Mood – not specific rule changes – shapes M&A market, former regulator declares

The UK Takeover Panel’s flexibility and principles-based approach underpins its role in the mergers and acquisitions market, a former director general of the regulator told Bayes Business School recently.

Ian Hart was addressing the annual research conference organised by the school’s Mergers & Acquisitions Research Centre, where he is chair of the Advisory Board. He took up the role after his term at the Takeover Panel ended last year and he returned to a senior role in UBS as co-chairman of UK Investment Banking.

The panel regulates the ‘plumbing’ or mechanics of an offer rather than adjudicating on the anti-trust or other implications of proposed takeovers, Mr Hart explained.

“The panel has two main objectives – to ensure fair and equal treatment of all shareholders and to provide an orderly framework for the conduct of offers – such as timetables, disclosure requirements and information sharing.

“The panel’s objectives are enshrined in six general principles which are underpinned by 38 rules and a range of practice statements. The fact that the Takeover Code is principles-based is critical – it enables the panel to act as a flexible regulator, adapting both to longer term trends and to the specifics of a particular case.”

A flexible friend

That flexibility, Mr Hart said, helps the panel to maintain the appropriate balance between bidders and target companies at any given point.

“Within an overall framework the panel has the ability to interpret its rules more or less liberally and so to flex its approach more easily than other regulators and to do so free from political interference. While everyone will have their own views on how specific parts of the code can be enhanced, fundamentally the system works and it will continue to be an important feature of the UK market.”

Earlier, Mr Hart had noted that the level of UK takeover activity has been ‘robust’ – particularly when viewed against a backdrop of a significant fall in the number of listed companies over the last two decades. The proportion of UK-listed companies targeted for possible takeover has risen steadily since 2014 and has almost matched pre-global financial crisis levels. The declining average value of such bids, Mr Hart said, largely reflected the nature of the UK markets.

“An increasing share of UK offers are for smaller companies that are often listed on AIM. That in turn is partly down to the nature of the UK market which is concentrated in sectors that are either already heavily consolidated or which are not seen as offering attractive long-term growth for a buyer.”

Having outlined the panel’s approach, trends in the M&A market over recent decades and the key policy changes that have shaped the Takeover Code over that period, Mr Hart concluded that specific rule changes have less impact on long-term market activity than the tone of the wider regulatory regime. Since the 2008 global financial crisis and the Kraft/Cadbury bid in 2010, he said, the UK takeover regime has been seen as more target than ‘offer -friendly’.

However, he added, the tide is probably now turning – not least as politicians are looking to loosen constraints on business and markets more broadly in the search for stronger economic growth.

Professor Scott Moeller, the founder and director of the research centre at Bayes Business School (part of City St George's, University of London) said Mr Hart’s contribution provided participants with a great insight into the issues and challenges that M&A practitioners face.

“This was our ninth annual conference and once again it was great to bring together cutting-edge research and practice with leading academics and industry experts from both the UK and abroad. The topics ranged from deal structure and financing to integration, activism, regulatory changes, domestic and cross border transactions and corporate social responsibility.”

The conference drew nearly 100 participants, with eleven papers presented and discussed by academics from around the world.