Financial Services M&A in Ireland: Regulating the Deal

Aon’s announcement of its proposed $30bn acquisition of Willis Towers Watson is the latest of a number of high profile transactions in the Irish financial services space which, for a number of years now, has been a popular target for institutional investors and corporates alike. A pivotal aspect of any deal in regulated financial services is interaction with the Central Bank of Ireland who are the gatekeepers to the success of such deals.

In this insight we explore the legal and logistical considerations of the regulatory regime that applies to regulated financial services deals in Ireland and outline how these interplay with the underlying M&A process and documentation.

The Regulator and the Regulated

The Central Bank of Ireland (CBI) operates an acquiring transaction regime for each of the main classes of regulated financial services in Ireland in accordance with the European Communities (Assessment of Acquisitions in the Financial Sector) Regulations 2009 (Regulations). The main types of business which are caught by the Regulations are:

• credit institutions;
• insurance or assurance undertakings;
• reinsurance undertakings;
• investment firms or market operators of regulated markets (MiFID
  firms); and
• UCITS management companies.

Whilst regulated firms such as AIFMs are not captured under the Regulations, the CBI has imposed similar requirements in respect of such regulated firms in its AIF Rulebook. To the extent there is any uncertainty as to whether a target is regulated, the CBI maintains registers of regulated firms which can be checked.

Triggers

As a general rule, the Regulations require the parties involved (including the target) to notify the CBI of:

• any direct or indirect acquisition or disposal of a qualifying
  holding (being 10% or more of the voting rights); and
• any subsequent direct or indirect acquisition or disposal which would
  lead to reaching, exceeding or falling below a prescribed percentage
  (being 20%, 33% or 50% of the voting rights),

in a regulated firm. Deal makers should therefore be aware that it is not only majority interests acquisitions or change of control scenarios that require notification to the CBI. The approval process cannot be circumvented and, if not adhered to, the transaction will be deemed void.

It is therefore crucial, from an early stage in any deal requiring a notification to the CBI, that the notification and review process with the CBI be an important area of focus for all of the parties. Aside from the fact that the CBI has the power to prevent a deal taking place (as detailed below), the notification and review process is extensive and will impact on the duration and structure of the transaction timetable. It is also inevitable that the process with the CBI will impact on advisory fees and the parties should reflect this in the deal budget.

Notification

Notification to the CBI is made through the relevant Acquiring Transaction Notification Form (ATNF). The proposed buyer/investor and seller must file an ATNF with the CBI as well as the target if, and/or when, it becomes aware of the proposed deal. It is therefore likely that there will be three parties to the ATNF and so close cooperation is of the upmost importance. At the same time, as the ATNF will likely include commercially sensitive information on all of the parties involved, appropriate confidentiality arrangements should be in place between the parties.

Whilst the ATNF outlines the information required on the proposed deal, it is normally just one element of a detailed and extensive information submission to the CBI. Primarily, the CBI will focus on issues such as the reputation and financial reliability of the buyer/investor and its source of funds, the impact of the deal on the target and whether or not the acquisition will have the effect of limiting or restricting the CBI’s ability to supervise the target going forwards. As the content of all such submissions to the CBI remain confidential, the information provided should be complete and there is not a risk around including commercial sensitive information.

Review

The CBI has 60 working days following receipt of all relevant information on the deal to issue its determination. At any time prior to day 50, the CBI may request further information that may have the effect of pausing the assessment process until the relevant information is provided. Deal makers should therefore be aware that there is the potential that the assessment period can be increased beyond 60 days and this should be factored into the duration and structure of the deal timetable, including long-stop dates for completion.

Outcome

If the deal receives CBI approval (and this may be with conditions attaching), completion can take place within the timeframe outlined by the CBI. When preparing the transaction documents, deal makers should carefully consider the possibility of the CBI introducing conditions and to what extent these will enable the parties to step back from the deal if the conditions are onerous.

If the CBI does not approve the deal then the only recourse is to the Irish Financial Services Appeals Tribunal and to progress with the deal regardless will result in it being deemed void as a matter of Irish law, and penalties may apply to the parties.