1 Deal structure

1.1 How are private and public M&A transactions typically structured in your jurisdiction?

The corporate and company legislation in the Turks & Caicos (TCI) – which is modelled on and mirrors the legislation in the British Virgin Islands (BVI) – provides a modern, flexible, and commercially minded regime for a variety of M&A structures to be utilised. As in the BVI, TCI company law does not currently distinguish between private and public companies, although only private mergers and consolidations and share and asset sales are typically carried out in the TCI. Schemes and plans of arrangement or tender offers are not typical transactions in the M&A market in the TCI.

Mergers and consolidations: Mergers and consolidations both involve merging two or more constituent companies into one – either a subsidiary merging upstream into its parent company or, vice versa, a parent company merging downstream into its subsidiary company. The result is that there is only one surviving entity at the end of the process.

In the TCI, it is common practice to merge a foreign company (typically from another sister Caribbean jurisdiction, such as the BVI or the Cayman Islands) with a TCI company, either upstream or downstream.

Share sales and asset sales: The most common structure in the TCI is the sale and purchase of shares in a private company limited by shares through a share and purchase agreement. The sale of certain assets of one company by its shareholder (eg, land, IT equipment) – but rarely its liabilities – to a third-party purchaser is also common in the TCI.

1.2 What are the key differences and potential advantages and disadvantages of the various structures?

Mergers and consolidations: Mergers and consolidations can become effective immediately and all rights and privileges are continued seamlessly by the surviving company. The shares may also be exchanged, converted, cancelled and so on, as there is flexibility in their treatment. Subject to the constitutional documents of the companies involved in the transaction, a merger or consolidation can be approved by way of a directors' and/or shareholders' resolution by simple majority (or in writing, which requires unanimous approval), together with a written plan of merger or consolidation.

Share sales and asset sales: Any disposal by a TCI company of more than 50% of its assets in the context of an asset sale transaction requires director and shareholder approval (by a simple majority). Shareholders may dissent to the disposal unless the relevant TCI statutory provisions have been disapplied in the company's constitutional documents or the asset sale is carried out in the ordinary course of business.

1.3 What factors commonly influence the choice of sale process/transaction structure?

Key factors that influence the sale process/transaction structure in the TCI include:

  • timing considerations, including the time to complete the due diligence process and any time zone issues;
  • the number of shareholders participating in the transaction, including their desire to sell, and signing logistics.
  • whether any government and/or regulatory consent or approval is required (eg, from the local regulator, the Financial Services Commission, in respect of licensed entities); and
  • any other approvals and/or consents required.

2 Initial steps

2.1 What documents are typically entered into during the initial preparatory stage of an M&A transaction?

The documents typically entered during the initial preparatory stage of an M&A transaction in the Turks & Caicos Islands (TCI) are similar to those in other onshore and other comparable jurisdictions, including:

  • a non-disclosure and confidentiality agreement (NDA);
  • heads of terms (or term sheet); and
  • a due diligence checklist.

2.2 Are break fees permitted in your jurisdiction (by a buyer and/or the target)? If so, under what conditions will they generally be payable? What restrictions and other considerations should be addressed in formulating break fees?

While break fees are permitted in the TCI, they do not typically form part of a TCI M&A transaction.

2.3 What are the most commonly used methods of financing transactions in your jurisdiction (debt/equity)?

A mixture of bank debt financing, private third-party (or club) financing and a purchaser's own cash reserves is typically utilised.

2.4 Which advisers and stakeholders should be involved in the initial preparatory stage of a transaction?

The usual advisers in the initial preparatory and structuring stages of a transaction include lawyers, accountants and financial advisers and bankers. The key stakeholders involved are the seller and purchaser. Enquiries might also be made of the Financial Services Commission for specific guidance to the extent that a licensed entity is involved in the particular transaction.

2.5 Can the target in a private M&A transaction pay adviser costs or is this limited by rules against financial assistance or similar?

While TCI law does not prohibit the target from paying the adviser's costs, each party typically pays for its own transaction costs.

3 Due diligence

3.1 Are there any jurisdiction-specific points relating to the following aspects of the target that a buyer should consider when conducting due diligence on the target? (a) Commercial/corporate, (b) Financial, (c) Litigation, (d) Tax, (e) Employment, (f) Intellectual property and IT, (g) Data protection, (h) Cybersecurity and (i) Real estate.

(a) Commercial/corporate

A buyer should inspect the usual corporate documents, including:

  • the target's certificate of incorporation;
  • its articles of incorporation;
  • statutory registers (eg, registers of directors and officers, members, beneficial ownership, and charges); and
  • any shareholders' agreement in place.

