1 Deal structure
1.1 How are private and public M&A transactions typically structured in your jurisdiction?
Private M&A transactions are generally structured in Jersey by way of a private agreement, which involves the sale of a company or business where the seller and buyer agree the terms of sale between themselves. The terms of sale will be recorded in a private contract. The sale may be structured either:
- by way of a share sale (which involves the transfer of ownership of the target); or
- by way of a business transfer (which involves the transfer of specific target business and assets of the seller).
Public M&A transactions are generally structured in Jersey by way of one of the following methods.
Takeover offer: This is a statutory process that involves the bidder making an offer to the target's shareholders to acquire their shares in the target. After the takeover is complete, the bidder and the target remain separate companies and the target becomes a subsidiary of the bidder. The bidder may compulsorily acquire the remaining shares if it acquires at least 90% of the shares to which the offer relates.
Scheme of arrangement: This is a statutory court process, involving a compromise or arrangement between a company and its members. It results in the bidder holding all of the target's shares.
Statutory merger: Jersey has a merger regime, which can potentially be used in the context of both public and private M&A, whether for cash or equity (and including cross-border mergers, if the other relevant jurisdictions permit this). In addition to board approvals, it requires shareholders to approve the transaction by way of special resolution (ie, a two-thirds majority or such higher threshold as the company's constitutional documents require).
1.2 What are the key differences and potential advantages and disadvantages of the various structures?
The key differences and potential advantages and disadvantages in the context of private M&A structures may be summarised as follows:
- Share sale:
- The transaction structure is often simpler than an asset purchase, as the buyer is acquiring a single asset (ie, the target shares).
- The seller makes a clean break from the target business, as the buyer takes the target subject to all its historic and current liabilities.
- The transaction may be frustrated if not all sellers are prepared to sell their shares to the buyer on the terms proposed (unless there is some means of forcing a sale, such as a drag-along right).
- Business transfer:
- The buyer can choose which assets and liabilities (if any) it acquires.
- The seller may be left with problem assets or liabilities that the buyer is not prepared to take on.
- The transaction process and documentation are more complex.
The key differences and potential advantages and disadvantages in the context of public M&A structures may be summarised as follows:
- Takeover offer:
- This requires 90% acceptances by reference to the nominal value (par value companies) or the number of shares (no par value companies) to which the offer relates, on a share class basis, in order to undertake a statutory squeeze-out to achieve 100% ownership.
- The process itself requires no third-party approvals.
- The structure can be used in a hostile situation.
- Scheme of arrangement:
- This requires the approval of 75% of the voting rights and a majority in number of the target shareholders voting on the scheme that are present and voting at a court-convened meeting.
- Where more than one scheme class of shareholder is involved, each class must consent (note, a scheme class is not necessarily the same as a share class) on the above basis.
- The structure is subject to sanction by the Jersey court.
- The structure is 'all or nothing' – that is, either the scheme is approved or it fails.
- The structure is very difficult to use in a hostile situation.
- Statutory merger:
- This requires a special resolution of the target on a share class basis to approve the merger agreement; the approval threshold may be as low as a two-thirds majority.
- Target shareholders that do not accept may apply to the Jersey court to object on an unfair prejudice basis within 21 days of shareholder approval and creditors also have a right to object.
- The structure is 'all or nothing' – that is, either the merger is approved or it fails.
- Jersey Financial Services Commission approval may be required where the transaction is structured as a cross-border merger (ie, not a merger of two Jersey companies).
- The structure is very difficult to use in a hostile situation.
Jersey companies are listed on various global markets, including:
- the main board of the London Stock Exchange;
- the Alternative Investment Market of the London Stock Exchange;
- the New York Stock Exchange;
- NASDAQ; and
- the Toronto Stock Exchange.
Market rules or codes may therefore also apply in the context of public M&A transactions. In addition, the UK Takeover Code may apply to a Jersey public M&A transaction.
