UK named most friendly for LBOs

The UK’s legal and regulatory system has been flagged as the most favourable for LBO deals.

England, Scotland and Northern Ireland have the best regulatory regimes for conducting private leveraged M&A deals, according to recent research led by international law firm Allen & Overy.

The firm joined forces with 118 international law firms across 145 jurisdictions to analyse which jurisdictions were most favourable for conducting leveraged buyout deals. Seven key metrics were examined, including legal rights for foreign companies, relevant withholding taxes on loan interest and employee rights – which in some jurisdictions allow for a merger to be blocked – and clawback provisions in the case of fraud.

The report described mainland European countries as more “restrictive environments for private leveraged M&A with tighter merger control regulations, more limited ability to grant security and greater foreign investment restrictions”.

In the world’s largest LBO market, the US, research showed withholding tax can be avoided, but that merger control provisions were “very strict”, meaning greater reporting requirements for potential mergers to government regulators.

The study also found some of the world’s largest developing economies, namely Brazil, India and Russia, were “reasonably favourably disposed to private leveraged M&A”.

London: provided with more
bragging rights

Meanwhile China, despite moving towards friendlier legal structures, was listed as having regulatory hurdles which prevented a more active LBO market. China ranked “very strict” in the merger control and foreign approval metrics, but “very relaxed” on financial assistance, meaning target companies were permitted to guarantee and secure bank loans for the acquiring private equity firm. 

Elsewhere in Asia, the study noted India, Malaysia and Thailand would move towards greater regulation which will decrease LBO activity due to a revision of their respective antitrust regimes in the next few months.

The report ranked jurisdictions on the following seven metrics: withholding tax, financial assistance, strength of security interests, clawback provisions, merger control, foreign investment approval, and employee rights.