Corporate Review – March 2025

Introduction

Welcome to our Corporate Review - an opportunity for our clients and wider network to stay informed on the latest developments in the corporate sector.

Over the last six months our Corporate team at Lewis Silkin has been actively engaged in a variety of buy and sell side M&A mandates, corporate finance, corporate advisory and financial services/regulatory matters.

In July 2024 we anticipated a potential increase in transactional activity following the general election and ahead of the new Government's first budget in October 2024. This prediction proved accurate, as we experienced a significant surge in the number of deals concluded during the run-up to the budget. After this peak, deal flow fell to more normal levels for the rest of 2024 and has remained steady in early 2025. We are optimistic that deal flow will remain steady during the first half of 2025.

The UK has gained some clarity and stability postelection, but markets are still adjusting to the new policy directions. Although inflation has remained moderate, and a little over the 2% target, increased long-term rates and unexpected inflationary pressures, including anticipated increases to energy prices in spring 2025, suggest that further cuts to interest rates in the short term may be unlikely. Any further cuts are likely to depend on both the strength of the UK economy and whether inflation continues to cool. Despite this, there remains widespread market expectation of further interest rate cuts during 2025, and we would expect any such cuts to translate into financing costs becoming more certain, and for this in turn to boost M&A activity.

Geopolitical tensions and uncertainty are likely to continue to influence the level of M&A activity during 2025. Major global economies including Canada, France and South Korea are facing political instability. China's significant economic role and heightened political tensions in its relations with several countries cannot be ignored. Additionally, the impact of the Russia-Ukraine war, the possible calming of the conflict in the Middle East, and the collapse of the Assad regime in Syria are all having significant economic impacts.

In the US, the re-election of President Trump is likely to impact M&A transactions both domestically and internationally. If the new administration pursues an agenda that is strong on deregulation and preserves or extends tax cuts, it could boost the US economy, leading to a strong dollar and increased domestic and cross-border deal-making making in-bound investment from the US an attractive option. However, if protectionist trade policies are introduced, including tariffs, retaliatory measures by other countries could lead to inflation and increased interest rates, potentially stifling deal flow.

We may have an indication from President Trump's first weeks in office, during which he fulfilled his campaign promise to impose trade tariffs on Canada and Mexico, saying that as of 1 February 2025, there will be 25% tariff on imports from both countries and the introduction of a 10% tariff on imports from China. President Trump has already indicated that the EU, and possibly even the UK, may be next in line for such measures. Indeed, Canada has already retaliated with a similar 25% tariff on US imports. Mr Trump has also signed a presidential executive order saying that a global minimum corporate tax deal supported by the Biden administration and negotiated with over 100 countries has "no force or effect" in the U.S. without an act of Congress. These actions seem to suggest that we should expect the unexpected in the coming years of his presidency. Dealmakers should not underestimate the global impact these policies may have on the global economy and M&A deal flow.

We hope you enjoy reading our Corporate Review, please do reach out to any of our team if you have any queries.

How we have helped our clients

Our partner-led Corporate team has advised on numerous acquisitions, disposals, investments and corporate advisory matters across different sectors including technology and communications, financial services, advertising and marketing, retail, hospitality and leisure and media and entertainment.

We're delighted to share that our team in Cardiff have again won Private Equity/Venture capital deal of the Year at the Insider Dealmakers Wales for their work advising BGF on its £4 million investment into Victorian Sliders. Geraint Tilsley commented:

M&A Observations

During 2024 we observed an increasing use of deferred consideration in transactions; this is a trend that we expect to see continue into 2025.

We have previously commented on the emphasis that clients are placing on due diligence and identifying and managing risk. On a positive note, more time spent on an in-depth due diligence review enables those involved in the deal to gain a better understanding of the nuances of the business under scrutiny and the transaction itself, often resulting in a smoother transaction (albeit on a projected timetable). We expect this focus and caution from buyers to remain into 2025.

Fundraising Observations

The venture capital team has been busy working on a diverse range of transactions throughout 2024. We have continued to advise exciting and innovative startups on a range of priced investment rounds – with highlights including assisting blockchain-based fintech FilmChain with its €2.8m seed round, and martech AI company Ocula Technologies on its Series A – as well as a range of bridging financing arrangements and convertible rounds.

