due diligence and much of the negotiation being conducted during the two-rounds with a short sprint to sign transaction documents thereafter, these processes are now leading in to a much more extended third phase of bilateral negotiations with the “preferred bidder”.

For buyers, the appeal is obvious: less upfront cost incurred on due diligence but the buyer still benefits from an extended period of negotiation, when the seller has weakened its negotiating leverage by picking a preferred bidder.

For sellers, while this appears to be a situation to be avoided, there are upsides to running a multilateral process in the early stages to flush out all possible buyers and add some momentum to the process, even if the end result does not provide competitive price tension between multiple bidders. Sellers can also partially redress the balance by providing less due diligence upfront and pushing more to the back end.

Extra focus on regulatory screening

The increasingly broad scope of many merger control, foreign direct investment and other regulatory regimes, as well as the global trend towards mandatory notification requirements ‒ alongside greater use of “call-in” powers ‒ mean that it is critical for buyers to understand the scope of a target company’s activities (and where they are undertaken) in order to assess at the outset of a deal whether any filings are required and whether potential national security concerns could arise.

Deal documentation should include relevant conditions precedent and warranties to cover off the risks around these regimes. Potential call-in powers for the regulators stepping in and asking questions, even where jurisdictional thresholds are not met, cannot be ignored.

Although the UK merger control regime is a voluntary, non-suspensory regime, the CMA routinely imposes initial enforcement orders when it decides to review a completed merger. This is to prevent the merging parties from continuing with integration and, in some cases, the CMA even orders an unwinding of integration that has already occurred. Such measures are notoriously burdensome and expensive for the purchaser, often requiring the appointment of a monitoring trustee to monitor compliance.

Increasing CMA scrutiny of smaller transactions

A “roll-up” is a typical M&A strategy deployed by private equity sponsors. It is the process of acquiring and consolidating multiple smaller companies in the same sector to leverage economies of scale and revenue/customer synergies.

As each transaction tends to be small, they generally do not individually meet the thresholds for notification under the UK’s voluntary merger control regime. But, as part of the rationale for pursuing these transactions is often linked to increasing the profitability of the portfolio as a whole, it is perhaps not surprising that roll-up transactions have caught the eye of the CMA.

The CMA has recently probed four sets of transactions involving veterinary practices, including CVC/The Vet and Independent Vetcare/multiple independent vet businesses. None of these transactions (or sets of transactions) was notified to the CMA and all had completed before the CMA became aware of them. The CMA has the power to investigate non-notified mergers and there is no time limit for it to do so where details of a transaction(s) have not been made public or otherwise brought to the CMA’s attention. It can also wrap up a number of completely independent transactions over a certain time period into one substantive assessment.

In each of the reviews the CMA has completed, it has found significant competition concerns, which the parties have addressed through the divestment at the end of Phase 1 instead of fighting the CMA’s findings in an in-depth Phase 2 review. In CVS/The Vet and Independent Vetcare, the divestments equate to the entirety of the businesses acquired by the relevant purchaser.

While many transactions will remain unproblematic, the message for roll-up strategies is clear: they can raise serious competition issues if they relate to sectors in which the purchaser (or its portfolio companies) has ‒ or will acquire ‒ a well-established position, as well as where such a position will be created as a result of multiple, consecutive transactions. That is by no means to say that roll-up deals should be off the table; but, rather, that everyone should go into them aware of the possible risks and their implications for timing, outcomes and cost.

Role of shareholders in public M&A

In UK public M&A, shareholders continue to be key to the success of the deal and are more willing than ever to withhold support or oppose a deal, even if the target board is recommending it. For these reasons, bidders are seeking strong shareholder consensus for securing the transaction ‒ in particular, through commitments made by current and significant shareholders of the target company or acquisitions of blocks of shares.

However, it used to be the case that, in resisting a deal, shareholders were seeking to force a price increase. In many instances, that may still be the case. But in others it goes further than that – they are willing to see a bid fail if they feel that the value being offered is inadequate, as we saw in Ellucian’s offer for Tribal, which was voted down by shareholders in December 2023.

