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2021 saw the global pandemic roll on, and so too did global M&A activity with expanding foreign investment regimes and increasing merger control enforcement continuing to be a determining factor in deal execution. 2022 looks to be another year of high activity levels with authorities set to up their enforcement efforts and apply new tools. The new UK NSI Act is now in force, the European Commission looks set to “call-in” problematic transactions and the US administration has announced their intent to increase antitrust scrutiny (to name a few).
We have taken an in-depth look at six themes that deal makers will increasingly need to have regard to in the coming year. The outlook for 2022 sees new policies, new regulations, and new regimes right across the globe. Each of these brings new risks that financial sponsors (and others) will need to develop strategies for throughout the process of any transaction.
After much anticipation, the UK’s National Security and Investment Act (NSIA) entered into force on 4 January 2022, heralding a far-reaching UK investment screening regime. Investors wait to see how the regime’s broad powers will ultimately be substantively exercised in terms of the breadth of application of national security but a material impact on contractual risk allocation, transaction completion timelines and disclosure of investors’ interests should be expected by financial investors.
The Biden Administration has made clear that a shift to more aggressive antitrust enforcement is under way in the United States. With private equity investment models firmly in the FTC’s crosshairs more intense scrutiny of transactions and their impact on competition can be expected.
With the EC flagging concerns about foreign subsidies that distort the EU market, 2022 is likely to bring dealmakers a new regulatory hurdle to consider when conducting European transactions. Investment funds with links to non-EU governments or those that receive other forms of beneficial treatment (e.g. tax exemptions) can soon expect heightened scrutiny and an un-level playing field in auctions as a result. Depending on whether your fund is state backed or state linked (or not) this could be a boon or a curse for private equity.
The European Commission’s repurposing of Article 22 EUMR to capture any deal with adverse competitive effects irrespective of EU turnover introduces a further layer of potential uncertainty for dealmakers. Investors will need to consider carefully the associated call-in risk and how best to address the potentially significant impact for candidate transactions.
Competition regulators have recently flagged concerns regarding the impact of highly leveraged acquisitions on the competitiveness of the acquired business (and hence competition more generally). While current legal tests provide some constraint against regulators pursuing such theories in a merger control context closer scrutiny may develop as the political landscape continues to shift.
With antitrust enforcement expected to make a strong come-back in 2022, the evolving EU practice on “no fault” liability for shareholders and subsidiaries will be important to keep in mind. Managing portfolio company compliance and conducting detailed due diligence are important tools to manage potential exposure.
Explore our Year to Come 2022 and Year in Review 2021 series across 20+ jurisdictions and a number of legal topics.
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