The year has also been marked by some of our clients achieving successful exits, including a wellreported transaction involving former shareholders (essentially Cambridge alumni and software engineers) of AI pre-revenue startup Safe Sign Technologies on its sale to Thomson Reuters, plus the management team on its long-running MBO in Mitsubishi Bank.

On the flip side, as the fundraising environment remains challenging for startups, another feature of 2024 has been founding teams deciding to go their separate ways. As founder departures touch on shares, options, and employment as well as strategic issues for the business, the venture team has worked closely with our employment team and others around Lewis Silkin to guide clients through these challenging situations. We are also increasingly becoming involved in the underlying fund arrangement of our clients, advising management (including founders and C-suite portfolio company management) on their compensation by reference to the performance of the underlying fund. We believe this range of work showcases our ability to advise clients at every stage of its investment cycle – from pre-seed rounds to exit.

Recent deals

We're also pleased to share some of the recent transactions with which we have helped our clients:

• Advising the shareholders in "59", on a sale to Journey
• Working with the shareholders of Beaver Pest Control on its sale to Orkin UK
• Acting for Publicis Groupe when acquiring Mars United Commerce
• Acting for Engineered Foam Products Limited on its acquisition of Springvale EPS
• Advising Havas on its acquisition of global digital data agency DMPG
• Advising Next 15 Group plc on Transform UK Consulting's acquisition of Cadence Innova
• Working with Novate Global Markets Limited on a restructuring and management buy-out
• Advising Safe Sign Technologies on its sale to Thomson Reuters
• Advising MHP Group on its acquisition of TUVA Partners

PISCES – what will it mean for private companies?

In November 2024, the UK Government announced its plans for a new market facilitating the trading of share in private companies, named the Private Intermittent Securities and Capital Exchange System (PISCES).

The objective of PISCES is to create greater liquidity for early stage investors and those who hold shares in private companies. With growing interest in private capital and the limited exit opportunities available for private investments in recent years, PISCES aims to address these challenges head-on by providing shareholders of UK companies which are not listed on public markets with a swift and straightforward means to exit their investments.

PISCES will introduce a pioneering regulatory framework that is unique to the UK. It is expected that this structure will boost the number of companies choosing to list their shares on UK markets rather than opting for US exchanges.

What is PISCES?

PISCES will be a new regulated market for private company shares, allowing intermittent trading on a multilateral trading platform. It will be established through a five-year FCA sandbox which will provide a controlled environment to test the trading platform, ensuring it meets regulatory standards and market needs.

The expectation is that it will offer a more accessible route to liquidity compared to private M&A transactions which require extensive due diligence and IPOs which necessitate due diligence and full disclosure. The sandbox will also offer favourable tax treatment which is forecast to make it appealing to startups and fast growing companies.

The first step in establishing PISCES will be the opening of a five-year FCA sandbox to test the trading environment. Operators will be able to apply to join the sandbox. The Government intends to put forward legislation to provide the legal framework for the FCA sandbox by May 2025.

What are the key features of PISCES?

PISCES operators and admission requirements: the admission requirements for PISCES will be set by a PISCES operator. Operators must obtain permission from the FCA to "arrange deals in investments", "operate a multilateral trading facility" or "operate an "organised trading facility". Recognised Investment Exchanges such as the London Stock Exchange can also be PISCES operators.

Eligibility to trade on PISCES: investors eligible to trade on PISCES include institutional investors, employees of participating companies and investors classified as "high net-worth individuals", "self-certified sophisticated investors", or "certified certificated investors" under the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005.

This means that private companies will have access to investors who are accustomed to trading on stock markets. Crucially they can do so without the same disclosure burden and on-going regulatory requirements of being a public company. Instead, companies will create a disclosure room that investors can access to see the relevant information.

Unlisted shares: only shares from companies that aren't listed on any market (either in the UK or abroad) will be eligible for trading on PISCES. The shares must be freely transferable at the time of a PISCES trading event. This means that companies will need to consider any restrictions contained in their articles of association or any shareholders' agreement.

Participant company control: companies trading on PISCES will be able to set price parameters for trading and restrict access to trading events. This will allow them to maintain control over their shareholder base and to protect sensitive information.