The UK has also seen some very close shareholder votes, with meetings being adjourned at the last minute to give time to drum up more shareholder support. One such example is DBAY Advisors’ bid for Finsbury, where the scheme meeting was postponed in the face of public opposition from Fidelity International (an approximately 10% shareholder) and was ultimately approved with a 75.14% vote in favour ‒ just 0.14% over the required threshold.

Continuing focus on the ESG imperative 

Environmental, social and governance (ESG) issues have been key considerations in M&A transactions for a number of years. It is an area that continues to evolve, attract attention, and drive change.

According to a survey conducted by Deloitte, two-thirds of the 250 C-suite executives and senior and mid-level leaders at corporations that reported at least USD500 million in revenue consider ESG to be of high or very high importance in M&A activity.

Even if ESG is not the primary driver for a deal, buyers should consider corporate responsibility issues in due diligence to confirm targets can be described as “good corporate citizens” and therefore ‒ as a minimum ‒ will not result in reputational damage to the buyer. Ideally, targets will go further and enhance the standing of the purchaser group.

Conversely, sellers may decide to divest subsidiaries that are not meeting the ever-higher standards now expected of businesses. However, sellers need to be mindful of the need for responsible exits. Offloading a troublesome subsidiary rather than working to improve its behaviour could reflect poorly on sellers’ own standing.

Parties also need to be prepared for issues arising unexpectedly during the deal execution phase that could potentially derail the whole process ‒ for example, claims around inappropriate behaviour by the target’s senior managers, reports highlighting unacceptable supply chain practices, or even geopolitical events that take precedence for one or more of the parties. In any such circumstances, all the parties need to make a considered decision about whether to proceed with the deal and what adjustments (if any) are required.

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Law and Practice


Herbert Smith Freehills is one of the world’s leading international law firms, engaging with the most important challenges and opportunities facing clients around the world. The firm draws on decades of sector focus, tapping into its 24-office global network across Asia‒Pacific, EMEA and the USA when deploying its world-renowned corporate teams. Its global M&A team comprises more than 400 legal professionals (including 150 partners providing market-leading capability on public and private M&A), with extensive experience of acting ‒ both on the buy and sell side ‒ in formal and informal auctions and on bilateral deals. Clients benefit from the firm’s specialist expertise in executing and delivering cross-border transactions, regardless of size or complexity. Herbert Smith Freehills advises many of the world’s leading corporates, investment banks, financial buyers and public sector and government clients, including JP Morgan, Morgan Stanley, SCB, SoftBank, Bharti, Blackstone, GIC, QIA, AustralianSuper, CPPIB, Stonepeak, and Macquarie. Herbert Smith Freehills would like to thank the authors of this chapter and following additional contributors: Veronica Roberts (partner, Competition, Regulation and Trade), Miriam Everett (partner, Data Protection and Privacy), Jonathan Turnbull (partner, Intellectual Property), Michael Jacobs (partner, Equity Capital Markets), and Sarah Ries-Coward (senior associate, Equity Capital Markets).

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Herbert Smith Freehills is one of the world’s leading international law firms, engaging with the most important challenges and opportunities facing clients around the world. The firm draws on decades of sector focus, tapping into its 24-office global network across Asia‒Pacific, EMEA and the USA when deploying its world-renowned corporate teams. Its global M&A team comprises more than 400 legal professionals (including 150 partners providing market-leading capability on public and private M&A), with extensive experience of acting ‒ both on the buy and sell side ‒ in formal and informal auctions and on bilateral deals. Clients benefit from the firm’s specialist expertise in executing and delivering cross-border transactions, regardless of size or complexity. Herbert Smith Freehills advises many of the world’s leading corporates, investment banks, financial buyers and public sector and government clients, including JP Morgan, Morgan Stanley, SCB, SoftBank, Bharti, Blackstone, GIC, QIA, AustralianSuper, CPPIB, Stonepeak, and Macquarie.

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