1.3 What factors commonly influence the choice of sale process/transaction structure?
The advantages and disadvantages listed in question 1.2 tend to be the most influential matters in terms of choice of sale process/transaction structure.
For public M&A transactions, the level of support and whether the transaction is recommended or hostile tend to be key factors in deciding which structure to use.
2 Initial steps
2.1 What documents are typically entered into during the initial preparatory stage of an M&A transaction?
It is common to see heads of terms and non-binding offer letters drafted to outline the basic terms of a proposed M&A transaction. It is also common to see exclusivity and non-disclosure or similar confidentiality-type agreements prepared and entered into at the start of an M&A transaction in Jersey.
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?
Break fees were traditionally commonplace in larger cross-border public M&A transactions. However, the general prohibition on deal protection measures, including inducement fee agreements, which took effect in the UK Takeover Code in September 2011 apply to transactions involving Jersey companies, where the code applies to such transactions.
Otherwise, deal protection measures have not historically featured as a significant part of local M&A transactions in Jersey. If the transaction documents are Jersey law governed, any such measures must comply with local contract law restrictions on penalty clauses.
2.3 What are the most commonly used methods of financing transactions in your jurisdiction (debt/equity)?
There are generally no restrictions in respect of the financing a transaction under Jersey law. A transaction may be financed entirely by equity or by a mix of debt and equity. Debt tends to take the form of bank debt or bonds (which may be listed).
2.4 Which advisers and stakeholders should be involved in the initial preparatory stage of a transaction?
The relevant advisers and stakeholders to be involved in the initial preparatory stage of a transaction will largely depend on the nature and structure of the transaction. Generally speaking, the following persons will be involved.
Private M&A: Legal, financial and tax advisers should be involved at an early stage of the transaction, together with any other advisers that are relevant in the context of the transaction.
Public M&A: Again, legal, financial and tax advisers should be involved at an early stage of the transaction, together with any other advisers that are relevant in the context of the transaction. In addition, depending on the nature of the transaction, it may be appropriate to involve:
- the directors of the target;
- any substantial shareholders;
- PR advisers;
- stock exchanges; and
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?
There is no prohibition in respect of financial assistance under Jersey law. Therefore, in principle, it is possible for the target in a private M&A transaction to pay adviser costs, provided that a corporate benefit can be established. However, in practice, it is usual for parties to bear their own adviser 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.
The level of due diligence to be undertaken in respect of the abovementioned aspects will largely depend on the underlying business of the target and the nature of the transaction.
Certain Jersey-specific points to consider when conducting due diligence on a Jersey target entity include the following:
- whether the target is regulated by the Jersey Financial Services Commission to carry out:
- financial services business pursuant to the Financial Services (Jersey) Law 1998;
- banking business pursuant to the Banking Business (Jersey) Law 1991;
- insurance business pursuant to the Insurance Business (Jersey) Law 1996; or
- a similarly regulated business in Jersey;
- whether the target has a place of business in Jersey and has an appropriate business licence pursuant to the Control of Housing and Work (Jersey) Law 2012; and
- whether the target falls within the scope of the economic substance rules pursuant to the Taxation (Companies Economic Substance) (Jersey) Law 2019 and, if so, whether it complies with those rules.
3.2 What public searches are commonly conducted as part of due diligence in your jurisdiction?
The following public searches are generally conducted as part of due diligence in Jersey:
- a search of the public records of the relevant Jersey entity (ie, a Jersey target or Jersey subsidiary or Jersey seller) maintained by the Registrar of Companies in Jersey;
- an enquiry of the Office of the Viscount in Jersey as to whether the property of the relevant Jersey entity has been declared to be en désastre;
- an online search of the public records relating to the relevant Jersey entity maintained by the Registrar of Companies in Jersey under the Security Interests (Jersey) Law 2012 in respect of security interests created and assignments of receivables to which that law applies;
- an enquiry of the Office of the Judicial Greffe in Jersey as to whether, to the best of its knowledge and belief, any relevant Jersey entity is involved in any current litigation; and
- an enquiry to the Office of the Judicial Greffe as to whether any application has been made to the Royal Court in Jersey by any person for an order that a creditors' winding up must commence in respect of any relevant Jersey entity.