Transparency and availability of information: investors that who wish to participate in trading events on PISCES must have access to pre- and post-trade information. Full details of these proposals were set out in the FCA's consultation on arrangements for the PISCES sandbox. You can read further details on this in our recent update.

FPO exemptions: a new exemption will be introduced into the Financial Services and Markets Act (Financial Promotion) Order 2005 specifically for PISCES disclosures.

Tax treatment: as announced in the Autumn Budget 2024, transactions on PISCES will be exempt from stamp duty and stamp duty reserve tax.

Settlement: PISCES operators will determine if participant companies' shares need to be recorded on a Central Securities Depositary.

Takeover code: the UK Takeover Code will not apply to companies solely because their securities are admitted to PISCES.

Fundraising: PISCES will not be a venue for fundraising or issuing new shares.

PISCES will introduce a framework which allows platform operators to establish their own trading venues and offer structured trading events (or windows) that can be used by broad groups of investors.

Market abuse and insider information

PISCES will not include a public company style market abuse regime, rather the FCA will create a bespoke disclosure and market manipulation regime which is more proportionate. The new regime will not require companies to identify "inside information" as public markets do. Historical financial information will be subject to a "negligence" liability standard, while forward looking information provided in good faith will be subject to a "recklessness" liability standard. This approach aims to provide investors with the necessary information while distributing the risk equitably. The FCA will continue to monitor and enforce rules against abusive and manipulative behaviours.

The future and next steps

The UK is renowned for its innovative financial regulation. PISCES combines the UK's robust regulatory framework with the dynamism of London markets. When introduced, it will present private companies with an exciting option. It is hoped that PISCES will offer private companies access to new investors, avenues for obtaining liquidity, and facilitate the process of becoming a publicly traded company in the future.

It remains to be seen whether the final regulations and sandbox deliver liquidity at scale for these companies. The consultation process for PISCES is ongoing, and we expect final rules and legislation by May 2025.

What other changes to company law will be introduced in 2025?

Other changes that we expect to be introduced during 2025 include the following:

Economic Crime and Corporate Transparency Act 2023: expected timeline for implementation Over the past 18 months, we have written about the introduction of the Economic Crime and Corporate Transparency Act 2023 extensively, and 2025 is set to introduce several of the changes that we have anticipated, including:

Failure to prevent fraud

The new offence of failure to prevent fraud set out in ECCTA will come into effect on 1 September 2025. This offence holds large business structures or companies criminally liable if an employee, agent, subsidiary or other associated person commits fraud intending to benefit the organisation. The offence will apply to large companies that meet two out of the three thresholds of having:

• More than 250 employees;
• Turnover exceeding £36 million; and
• Assets worth over £18 million.

Timetable for remainder of ECCTA

In October 2024, Companies House published a policy paper outlining the transition plan for reforming the role of Companies House in relation to ECCTA. This has recently been updated and indicates the following key dates:

• 25 February 2025: Companies House should be able to begin carrying out checks on authorised corporate service providers (ACSPs) to authorise them to carry out verification services. ACSPs will need to be registered in the UK and subject to the UK's anti-money-laundering regime.
• Autumn 2025: The identity verification (IDV) provisions of ECCTA are expected to come into force. These provisions will make IDV compulsory on incorporation for new directors and new persons with significant control (PSCs). There will be a 12-month transition period for existing directors and PSCs to verify their identity.
• 25 March 2025: Individuals should be able to conduct voluntary identity verification at Companies House.
• By Spring 2026: It is intended that any person making filings at Companies House will need to verify their identity and require a third-party agent filing on behalf of a company to be registered as an ACSP.

The timetable outlined above is dependent on suitable parliamentary time, so it may change.

Prohibition on corporate directors

It is also worth noting that no date has been specified to introduce the ban on corporate directors. However, the Government has previously indicated its intention to bring into force the power to restrict the use of corporate directors in parallel with the IDV provisions of ECCTA.

