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The percentages included in this update have been rounded up or down to whole numbers, as appropriate.

Possible offers (made under Rule 2.4):

Formal sale process and strategic review:

A total of 12 targets had an offer period begin with either the announcement of a possible offer or an FSP.

Ten offer periods began with a Rule 2.4 announcement, of these:

• five (50%) progressed to a firm offer during the 2018 Review Period; of which four (80%) progressed to firm offers during their initial PUSU deadline (possible offers for NEX Group plc by CME, Group, INC., Fidessa Group plc by Temenos Group AG, UBM plc by Informa plc, GKN plc by Melrose industries plc) and one (20%) progressed to a firm offer in the second extended PUSU deadline (possible offer for Stellar Diamonds plc by Newfield Resources Limited) (Update: following the end of the 2018 Review Period, Fidessa announced that it had received two possible offers from ION Investments Limited (which was potentially offering a 5% premium to Temenos’ offer) and SS&C Technologies, Inc. – ION subsequently announced a firm offer and SS&C subsequently made a no intention announcement)
• one (10%) terminated prior to the initial PUSU deadline (possible offers for Flybe Group plc by Stobart Group Limited); and
• four (40%) possible offers were ongoing as at 31 March 2018 (possible offers for Shire plc by Takeda Pharmaceuticals Limited, Vipera plc by Banca Sella Holdings S.p.A., Hammerson plc by Klepierre S.A.). The fourth possible ongoing offer, Sky plc by Comcast Corporation, is a potential competing offer to the offer for Sky plc by Twenty-First Century Fox, Inc., and represents a 16% premium to the Fox offer. (Update: following the end of the 2018 Review Period, Shire announced a grant of PUSU extension, Klepierre made a no intention statement in relation to Hammerson and Comcast made a firm offer for Sky at a 16% premium to Fox’s offer)

Two FSPs were announced and remain ongoing as at 31 March 2018.

More possible offers progressed to firm offers within the first initial PUSU deadline in the 2018 Review Period compared with the 2017 Review Period.

Firm offers (made under Rule 2.7):

Schemes of arrangement remain the preferred choice of structure with 12 out of 13 (92%) of firm offers announced in the 2018 Review Period being structured as schemes. The one deal that was structured as a contractual offer was Melrose’s hostile offer for GKN. The vast majority of hostile bids are structured as offers, reflecting the fact that on a scheme of arrangement the offeree leads the process and success depends largely on the recommendation of the offeree board.

Melrose’s hostile takeover of GKN was the largest deal during the 2018 Review Period (£7.4 billion initial offer/ increased to £8.1 billion) and Newfield Resources Limited’s £7.7 million offer for Stellar Diamonds plc was the smallest deal.

The aggregate deal value recorded in the 2018 Review Period was just over £19.9 billion (£19,929,470,000), which is an 82.5% increase on the aggregate deal value in the 2017 Review Period (£10.9billion).

Of the 13 firm offers recorded in the 2018 Review Period, six (46%) had a deal value of £1 billion or higher, double the number of £1 billion plus deals during the 2017 Review Period.

There was one mid-sized deals (ie, firm offers that fell within the £200 and £600m deal value range) (Hogg Robinson Group plc offer by GBT III B.V.), which is comparable with the 2017 Review Period.

The average deal value was £1.5 billion, a 24% increase on the average deal value recorded in the 2017 Review Period (£1.21 billion).

Two out of six of the largest deals were from UK incorporated companies. UK bidders were also active in smaller deals during the 2018 Review Period. However, overall, non-UK bidders outnumbered UK bidders during the 2018 Review Period. See more analysis below (Foreign bidders).

Industry analysis

Deal activity was spread across several industries with the most active sectors being Engineering & Manufacturing and Computing & IT.

Engineering & Manufacturing saw most of the largest deals—over £1 billion— (GKN plc by Melrose Industries plc, Fenner plc by Compagnie Générale des Établissements Michelin SCA, Laird plc by Advent International Corporation) while Mining, Metals & Extraction saw the smallest deal (Stellar Diamonds plc by Newfield Resources Limited).

Foreign bidders

Non-UK bidders continue to be active.

Of the 13 firm offers announced during the 2018 Review Period:

•&²Ô²ú²õ±è;five (38%) were made by UK bidders

•&²Ô²ú²õ±è;eight (62%) were made by non-UK bidders

Non-UK bidders also accounted for 60% of total deal value in the 2018 Review Period, which represents a significant increase compared to the 2017 Review Period (where non-UK bidders accounted for 33% of deal value).