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?
Vendor legal due diligence is sometimes carried out in Jersey, most often for the purposes of a distressed sale or an auction sale process. However, it is far more common for purchaser-led legal due diligence to be carried out.
It is possible for providers of vendor due diligence to provide reports to potential purchasers on a reliance basis (but usually this is on a non-reliance basis). Where it is given on a reliance basis, a cap will generally apply.
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?
The requisite regulatory approvals in respect of any transaction will largely depend on the nature of the underlying business of the Jersey target. However, the following regulatory approvals may be required, depending on the circumstances.
Jersey Financial Services Commission (JFSC): The JFSC's prior approval or consent to an acquisition may be required where the target carries on a regulated activity or is subject to the supervision of the JFSC or in certain other circumstances (eg, certain unregulated fund structures).
Jersey Competition Regulatory Authority (JCRA): If an acquisition of a Jersey entity meets the relevant thresholds (as established in the Competition (Jersey) Law 2005 and the Competition (Mergers and Acquisitions) (Jersey) Order 2010), the acquisition may require the prior approval of the JCRA.
Other potential licence conditions: The acquirer of a target business operating in Jersey in certain sectors may require regulatory approval or consent, either under the statutory regime governing the entity or by virtue of licence conditions. These sectors include gaming/gambling and telecommunications.
4.2 Which bodies are responsible for supervising M&A activity in your jurisdiction? What powers do they have?
See question 4.1.
4.3 What transfer taxes apply and who typically bears them?
In Jersey, transfer duties are typically not payable in private and public M&A transactions.
In Jersey, no stamp duty is levied on the issue or transfer of shares, except that stamp duty is payable on Jersey grants of probate and letters of administration, which will generally be required to transfer shares on the death of a holder of such shares.
Enveloped property tax was introduced by the Taxation (Enveloped Property Transactions) (Jersey) Law (effective 4 April 2022) and is payable by the buyer in most transactions involving Jersey freehold property which is owned by a company and which exceeds a minimum value threshold.
Jersey does not otherwise levy taxes upon capital, inheritances, capital gains or gifts; and no estate duties apply. Withholding tax is not likely to apply to an M&A transaction.
5 Treatment of seller liability
5.1 What are customary representations and warranties? What are the consequences of breaching them?
Warranties may typically cover:
- the share capital of the target and the group structure;
- the capacity of the seller;
- financial accounts and record;
- changes since the accounting date;
- warranties relating to assets, such as unencumbered title, condition and adequacy for the target's current business;
- IP rights;
- material contracts;
- environmental and health and safety issues;
- compliance with laws;
- anti-money laundering and anti-bribery compliance;
- insolvency; and
- change of control provisions.
A breach of warranty is a breach of contract, giving the right of the buyer to claim damages. Remedies for breach of warranty are generally on the basis of contractual damages but may be given on an indemnity basis. Recovery on the basis of contractual damages is limited to the diminution in value of the shares or assets acquired arising from the breach of warranty. Indemnity basis recovery may permit a claim which exceeds the diminution in value of the share or asset agreement.
Warranties can be (but are not usually) given as representations, so that a breach gives rise to a claim in tort, giving rise to damages assessed on a tortious basis or, potentially, rescission.
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?
Warranties are usually qualified by way of specific matters set out in the disclosure letter but that will not generally restrict negotiation of the following limitations on warranties:
- the timeframe within which a claim can be made;
- a cap on liability;
- de minimis levels before claims can be made (individual and aggregate);
- provisions relating to how to conduct a dispute that may arise relating to a breach of warranty and a third-party claim; and
- a general obligation to mitigate loss suffered.