The prohibition on corporate directors of UK companies was originally due to come into effect in 2016. The Small Business, Enterprise and Employment Act 2015 (SEEBA) included provisions to prohibit the use of corporate directors. These provisions include scope to set out exceptions so that, in prescribed circumstances (not detailed in SEEBA), companies may be able to continue to have corporate directors. There are also provisions which allow for a transitional phase within which companies must comply.

In February 2024, The Small Business, Enterprise and Employment Act 2015 (Commencement No.8) Regulations were made, bringing into force provisions which give the Secretary of State the power to set out the exceptions for circumstance in which a person who is not a natural person may be appointed as (or remain) a director of a company.

It is likely that we can expect further regulations in 2025, detailing the limited circumstances under which companies will be allowed to retain or appoint corporate directors.

Possible changes to directors' duties

The Company Directors (Duties) Bill, a private members bill, is scheduled for its second reading in Parliament on 4 July 2025. Although the bill is in its early stages, it may bring significant changes to directors' duties if it reaches the statue books.

If the bill becomes law, it will amend the directors' duties set out in section 172 of the Companies Act 2006, requiring directors to balance their duty to promote the success of the company with duties to the company's employees and the environment.

If the bill does become law, directors will need to reconcile the new duties set out in the bill with their existing duties in the Companies Act 2006.

Digital Markets, Competition and Consumers Act 2024 (DMCC)

The DMCC which entered into force on 1 January 2024 implemented a new pro-competition digital markets regime, introducing several changes to UK competition law. Changes introduced by the DMCC include:

• Giving the Competition and Markets Authority (CMA) power to designate undertakings as having strategic market status in respect of digital activity and to impose conduct requirements on them. The DMCC also requires designated undertakings to report certain mergers and to produce compliance reports.
• Amending the jurisdictional thresholds for merger review. The turnover threshold has been increased to £100 million and a safe harbour has been introduced for mergers between small businesses with UK turnover below £10 million.
• Introducing a new threshold to enable the CMA to investigate mergers where at least one party has a UK share of supply of 33% and has UK turnover of more than £350 million.
• Introducing a fast-track referral procedure to Phase 2 and enabling the CMA and the merging parties to mutually agree to extend the statutory timetable for Phase 2 investigations.
• Introducing a new foreign state intervention regime (FSI regime) to prevent acquisitions of newspapers by foreign powers.

Corporate reporting and company accounts

Several changes are expected in the realm of corporate reporting and company accounts during 2025. These include:

Changes to non-financial reporting: The Companies (Accounts and Reports) (Amendment and Transitional Provision) Regulations 2024 were published in December 2024. These regulations will take effect in relation to financial years beginning on or after 6 April 2025. Key changes include:

• Increased thresholds: The turnover and balance sheet total thresholds that determine the company, LLP and group size classification for the purposes of various corporate reporting requirements will increase by approximately 50%; and
• Streamlined directors' report: Several low-value, obsolete or overlapping content requirements will be removed from the directors' report.

In addition, the Department for Business and Trade is expected to launch a consultation on the Future of Corporate Reporting in 2025. The consultation aims to simplify and modernise the UK's non-financial reporting framework.

Updated going concern and related reporting guidance

In August 2024, the Financial Reporting Council (FRC) published revised guidance for consultation on the going concern basis of accounting and related reporting including solvency and liquidity risks. This draft guidance consolidates the requirements and provisions of company law, accounting and auditing standards, the UK Listing Rules, the Corporate Governance Code and other regulations relating to reporting on a going concern basis.

Once finalised, the guidance will update and replace the FRC's 2016 guidance on the going concern basis of accounting. The final guidance is expected to be published early in 2025.

Gender pay gap reporting: outsourced workers and equality action plans

The Government published its Employment Rights Bill in October 2024. The bill includes provisions for regulations to require employers with more than 250 employees to:

• Include outsourced workers in their gender pay gap reporting; and
• Publish an equality action plan, outlining the steps they are taking in relation to their employees with regard to addressing the gender pay gap, and supporting employees going through the menopause.

Reporting on payment practice

The Reporting on Payment Practices and Performance (Amendment) Regulations came into force on 5 April 2024. These regulations require qualifying companies and LLPs report additional information on their payment practices for financial years beginning on or after 1 January 2025.

