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Guide to Payment M&A

Post-final offer to closing

At this stage, the focus for a potential buyer overlaps with the considerations relevant during the due diligence to final offer phase. However, it is now more likely that the deal will happen and so any final issues that go to valuation or deal certainty/execution risk should be flushed out and addressed in either the price or the transaction documents.

People related considerations

Where key employees hold equity and will be selling shareholders in the transaction, questions will arise as to how best to structure the payment of consideration. In particular, deferred consideration or earn-out arrangements may be a useful tool.

If the transaction involves jurisdictions such as France or the Netherlands, the period prior to signing transaction documents may be a key stage in terms of taking the necessary steps to ensure compliance with employment legislation.

If material steps, such as divestments of parts of the business, are expected to be taken to resolve any competition-related issues arising in connection with the deal, careful thought should be given to their consequences for employees.

Key Litigation risks

The SPA should include robust representations and warranties relating to adherence to AML, CTF and sanctions laws.

While compliance-related representations and warranties will be important for a buyer, bringing a claim under them can be challenging. For example, a claimant in such proceedings may face difficulties in demonstrating that the seller had knowledge of a historical breach which, depending on the terms of the clause in question, could pose a challenge in any litigation. Given this, to the extent that any ongoing compliance issues are identified, consideration should be given to including a specific indemnity in respect of them in the SPA.

In some cases, it may be important to include an agreement to implement an ‘uplift plan’ involving the seller or the target undertaking to engage a Big Four accounting firm to review the target’s compliance processes and procedures, and to implement recommendations in respect of the same.

Merger control (antitrust) considerations

You should include CPs in the offer documentation for jurisdictions that have mandatory and suspensory merger control filings. You should also consider including CPs for voluntary regimes, for example where there is a material risk of such authorities intervening and where approval in jurisdictions with such a regime might be difficult to obtain.

Risk allocation mechanisms such as hell-or-high-water clauses, (reverse) break fees, and risk premiums should also be considered at this stage.

If multiple filings are triggered, different timelines need to be factored into the closing timeline (eg the long-stop date).

Foreign investment filings considerations

FDI reviews can be lengthy and unpredictable. It is, therefore, recommended to get a head start by preparing the relevant filings before signing. The buyer should also develop a clear and consistent global strategy for engaging with authorities. Some key questions to consider:

  • When will the buyer start engaging with authorities and is there any merit in liaising with certain authorities at an earlier stage?
  • Which benefits of the transaction will be emphasised in communications with authorities?
  • How will the buyer respond to stakeholders that may express concerns?
  • Will a PR adviser be engaged?

Financial services regulatory considerations

With the deal more likely to happen, any material issues in respect of licences and authorisation, correspondence with regulators, regulatory investigations or breaches, complaints data and general compliance identified during the due diligence which go to valuation or deal certainty/execution risk should now be flushed out and addressed.

In many jurisdictions, acquisition of a ‘controlling’ interest in a payments firm must be approved by a financial regulator. The interest may be direct or indirect. In the UK, whether indirect voting rights and economic interest should be included in the calculation of controlling interests is governed by a complex set of rules. Multi-layered private equity holding structures may involve several entities holding controlling interests and, therefore, several controllers, each of which will need approval. Buyers should obtain legal advice to identify all potential controlling interests in an acquisition structure.

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