Other restrictions on warranties would include the seller:
- qualifying certain warranties to the best of its knowledge;
- preventing double recovery;
- requiring the buyer to exhaust all rights against insurers and other relevant third parties (potentially including insurance);
- excluding its liability for contingent claims (until they become actual); and
- limiting the buyer's right to recovery by way of the buyer's knowledge.
Time limits or restrictions for bringing warranty claims are subject to negotiation between the parties. As a general rule, non-tax warranties tend to cover one or two accounts/audit periods. The time limits for tax claims may extend up to six or seven years. In Jersey, the common law limitation period for breach of contract is 10 years from the date of breach.
5.3 What are the trends observed in respect of buyers seeking to obtain warranty and indemnity insurance in your jurisdiction?
Jersey has generally followed onshore trends in respect of warranty and indemnity (W&I) insurance and there has been a steady increase in the uptake of W&I insurance in private M&A transactions.
W&I insurance may be obtained by either the buyer or the seller; and a W&I policy will usually cover warranties and general indemnities provided under the sale agreement.
Under a buyer-side policy, the buyer will generally be insured for any losses as a result of breach of a warranty included in the relevant sale agreement. Under a seller-side policy, the seller will generally be insured for claims by the buyer with respect to financial loss arising from a breach of warranties given by the seller in the relevant sale agreement. However, it is more common to see a buyer-side policy in the context of private M&A.
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?
Various steps may be taken to ensure that a seller has sufficient substance to meet any claims by a buyer, including:
- reviewing the current financial statements of the seller;
- obtaining a guarantee from the parent entity of the seller to guarantee cover of any claims; and
- putting escrow arrangements in place to retain part of the purchase price (in the event that any claims should arise).
W&I insurance may also be obtained to cover any claims if the buyer has concerns in relation to the substance of the seller to meet claims.
5.5 Do sellers in your jurisdiction often give restrictive covenants in sale and purchase agreements? What timeframes are generally thought to be enforceable?
It is very common for restrictive covenants – such as non-compete and non-solicitation of employees/suppliers/customers – to be given by the sellers in sale and purchase agreements in Jersey.
A non-compete convent in a sale and purchase should apply to a reasonable geographic area for a reasonable time period in order to be enforceable in Jersey. Generally speaking, a 'reasonable' time period is considered to be up to two years. However, this can be up to three years in exceptional circumstances.
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?
Jersey tends to follow English market practice with regard to MAC clauses and bring-down of warranties. Therefore, the inclusion of these matters in sale agreements is not very common in Jersey. That said, we did notice an increase in buyers wanting to include a MAC clause in sale agreements during the COVID-19 pandemic – most likely due to buyers wanting greater flexibility to terminate a transaction arising from the uncertainty during this period.
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?
There is no standard timetable for an offer from a Jersey legal perspective – the timetable will be driven by the circumstances of the relevant transaction.
Key milestones/considerations from a Jersey companies law perspective in respect of timelines for public M&A transactions can be summarised as follows:
- Takeover offer: To effect a statutory squeeze-out following an offer for shares in a company, the offeror must first give six weeks' notice to any holder of shares which the offeror has not acquired or contracted to acquire pursuant to the offer, that it desires to acquire those shares.
- Scheme of arrangement: There must be 21 clear days following the posting of the scheme circular to members, together with a notice of the court meeting and notice of any other shareholder meetings needed to approve the scheme and related proposals, before the scheme proposals are put to the court meeting.
- Merger: There is a statutory creditor notification period of 21 days in respect of a merger.