A buyer should also inspect any material commercial contracts to check for any change of control provisions.

The register of members of a Turks & Caicos Islands (TCI) company is not publicly available to a third party when enquiring with the Financial Services Commission and the Companies Registry, so it should be provided by the target as part of the due diligence process.

(b) Financial

A buyer should inspect all relevant accounting books and records in order to enquire as to the financial position of the target.

(c) Litigation

Searches of the Supreme Court's cause book and winding-up book are usually carried out to ensure that the target was or is not involved in any local litigation or liquidation/winding up procedure. It is typical to look back between three and five years in the context of these searches.

(d) Tax

The TCI is tax neutral as there is currently no income, corporate or capital gains tax, and no estate duty, inheritance tax or gift tax. Other than stamp duty on transfers of land, no registration, documentary or any similar taxes or duties of any kind are payable in the TCI in connection with the signature, performance, or enforcement by legal proceedings of any TCI law-governed documents.

The TCI is compliant with the requirements of the Organisation for Economic Co-operation and Development and the EU Code of Conduct Group for Business Taxation – that is, it is a white-listed jurisdiction.

(e) Employment

Employment contracts for employees must comply with minimum protections under the TCI Employment Ordinance (CAP 17.08).

(f) Intellectual property and IT

The Trademarks Ordinance (CAP 17.04) establishes a TCI Register of Trademarks and the Patents Ordinance (CAP 17.03) provides for a TCI Register of Patents.

(g) Data protection

There is no legislation or regime regulating data protection in the TCI. The TCI courts recognise and subscribe to the common law duties of confidentiality and privacy, and English common law is persuasive, although not binding. Although there is no overriding local personal data protection legislation, all TCI entities that manage and maintain personal data are subject to the common law duty of confidentiality.

(h) Cybersecurity

There is no legislation or regime regulating cybersecurity in the TCI.

(i) Real estate

Transfers of real estate must be registered with the TCI Land Registry, which is open to public inspection. Title is acquired, and only perfected, upon registration. The land register is conclusive as to ownership, appurtenant rights and matters encumbering the title (with the exception of certain ‘overriding interests'), and it is state guaranteed (although it can be rectified to deal with matters such as error and fraud). Title insurance is neither necessary nor available in the domestic market.

3.2 What public searches are commonly conducted as part of due diligence in your jurisdiction?

Company, real estate, and litigation-type searches are all typically carried out as part of the due diligence exercise.

3.3 Is pre-sale vendor legal due diligence common in your jurisdiction? If so, do the relevant forms typically give reliance and with what liability cap?

Pre-sale vendor legal due diligence is common in the TCI. Reliance on the legal and financial due diligence and liability caps is similarly used as in other onshore and other comparable jurisdictions.

4 Regulatory framework

4.1 What kinds of (sector-specific and non-sector specific) regulatory approvals must be obtained before a transaction can close in your jurisdiction?

Prior written approval must be obtained from the Financial Services Commission where licensed entities are involved, such as an insurance, banking, or trust company under applicable Turks & Caicos (TCI) legislation.

4.2 Which bodies are responsible for supervising M&A activity in your jurisdiction? What powers do they have?

There is currently no body responsible for supervising M&A activity in the TCI. There is no stock exchange located in the TCI and hence there is no takeover code equivalent applicable in the TCI.

4.3 What transfer taxes apply and who typically bears them?

The transfer of shares in a TCI company will attract TCI stamp duty only where that entity holds, directly or indirectly, real estate situated in the TCI, which is typically payable by the buyer. Otherwise, no transfer taxes are applicable in the TCI.

5 Treatment of seller liability

5.1 What are customary representations and warranties? What are the consequences of breaching them?

Typical warranties and representations relating to power, authority, capacity, and title are included in a sale and purchase agreement. Business warranties are generally included in response to issues resulting from the due diligence exercise.

Damages are the usual remedy for a breach of warranty, unless the transaction involves high-value assets, where specific indemnities may be required by the buyer.

5.2 Limitations to liabilities under transaction documents (including for representations, warranties and specific indemnities) which typically apply to M&A transactions in your jurisdiction?

It is common for the purchase agreement to set a cap on the seller's liability for breach of warranty and indemnity claims and a time limit within which to bring any claim.

5.3 What are the trends observed in respect of buyers seeking to obtain warranty and indemnity insurance in your jurisdiction?

Warranty, indemnity, and title insurance are not typically used or obtained in the domestic market.

5.4 What is the usual approach taken in your jurisdiction to ensure that a seller has sufficient substance to meet any claims by a buyer?

