M&A Auction Process

by Ropes & Gray LLP
Phil Sanderson, Ropes & Gray private equity transactions partner, discusses the M&A auction process in the UK.


Businesses in the UK are invariably bought and sold using an auction process, and so I am going to talk about the evolution in the auction process in the UK and draw out certain themes that we have seen over the last several years.

Vendor diligence is common across both sides of the Atlantic and other places in the world. Legal diligence is See more +

Phil Sanderson, Ropes & Gray private equity transactions partner, discusses the M&A auction process in the UK.


Businesses in the UK are invariably bought and sold using an auction process, and so I am going to talk about the evolution in the auction process in the UK and draw out certain themes that we have seen over the last several years.

Vendor diligence is common across both sides of the Atlantic and other places in the world. Legal diligence is provided to help the process be smooth, to help the bidders get to a deliverable point and instead of requiring each of the five or six bidders to, in silos, do their diligence on the data room, feed questions through to management teams in a disorganized way, the vendor process, essentially, requires the seller's counsel to put together, in a sensible, thoughtful way, a diligence package before the process has even started. So I would favor legal due diligence on the vendor side.

Warranty cover is, obviously, provided in an ordinary way in the “SPA” (in the Share Purchase Agreement) – nothing unusual there. But in the UK, on private equity sales, it has become completely accepted that the private equity seller will not give or stand behind any of the business warranties. That naturally reduces the pot available to cover the business warranties in times of a liability to the management cash consideration, and over time, even that has diminished. In addition to this, another phenomenon that has happened, in more recent years on auction processes, is that all of the warranties are qualified by awareness of the management team, which makes a warranty claim harder to prove and, therefore, harder to bring. So there are likely to be fewer successful warranty claims.

So, how does a buyer/how do our clients meet this challenge? Partly through diligence, partly through the commercial comfort that a private equity bidder can get from a management team rolling into the new structure, and thirdly, by use of W&I insurance (warranty and indemnity insurance). The insurance product can do two things – it can take the cover from, let's say, a cap liability of £1 million to, let's say, £10 million, so the insurer will provide the cover over and above the cap provided by the management warrantors. But also, the insurance product can do what is called a “knowledge scrape,” so it can take what I've just talked about in terms of the general qualifier of management awareness, and give cover, as if that qualification was not there.

“Certain funds” is a concept that in the public market scenario, is a legal obligation, so the obligation to actually provide certainty that the funding is there, available, committed to pay the cash purchase price which is being offered. Essentially, we are talking about the point where the bidder, the winning bidder, signs the “SPA” – they have to be able to convince the seller that the cash consideration is all committed. How does a buyer do that? How do clients look at that? Well, firstly, they may win the bid – so get to the second round bid date, win the bid, and then use a period of exclusivity to arrange that certainty of funding. And where that is particularly relevant is in terms of agreeing funding, certain funding, with banks. If that time is not available, they may simply equity underwrite the whole purchase price and that's particularly common for large-cap clients, that they will, effectively, underwrite the whole consideration price from their own equity funds. However, there are circumstances where there is not the luxury of time to put in place full financing and there is not the ability to equity underwrite the whole purchase price. And in those cases, there is a work stream that needs to be done, usually prior to the bid date, to put in place some kind of interim or bridge financing to convince the sellers that this bidder is as good as the other bidders who have certain funding through an equity underwrite.

See less -


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Ropes & Gray LLP | Attorney Advertising

Written by:

Ropes & Gray LLP

Ropes & Gray LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.