The UK has seen a massive increase in public to private transactions over the past year, and we expect this trend to continue and accelerate into the second half of 2021 and beyond.

The majority of these deals are conducted as Schemes of Arrangement, which are typically executed under compressed timeframes. This places pressure on both target companies and offerors, who must manage disclosure and regulatory requirements while engaging with investors ahead of shareholder votes and conducting general public relations and campaigning.

A key challenge during a Scheme of Arrangement is maintaining up-to-date information about who the current shareholders of the target company are, as the announcement of a deal generally results in significant churn within its share register. For example, institutional investors taking the opportunity to exit at a premium may be superseded by shareholders such as arbitrage funds and hedge funds with very different investment goals and voting predispositions.

The ability to monitor and analyse the implications of register changes all the way through the transaction, using a vast investor database and proprietary analytics tools as well as a global investor engagement team with deep expertise in local markets and extensive international relationships, are some of the capabilities brought by Morrow Sodali to these transactions.

Such close surveillance enables companies to identify potential issues such as unanticipated opposition from dissident investors as early as possible. 

There have been several examples of Schemes of Arrangement faltering despite irrevocable undertakings of support from a substantial proportion of the register, so as proxy solicitors we believe it is essential to engage with shareholders all the way down the list, complementing what other advisors may already have done in terms of liaising with key institutional investors.

In addition, securing the support of the retail component of the register during capital markets transactions can be problematic, as it is generally held through intermediaries such as retail platforms and private client brokers, and retail shareholders show relatively little interest in participating in corporate decisions.

All these circumstances increase the potential for very low quorums (sometimes as low as 35% of the issued capital) at the court meeting and the general meeting required to endorse a Scheme of Arrangement, making a clear understanding of who institutional investors are as well as their likely voting stances ahead of shareholder meetings all the more critical.

Proxy advisors play a key role in Schemes of Arrangement, and we work very closely with our clients and their other advisors to help them communicate with these firms and ensure they are provided with all the information they require to determine their recommendations ahead of shareholder votes.

In the event of negative or conditional recommendations by proxy advisors, our experience and our network of global relationships enables us to assess and address the potential ramifications because we know institutional investors’ history of voting in line with each proxy advisor’s recommendations, and when necessary we can engage with investors to counter unfavourable recommendations.

Occasionally a Scheme of Arrangement switches to a public takeover offer, which can be due to a competing bid or bids for the target, or to significant investor disquiet on the terms of the offer. In this case, we continue to work with the companies involved, as the process remains very similar in terms of register analysis and monitoring, collating feedback from investors and addressing their concerns.

The current high volume of P2P transactions suggests the UK private equity space is becoming pregnant with companies that will in due course return to the public arena. Given the expectation that the UK listing requirements for special purpose acquisition companies (SPACs) will soon be relaxed to align more closely with the highly successful US model, these re-listings may be returning to a changed IPO environment.

Morrow Sodali acts as the proxy solicitor for the majority of SPAC business combination transactions worldwide. We are acutely attuned to the challenges companies face in the SPAC market, which allows us to offer our clients a unique perspective, counsel and technical resources, and our SPAC advisory team provides in-depth expertise in this rapidly evolving niche, from initial pre-meeting planning through to completion as well as post-SPAC services for newly public companies.

The earlier we are engaged in any process contingent upon shareholder register analysis and subsequent engagement, the better we can assist companies to develop the strategic plans and cultivate the shareholder support they will need to conclude their transactions successfully