Background
As we get closer to the point at which the National Security and Investment Act (the 'Act') comes into full force (on 4 January 2022), we have identified some concerns that lenders may want to consider ahead of entering into financing documents in support of acquisitions. Given the potential scope of the new legislation, parties may look to include provisions in finance documents as a matter of good order, irrespective of the underlying sector of the business being acquired to prompt parties to think about this. Although the Act is not fully in force until January, due to the retrospective operation of the Act (which means that transactions that completed from 12 November 2020 to when the Act come into full force can be 'called in'), these considerations are relevant for transactions now. For further information on the details and scope of the Act itself, please refer to our previous article: The new UK national security and investment merger control regime – latest developments (burges-salmon.com).
What is the current impact of the Act?
The Act is already a relevant consideration on certain transactions, both in terms of acquisition due diligence to identify whether a notification in respect of the Act is needed, and also on the general transaction timeframe, which needs to allow sufficient time for the necessary procedures to be followed. With the Act coming into full effect shortly and the mandatory notification regime becoming applicable, we expect there may be an increased focus from lenders on the possible impact on them and the extent to which finance documents should cater for this. Already, on some deals, lenders have been requesting a summary from borrower’s lawyers (on a non-reliance basis) of their analysis in relation to whether a notification is necessary pursuant to the Act.
What changes should be considered for finance documents?
On any acquisition financing (or in the future on any refinance of a business which has completed an acquisition post the Act coming into force), we have set out below some of the provisions that lenders may want to consider including in finance documents. This is not an exhaustive list, and will vary on a transaction by transaction basis.
- Condition precedent
On a transaction where either a mandatory or voluntary notification may need to be made, the facility agreement should contain a CP to signing that the relevant notification has been made. Assuming that the notification and receipt of the relevant clearance is a CP to the acquisition itself, this can be linked to customary acquisition-related CPs to funding.
- Representations
Borrowers may be requested to provide a representation that (as applicable) either: (1) any notification requirement has been complied with; or (2) that no notification is necessary. In addition borrowers may be required to make a representation that no 'trigger event' has occurred in relation to it or any of its subsidiaries historically.
- Continuing obligations
Lenders may require an undertaking for the borrower to comply with any retrospective 'call-in' requests from the government and for a specific information requirement for the borrower to notify the lenders in the event that the government makes such a 'call-in' request and provide relevant information pertaining to such 'call-in'.
- Events of default
Lenders may require the inclusion of an event of default to cover a scenario that no mandatory notification has been made (and therefore no clearance received) but a retrospective 'call-in' is either made, or results in the transaction being deemed void.
- Bolt-ons
Although the initial transaction may not require a notification be made under the Act, it is possible that any future acquisitions could trigger such a requirement. To that end, lenders should ensure that any permitted acquisition / incremental facility criteria (and associated accession conditions precedent) address this appropriately and transaction parties will need to be aware of this possibility when conducting any future acquisition strategy for the business. Lenders should be particularly focussed on this where they are providing borrowers with a committed capex / acquisition facility to ensure that requirements are in place for the borrower to provide details of any notifications for future acquisitions.
- Corporate authorisations
Wording may be required to be included in authorising resolutions to evidence that the directors of the borrower have adequately considered and taken legal advice upon whether a notification is required in respect of a particular transaction.
What are the next steps?
There is currently no market consensus on how lenders will approach finance documents in light of the impact of the Act. Whilst we would not anticipate extensive amendments will be required to facility documentation, we expect that lenders will want to ensure that they are appropriately protected and fully updated on any notification requirements. Given the wide-ranging nature of the Act, we expect that lenders will seek to include such protective provisions on a high proportion of transactions to ensure parties have fully considered their obligations under the Act and to mitigate the possibility of a future "call-in request" being made.
If you have specific questions or would like to discuss the topics in this article further, please contact Rachael Ruane.
This article was written by Chris Roberts and Rachael Ruane.