This month we focus on some of the key legal and structuring flashpoints encountered in UK financial services M&A. Financial services has long been a popular sector for private equity and corporates alike, but in the last two to three years the rise of Fintech companies, particularly in the personal finance and payments sub-sector, has boosted activity levels. Combine this with continued consolidation of financial brokers and asset managers, and the outlook for FS M&A looks healthy.
You, me and the regulator
While the principal parties to any FS M&A transaction are still buyer and seller, there is arguably a third party whose interests need to be borne in mind at each stage of the transaction - the regulator (in the UK context the Financial Conduct Authority, or FCA).
Any business that offers or promotes financial products or services to consumers or businesses will likely fall within the UK regulatory framework, overseen and enforced by the FCA. Banking, insurance and large investment firms may fall within the regulatory purview of the PRA (Prudential Regulation Authority) instead, or as in addition to being regulated by the FCA. The regulatory framework applicable to the business can impact on transaction structure, financing and timetable. For the purposes of this article we will assume the FCA is the sole relevant regulator.
Change of control approval
Assuming the business is regulated by the FCA (see also due diligence section below), any acquisition of a significant stake in a financial services business will require prior FCA consent. This is not an approval of the transaction as such (so is unlike competition/anti-trust clearance), but is an approval of those persons who will become 'controllers' of the regulated business after the transaction completes.
Applying for this approval requires considerable work and advance planning, and the FCA has up to 60 working days to assess the application (starting from the date on which the regulator considers the application is complete). This can have a significant impact on transaction timing and, if any difficulties are encountered obtaining this approval, on the viability of the transaction itself. Further details are provided in our earlier article " Acquiring a Regulated Business - Change in Control Regime"
Potential impacts of the regulatory regime on transaction structuring can include:
Asset transfer vs share sale: in some cases, e.g. where the buyer already...