We will continue to monitor foreign bidder activity and will report on it in the Market Tracker UK public M&A Trend Report for the full year 2018.

Consideration structure

The 2017 Review Period saw one deal structured as a cash and unlisted securities alternative. These structures are relatively uncommon and are usually employed where a significant shareholder wishes to retain an interest in the enlarged group following completion. No deals were structured in this way during the 2018 Review Period.

In summary, 12 of the 13 firm offers had a cash element, either solely or in combination with shares, accounting for over 99% by deal value of firm offers announced in the 2018 Review Period.

One deal, Melrose’s offer for GKN, included a ‘mix and match facility’, giving GKN shareholders the option of varying the proportions of new Melrose shares and cash receivable in respect of their holding of GKN shares. This method of giving GKN shareholders a choice of consideration, subject to the elections of other target shareholders, made the offer more attractive. Where shareholder elections could not be satisfied in full, they were scaled down on a pro-rata basis.

The 2017 Review Period also saw the use of one mix and match facility.

Bid financing

Of the 12 firm offers that involved a cash element (accounting for 92% of all firm offers in the 2018 Review Period), three were funded from existing cash reserves only, four were financed by debt facilities only, four were financed by a combination of debt facilities and existing cash reserves and one was financed by a combination of debt finance and equity subscription to bidco/PE funds. See table below for details of financing:

Financing of 12 firm offers involving a cash element (whole or part)

The use of existing cash reserves (three deals or 23%) was similar to the figures during the 2017 Review period (two deals or 22%). However there was an increase in the use of debt facilities (either exclusively or in combination with other resources) (nine deals or 75%) compared with the 2017 Review Period which saw one deal in which debt was used (wholly or partly) to fund a cash bid.

It is not surprising that bidders are opting to finance deals either with existing cash resources or with debt in light of the historically low interest rates. With the Bank of England indicating that interest rate rises may occur over the next two years, we will be monitoring the impact that this has on debt finance and M&A activity more generally.

Public to private activity

Of the 13 firm offers in the Review Period, one (8%) (Laird plc by Advent International Corporation)involved a private equity backed bidder (compared to three such transactions in the 2017 Review Period). This was one of the largest deals during the 2018 Review Period with a deal value of £1 billion.

Regulatory and political

Two deals in 2018 attracted particular media and political attention:

GKN plc by Melrose Industries plc

Melrose’s bid for GKN was politically sensitive given GKN’s presence in the UK defence sector. Secretary of State, Greg Clark, raised concerns with Melrose’s chief executive about the company’s track record in acquiring, improving and selling businesses and the tensions that could arise between this approach and the need for long-term investment and stability.

This culminated in Melrose agreeing to provide post-offer undertaking for a period of five years in which it agreed to maintain its UK listing, maintain its UK headquarters, ensure a majority of its directors are resident in the UK and ensure that the Aerospace and Driveline divisions retain the rights to the GKN name. Melrose also agreed to maintain GKN’s current level of research and development investment. This is only the second occasion on which a bidder has provided post-offer undertakings, which are enforceable by the Takeover Panel under the Takeover Code.

Sky plc by Twenty-First Century Fox, Inc.

The Competition and Markets Authority (CMA) continues to look at Twenty First Century Fox’s (Fox) proposed acquisition of the 61% shares in Sky plc (Sky) that it does not already own. On 3 April 2018, the CMA published two proposals aimed at removing media plurality fears. The first proposal involves Fox ring-fencing Sky News, making it a distinct company within Sky, run by the head of Sky News. The second proposal involves the divestiture of Sky News to Disney. The CMA’s preferred remedy would be the prohibition of the transaction. the CMA has until 1 May 2018 to report to the Secretary of Digital, Culture, Media and Sport, Matt Hancock, who will make the final decision.

The Disney/Fox transaction caught the attention of the Takeover Panel, which has ruled that following the completion of the acquisition by Disney of Fox, Disney will be required to make a mandatory offer for Sky pursuant to Rule 9.1 of the Takeover Code. Fox has a 39% shareholding in Sky and the Panel determined that securing control of Sky might reasonably be considered to be a significant purpose of Disney’s acquiring control of Fox. The ruling is an example of the so-called ‘chain principle’ under the Code. See further News Analysis: .