In addition, the draft Reporting on Payment Practices and Performance (Amendment) (No 2) Regulations 2024 are expected to come into force on 1 March 2025. These regulations will apply in relation to financial years beginning on or after 1 April 2025 and introduce requirements for qualifying companies and LLPs to publish certain information on practices, policies and performance with respect to retention clauses in any qualifying construction contracts with suppliers.

LLP Agreements – maximising the advantages of flexibility while avoiding uncertainty

One of the key advantages of a UK limited liability partnership (LLP) is its flexibility as a business vehicle. With a limited statutory framework governing the formation and structuring of LLPs, there is significant scope to agree bespoke terms under the contractual provisions of an LLP Agreement regarding:

• the membership, structure, operation, financing and governance of the LLP; and
• the mutual rights, duties and obligations of the members (both among the members themselves and between the members and the LLP).

However, it is crucial to ensure that the benefits of this contractual flexibility are fully realised through the adoption and maintenance of a comprehensive, well-drafted, and up-to-date LLP Agreement. In the absence of such an agreement, or if the agreement is inadequate or outdated (whether in relation to the actual membership, operation, and governance of the business, or with respect to legal and market developments), the potential benefits of flexibility may give way to uncertainty and unintended consequences.

It is therefore important to keep an LLP Agreement under regular and ongoing review to ensure its terms:

• accurately and adequately reflect the LLP's intended structure and membership arrangements;
• support the good governance and operation of the LLP; and
• provide the LLP, its management and its members with the necessary rights and powers to promote the success of the business.

Indeed, the fundamental importance of an LLP Agreement is highlighted in our separate article on the Court of Appeal's decision in HMRC v BlueCrest Capital Management (UK) LLP [2025] EWCA Civ 23, where the court identified the LLP Agreement as the contractual source (as established in statute under section 5 of the Limited Liability Partnerships Act 2000) for determining the mutual rights and duties of the members and the LLP.

As the constitutional document governing the rights, duties and obligations of the LLP and its members, it is necessary that an LLP Agreement addresses a wide range of areas in sufficient detail.

At a headline level, it is recommended that the following areas should be considered:

• Membership classes: different categories of member can assist with managing varying rights and obligations between members, succession planning and business engagement;
• Governance and decision making: including governance structures and management positions / bodies, delegated management authorities / responsibilities, reserved member matters, approval thresholds and decision-making procedures;
• Financing: including members' capital contribution obligations and authority to enter into external funding arrangements;
• Profit sharing: including profit sharing methodology, rights and assessment procedures, distinctions between income and capital profit sharing rights, members' entitlements to drawings, timing of and procedures for division and distribution of profits, and tax arrangements;
• Losses: to protect the liability shield provided by an LLP structure, losses should either not be allocated to members or allocated only on a capped basis (e.g. up to the amount of a member's capital contribution);
• Member duties and rights: contractual duties and rights under the LLP Agreement should reinforce and expand upon the fiduciary duties owed by LLP members in their capacity as agents of the LLP;
• Member admission terms: including qualifying requirements for membership, approval procedures and thresholds, and authority to agree variations;
• Member exit terms: addressing voluntary retirement, compulsory retirement, default retirement and expulsion terms, and related provisions governing suspension powers, garden leave and the application of 'for cause' sanctions (e.g. profit-share reductions);
• Conduct of claims: including which members or management positions / bodies have authority to conduct claims and obtain legal advice on behalf of the LLP, confidentiality terms and powers to restrict access to information;
• Member protections: terms to support the liability shield provided by an LLP structure, including protections against liability for "honest" negligence, LLP indemnities and exclusion of duties between members;
• Business protections: terms to protect the LLP / business against member exits / team moves and post-termination threats, including notice periods, waiting room provisions, good leaver / bad leaver terms, post-termination restrictions and set-off rights;
• Significant transactions: approval thresholds for matters such as mergers, acquisitions and external investments;
• Winding up: including approval thresholds and members' interests and obligations on a winding up; and
• Dispute resolution: alternative dispute resolution vs. court-based procedures and alternative options (e.g. expert instruction on financial and tax matters).

Our LLPs & Partnerships team is recognised as a leading specialist practice, advising on the full range of contentious and non-contentious issues affecting LLPs and partnerships and the individuals who work within them.

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