What the new private sale process regime means for private equity investors

The Code framework

The UK Takeover Code (the Code) requires a company to which it applies (a Code company) to comply with certain important requirements at the outset of a potential public sale of that Code company, including announcement obligations.

The Panel has historically followed a policy which grants certain dispensations from Code requirements where a Code company is undertaking a public formal sale process (FSP). That policy is found in Practice Statement 31 (PS31).

There are, however, circumstances in which Code companies may wish to enter into initial discussions with potential buyers in private as they explore their options for a strategic transaction.

New PS31

On 30 April 2024, the Panel published a revised version of PS31 which extends its scope by providing a new framework for private sale processes, which would have previously not benefited from the FSP dispensations. With this development, where the Panel is satisfied that a Code company is genuinely initiating a private sale process, the Panel will grant certain dispensations.

Outlined below are the main points about how the new process will work, and how it fits alongside the existing public sale processes under the Code:

• A Code company may initiate private talks with multiple potential buyers. Those talks are able to remain private (i.e. the requirement to announce under Rule 2.2 of the Code does not apply), unless there is rumour or speculation that the Code company is seeking a buyer (in which case an announcement will be required).
• Any such announcement will start an offer period, but there will no longer be a requirement automatically to name all parties which are in talks with the Code company or to impose a “put up or shut up” (PUSU) deadline under Rule 2.6(a) of the Code – unless there is rumour or speculation which specifically identifies a potential buyer.
• Where a potential buyer is specifically identified, a PUSU deadline would need to be applied in respect of that potential buyer. However, where a Code company chooses to announce (and give details of) a FSP as part of any announcement, the Panel will not normally require a PUSU deadline to be set.

Our view

The adoption of the new private sale process framework by the Panel, and the guidance in PS31 on converting a private sale process into a FSP, is a welcome development. It should give comfort to Code companies as well as potential buyers that they have the scope to explore early stage talks in private and without being drawn immediately into a public process under the Code.

However, this is subject to an important caveat: the availability of the dispensations from the relevant Code requirements relies on secrecy. Parties which are seeking to benefit from the new framework for private sale processes should remember that the usual confidentiality rules apply. There will still be a risk of a potential buyer being named publicly if there is rumour or speculation which identifies it specifically. Taking appropriate steps to avoid a leak will therefore remain critical.