The Takeover Code applies in relation to certain Jersey companies, pursuant to the Companies (Takeovers and Mergers Panel) (Jersey) Law 2009 and the Takeover Panel's rules. In summary, a Jersey company is subject to the Takeover Code if any of its securities are listed on a regulated market or multilateral trading facility in the United Kingdom (including the London Stock Exchange main marker and the Alternative Investment Market); or any stock exchange in the Channel Islands or the Isle of Man, for all public companies and certain private companies if they have or are considered to have their place of central management and control in the United Kingdom, the Channel Islands or the Isle of Man.
A Jersey company which has shares listed on other exchanges (eg, the New York Stock Exchange and NASDAQ) may also be subject to the Takeover Code if the Takeover Panel considers that the company's place of central management and control is in the United Kingdom, Jersey, Guernsey or the Isle of Man.
Transactions governed by the Takeover Code are overseen by the UK Takeover Panel. The main functions of the panel are:
- to issue and administer the Takeover Code; and
- to supervise and regulate takeovers and other matters to which the Takeover Code applies.
If the Takeover Code applies to the relevant transaction, the timeline will likely be driven by market rules and the requirements of the Takeover Code. In addition, other equivalent rules or codes may apply depending on where a Jersey company is listed.
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?
Restrictions: There are no specific restrictions under Jersey companies law in relation to stake building. However, there are rules pursuant to insider dealing and market abuse legislation in Jersey (and elsewhere) which may prevent further acquisitions of shares where the bidder has inside information.
In addition, if the Takeover Code (or other equivalent rules or codes) applies, there may be a number of restrictions in relation to stake building pursuant to this.
Disclosure obligations: Jersey companies law is limited in relation to disclosure obligations; although it is common for the target's constitutional documents to contain disclosure requirements, together with penalties for failure to comply. The penalties include:
- loss of voting rights; and
- loss of rights to dividends.
If the Takeover Code (or other equivalent rules or codes) applies, the bidder may have certain disclosure obligations pursuant to this.
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?
In a takeover offer, if the bidder has acquired or contracted to acquire 90% in nominal value of the shares of a par value company (or, in the case of a no par value company, 90% of the number of the shares) to which the offer relates, the bidder can acquire the remaining 10% by giving notice to the relevant shareholders.
In addition, if a takeover offer relates to all shares in a company and, at any time before the end of the period within which the offer can be accepted, acceptances have been received from the holders of shares amounting to 90% in nominal value of the shares in the case of a par value company (or, in the case of a no par value company, 90% of the number of the shares) to which the offer relates, the holder of any shares to which the offer relates which has not yet accepted the offer may, by written communication addressed to the offeror, require the offeror also to acquire its shares.
6.4 How does a bidder demonstrate that it has committed financing for the transaction?
There are no specific requirements under Jersey companies law in relation to the demonstration of financing for a transaction.
However, if the Takeover Code (or other equivalent rules or codes) applies, the bidder may need to make certain confirmations/announcements in relation to financing pursuant to this.
6.5 What threshold/level of acceptances is required to delist a company?
There is no statutory threshold/level of acceptance in Jersey. The requisite threshold/level of acceptances to delist a company will depend on the requirements of the relevant stock exchange.
6.6 Is 'bumpitrage' a common feature in public takeovers in your jurisdiction?
We understand that 'bumpitrage' occurs when an activist investor purchases shares in a company that is subject to a takeover bid. This can occasionally feature in public takeovers in Jersey.
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)?
Under Jersey companies law, if during the period within which a takeover offer can be accepted the offeror acquires or contracts to acquire any of the shares to which the offer relates but otherwise than by virtue of acceptances of the offer, then the offeror will be treated for the purposes of Jersey companies law as having acquired or contracted to acquire those shares by virtue of acceptances of the offer; if:
- the value of that for which they are acquired or contracted to be acquired (the 'acquisition value') does not at that time exceed the value of that which is receivable by an acceptor under the terms of the offer; or
- those terms are subsequently revised so that when the revision is announced the acquisition value, at the time mentioned in above, no longer exceeds the value of that which is receivable by an acceptor under those terms.
In any other case, those shares will be treated as excluded from those to which the offer relates.
