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What do easyJet, Tate & Lyle and Segro have in common?

Well, not long ago, the answer would have been nothing much. But each company has recently accepted a takeover offer from an American buyer – and they're far from the only ones. Over the past few years, no corner of the market has been able to escape the pull of large-scale US acquisitions. From financial services to real estate, from mid-market companies to household names, it feels almost like no company is off the table.

In this article, we'll be examining this trend in more detail and understanding the role of solicitors in facilitating these kinds of deals. But first…

What's the 'big deal'?

American companies are driving deals across the UK market. From easyJet's £5.7 billion takeover by Apollo, to Tate & Lyle’s £2.7 billion takeover by its US competitor Ingredion, these firms are snapping up British companies across a variety of sectors. These takeovers are facilitated by a combination of factors:

• the persistent valuation gap between UK companies and their international peers;
• a UK shareholder base that tends to undervalue its own listed companies; and
• years of economic uncertainty that have dashed UK shareholder confidence.

Yet what makes these deals even bigger is not just their volume but the tactics behind them. An increasing number of these takeovers use a strategy called the 'bear hug' – so-called because the takeover offer is designed to be impossible to wriggle out of.

What's the bear hug?

The typical trajectory of a public takeover follows this route: a confidential approach by a bidder, followed by a private negotiation, and succeeded by a jointly announced, board-recommended deal.

Bear hug takeovers break this mould. In simple terms, a 'bear hug' describes a takeover wherein a bidder makes a public offer priced well above the target company's market value (usually at a premium of 20% or more over the previous day's closing share price) to pressure a target board's shareholders into accepting the offer. They're often made publicly and without the board's prior agreement. This tactic rests on the assumption that shareholders won't be able to resist such a high premium. Faced with such an offer, boards are pressured to at least consider the offer, because shareholders are unlikely to let it escape.

While not always successful, this tactic has gained popularity over the past year, increasingly being used by foreign (usually American) firms to target UK-listed companies.

What a bear hug is not

Though a bear hug takeover is made with no prior agreement, it's distinct from a hostile bid, in which one company buys another without the approval of the target company's board of directors.

Under the UK Takeover Code, the rulebook that governs how takeover bids for UK public companies are conducted, a bidder making a bear-hug approach is not the same as announcing a firm intention to make an offer. Instead, it amounts to putting forward a possible offer, with the aim of securing engagement from the target board rather than proceeding straight to an unrecommended bid.

Bear hugs, as a strategy, are a pressure tactic. While they don't go explicitly against the code, they toe the line of its firm-offer obligations.

Regulators such as the Financial Conduct Authority take the mechanics of this seriously. It's warned that deliberately passing inside information to the press during a live deal can amount to unlawful disclosure, which means any bear-hug approach needs a carefully prepared announcement and communications strategy that stays within the remit of the code.

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So, where do lawyers fit in?

• Advising on regulatory compliance: Given the bear hug's contentious place among the UK Takeover Code, a corporate M&A lawyer and/or a regulatory specialist would support a bidder in ensuring compliance with these regulations.
• Involvement in negotiations: Corporate lawyers are heavily involved in the negotiations between the two companies on matters such as price, terms and conditions, prioritising their client's commercial position and needs at every stage.
• Advising clients on the implications of an offer: Corporate and competition lawyers can support the target client in weighing the strategic and financial consequences of an offer before deciding how to respond.
• Due diligence on a bear-hug target: Due diligence is often a cross-team effort, spanning not only the corporate team but lawyers from employment, IP, real estate or tax, as every facet of the target company is evaluated by the bidder before an offer is made. Lawyers are responsible for analysing and compiling all of this information as well as spotting any risks that could affect the deal's terms or value.
• Drafting disclosure documents: Corporate M&A lawyers prepare disclosure letters and related documents that qualify or limit the warranties given.

This surge of American acquisitions (including the bolder tactics, like the bear hug, that have accompanied them) is more than just a passing news cycle. It's likely to affect how deals are structured, negotiated, and completed in the years ahead, as well possibly influencing or changing the regulatory infrastructure surrounding those deals if this tactic increases in popularity.

Whether you're an aspiring corporate lawyer, or just curious about the UK M&A market in general, this is a trend worth keeping an eye on as these deals – and the changes they bring – continue to directly influence corporate legal practice.