As an international business owner, you may be considering expanding your business into the UK market through an acquisition or series of acquisitions. The UK market continues to attract international investment due to its stable economy, skilled workforce and access to global financial markets.
This article is aimed at international entrepreneurs, founders and business owners who may be considering buying a business in the UK. You may be looking to quickly access new markets, grow incrementally by integrating a new company into your group, enhance your brand recognition by aligning with an established business in the UK or perhaps even eliminate your competition by acquiring a rival.
Company law in the UK is often complex and can be confusing particularly as the UK doesn’t have one common governing law. If you are buying a Scottish company, you will be subject to a different law to that of England and Wales. Knowing which law governs your acquisition is a good place to start!
We will look at the key legal questions you may have before starting your expansion journey into the UK, how to mitigate risks in certain areas and the importance of getting a specialist legal team on-board early on in the process.
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What are the key differences with buying a business in the UK compared to buying one elsewhere?
- Legal due diligence: this is a fact-finding process to better understand the business and the potential risks you will be taking on by acquiring it. For more information on the due diligence process, you can find out more in our due diligence article.
- Legal business structures: in the UK, we have several legal business structures including limited companies, partnerships, limited liability partnerships and companies limited by guarantee. It is essential that you choose the correct structure to integrate any acquired business with your existing business.
- Managing negotiations: this can be a delicate balance of achieving the outcome you want while keeping the sellers on side and it is important to be aware of any cultural differences when negotiating to maintain a good relationship.
- The M&A process: this is essential to get right as attempting to correct errors post-acquisition can be very costly and damaging. It is crucial you have in place a corporate legal team who have experience in cross-border acquisitions and understand the nuances of the process. For more information on the M&A process in the UK, please see our M&A process guide.
- The integration process: this is arguably the most important part of the acquisition as a challenging integration process can damage the acquiring and acquired business through the loss of revenue, clients and key employees.
What are the main legal challenges I might face and how do I navigate them?
- Trade tensions and geopolitical instability: there is a relatively new government elected in the UK which is still introducing changes around taxation, employment laws, immigration, public sector project spending and so on. This unpredictability could mean potential investors into the UK will be exercising more caution. Recent global changes such as the new US administration and the ongoing war in Ukraine are also contributing to this environment of geopolitical instability. Businesses must be prepared to adapt to this changing landscape and recognise its potential effect on business operations.
- Political crosswinds and protectionism: political crosswinds have increased the cost and length of corporate transactions and some countries are taking a more protectionist approach. For example, governments may take a closer look at deals with overseas entities, imposing additional regulations and approvals.
- Impact of Brexit: Brexit has resulted in significant changes to the business, legal and regulatory environment in the UK. Regulations and laws are still being adapted and trade agreements still being negotiated. As this is a continuously moving picture, it is important to have advisors appointed early on to keep one step ahead of these changes and ensure compliance with any new rules.
- Weak pound sterling: the current weakness of sterling is probably the most pressing challenge for UK companies seeking to merge with or acquire overseas entities.
- Due diligence and negotiation challenges: due diligence is often a lengthy process and therefore expensive. The results of the due diligence exercise will form the basis of the contractual documentation you enter into to purchase the business. It is fundamental to ensure any regulatory issues are discovered and dealt with upfront such as licences or permissions which the business may need to continue to operate in the UK. A heads of terms document is typically drafted to record the initially agreed terms of the deal which will include the purchase price, structure and timing of payment and any employment terms of key management who will stay with the business. It is important to get this right from the outset - our corporate team can assist in this process as well as managing negotiations further down the line.
- Regulatory approvals and legal hurdles: because certain countries seek to limit foreign investment, they may impose limits on takeovers in particular sectors and industries. You may need regulatory approval to proceed with the deal, for example, because of competition law and/or anti-trust concerns.
- Conflicting regulatory and tax regimes: your UK target’s regulatory or tax regime may conflict with your own. The UK tax system is particularly complex and to make sure you comply with the taxation laws and take full advantage of any reliefs available when buying a UK business, it is crucial that you obtain tax advice at the start in order for the deal to be structured in the most tax efficient way. Certain industries in the UK are highly regulated and may require specific licences and/or permits to operate – it is important you take advice on this early on to avoid a situation where you have bought a business which cannot operate.
- Employment law issues: protections offered to overseas employees may be more stringent than in the UK and you may have to consult extensively with unions or work councils. There may be a clash of employment laws and you may find it difficult to harmonise the terms and conditions of overseas employees with UK employees. Again, obtaining advice from an employment law team at the start of the process will save any costly mistakes.
- Government scrutiny and local resistance: you may not be able to get reliable information about the target for a variety of reasons, including language issues or because market data is opaque or hard to get. You may be challenged, either nationally or locally, by foreign officials, particularly if the target provides an essential public service or the deal could affect local jobs.
- Increased costs and reduced deal attractiveness: the different legal landscape in the target country may make it more expensive to do business, reducing the attractiveness of the deal.
- Cultural differences: cultural differences may lead to more nuanced and lengthier negotiations. Punctuality, equality and respectful communication are valued in the UK business world – an understanding of this culture can go a long way in achieving a successful acquisition and integration of a UK business.
The importance of early planning and specialist legal support
Given the complexities and challenges of international M&A, it is essential to get legal specialists in cross-border transactions involved at an early stage. These legal specialists can help plan and structure the deal and seek creative ways to mitigate or resolve any foreseeable issues which will ultimately lead to a smoother deal process. Legal, political and regulatory challenges often have a critical effect on cross-border M&A, so engaging a specialist team of corporate solicitors at an early stage is of the utmost importance.
Assistance with buying a UK based business
As we have seen above, getting an experienced legal team on board early on is vital in order to assist in the initial negotiations of the terms of the deal, help with due diligence and guide you through the quickly changing legal and regulatory environment in the UK. For more answers to commonly asked questions and advice on expanding into the UK through acquisitions, consult our M&A solicitors. Get in touch on 0800 689 1700, email us at enquiries@haperjames.co.uk, or fill out the short form below with your enquiry.