If the Takeover Code (or other equivalent rules or codes) applies, there may also be certain requirements pursuant to this in relation to the minimum level of consideration.
6.8 In public takeovers, to what extent are bidders permitted to invoke MAC conditions (whether target or market-related)?
There are no specific restrictions under Jersey companies law in relation to invoking MAC conditions in connection with a public takeover.
However, if the Takeover Code (or other equivalent rules or codes) applies, there may be certain requirements under this in relation to invoking MAC conditions.
6.9 Are shareholder irrevocable undertakings (to accept the takeover offer) customary in your jurisdiction?
Yes, it is common in Jersey for shareholder irrevocable undertakings to accept an offer to be obtained from target shareholders in order to secure optimal comfort that the offer will succeed.
7 Hostile bids
7.1 Are hostile bids permitted in your jurisdiction in public M&A transactions? If so, how are they typically implemented?
Hostile bids are allowed but are not common. This is probably because they carry significant additional completion risk and complexity. For example, less information will be available than on a recommended bid.
7.2 Must hostile bids be publicised?
Jersey companies law is limited in terms of the publications of hostile bids.
However, if the Takeover Code (or other equivalent rules or codes) applies, the bidder may need to disclose its own and any concert party's opening positions following the start of an offer period or an announcement which first identifies the bidder as the bidder pursuant to this.
7.3 What defences are available to a target board against a hostile bid?
In practice, a range of defence tactics may be available under Jersey companies law in the context of a hostile bid.
However, if the Takeover Code (or other equivalent rules or codes) applies, this may restrict or limit the potential defence of a target board.
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?
As Jersey is a sophisticated international financial centre, the M&A market in Jersey (which includes both international cross-border and domestic transactions) is exposed to the same kinds of economic and political factors which affect the level and type of M&A in larger onshore jurisdictions.
Over the past 12 months, M&A participants have continued to hold their nerve amid signs of growing economic and political uncertainty presented by the ongoing Russia/Ukraine conflict and other global supply chain, financial and political events.
Jersey has seen significant levels of both public and private M&A activity in recent years. Notable deals include:
- Morningstar's purchase of the UK and international business of wealth management platform provider Paremium Limited for £35 million;
- Permira's acquisition of Mimecast, valued at $5.2 billion, effected by way of a Jersey law governed court sanction scheme of arrangement;
- Avid Gaming's C$300 million sale to Entain plc; and
- MKS Instruments' $4.4 billion acquisition of Atotech Limited.
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?
On the basis that the global deal-making environment remains strong and globalisation continues to be a major driver of M&A, we would expect that any rise in global M&A activity levels will result in increased M&A in the Jersey market.
In terms of proposed legislative reform in Jersey, the Limited Liability Companies (Jersey) Law 2018 came into force on 1 September 2022, with the exception of Article 12 (series of members, managers, limited liability company (LLC) interests or assets). This law introduces US-style limited liability companies, which are aimed principally at US clients; but it may also attract clients fromg other jurisdictions which are interested in using an LLC structure.
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?
The following preparatory actions will help to minimise issues in any proposed sale transaction:
- Engage reputable valuation experts to conduct a valuation.
- Consider the target market (eg, strategic or financial buyers).
- Review the business structure.
- Review the statutory book documentation.
- Review corporate governance processes.
- Complete a thorough vendor due diligence process.
- Have appropriate non-disclosure/confidentiality/exclusivity agreements on hand.
- Have a satisfactory form of sale and purchase agreement on hand.
Skilful negotiation can make all the difference to any deal:
- The success of a deal can often depend on keen negotiation skills.
- Preparation is key: research the asset, structure and value, and know your counterparts.
- The price should not be discussed in isolation.
- Multi-issue negotiations can add value to a deal.
- Expert involvement in multi-issue negotiations is vital.
- Always have a best alternative to a negotiated agreement.
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.