Financial guarantees, retention and escrow arrangements are typically applied to support a seller's obligation to meet warranty and indemnity claims made by a buyer.

5.5 Do sellers in your jurisdiction often give restrictive covenants in sale and purchase agreements? What timeframes are generally thought to be enforceable?

Yes, non-solicitation and non-compete covenants are often included in purchase agreements, given the small size of the domestic market, but this will depend on the commercial nature of the transaction. The timeframe is negotiable and generally varies between three and 10 years.

5.6 Where there is a gap between signing and closing, is it common to have conditions to closing, such as no material adverse change (MAC) and bring-down of warranties?

Yes, it is common to have conditions to closing where there is a gap between signing and closing, particularly for regulatory approval.

6 Deal process in a public M&A transaction

6.1 What is the typical timetable for an offer? What are the key milestones in this timetable?

Turks & Caicos Island (TCI) company law does not currently provide for public M&A transactions.

6.2 Can a buyer build up a stake in the target before and/or during the transaction process? What disclosure obligations apply in this regard?

TCI company law does not currently provide for public M&A transactions.

6.3 Are there provisions for the squeeze-out of any remaining minority shareholders (and the ability for minority shareholders to ‘sell out')? What kind of minority shareholders rights are typical in your jurisdiction?

TCI company law does not currently provide for public M&A transactions.

6.4 How does a bidder demonstrate that it has committed financing for the transaction?

TCI company law does not currently provide for public M&A transactions.

6.5 What threshold/level of acceptances is required to delist a company?

TCI company law does not currently provide for public M&A transactions.

6.6 Is ‘bumpitrage' a common feature in public takeovers in your jurisdiction?

TCI company law does not currently provide for public M&A transactions.

6.7 Is there any minimum level of consideration that a buyer must pay on a takeover bid (eg, by reference to shares acquired in the market or to a volume-weighted average over a period of time)?

TCI company law does not currently provide for public M&A transactions.

6.8 In public takeovers, to what extent are bidders permitted to invoke MAC conditions (whether target or market-related)?

TCI company law does not currently provide for public M&A transactions.

6.9 Are shareholder irrevocable undertakings (to accept the takeover offer) customary in your jurisdiction?

TCI company law does not currently provide for public M&A transactions.

7 Hostile bids

7.1 Are hostile bids permitted in your jurisdiction in public M&A transactions? If so, how are they typically implemented?

Turks & Caicos Islands (TCI) company law does not currently provide for public M&A transactions.

7.2 Must hostile bids be publicised?

TCI company law does not currently provide for public M&A transactions.

7.3 What defences are available to a target board against a hostile bid?

TCI company law does not currently provide for public M&A transactions.

8 Trends and predictions

8.1 How would you describe the current M&A landscape and prevailing trends in your jurisdiction? What significant deals took place in the last 12 months?

The Turks & Caicos Islands (TCI) legislative framework is rapidly developing to meet the expectations of market participants. Recent developments in, and an overhaul of, the companies and insolvency legislative regimes (which essentially now mirror the legislation in the British Virgin Islands), together with economic substance, brought about by the introduction of new legislation are live examples of the efforts made within the jurisdiction to streamline these processes. They also provide for greater stability, certainty and comprehensive protection of the rights and interests of various parties, including shareholders, creditors and other stakeholders operating in and from the TCI.

Although M&A activity naturally slowed as a result of the effects of the COVID-19 pandemic in mid to late 2020, the TCI real estate market has seen significant growth and interest from international investors. Since its borders opened again for international travel in July 2020, the TCI has experienced a real boom in real estate activity, with many investors (mainly from the US market) seeking a safe-haven second home in the wake of the pandemic. This has also resulted in a significant amount of M&A activity for landowning companies changing ownership.

8.2 Are any new developments anticipated in the next 12 months, including any proposed legislative reforms? In particular, are you anticipating greater levels of foreign direct investment scrutiny?

No new developments of substance are anticipated in the next 12 months, including any proposed legislative reforms.

9 Tips and traps

9.1 What are your top tips for smooth closing of M&A transactions and what potential sticking points would you highlight?

Several factors will help to ensure the smooth structuring and closing of M&A transactions, including the following:

  • Engage local stakeholders (including legal counsel and registered agents) early in the process.
  • Adopt a realistic closing timetable, which may move depending on the speed of the due diligence exercise and drafting of the transaction documents.
  • Maintain a running closing checklist setting out all of the steps and documents required to achieve closing and post-closing formalities; and
  • Maintain an open line of communication among advisers, stakeholders, and the regulator.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.