Mergers & Acquisitions (M&A) Guide 2022 ' Bermuda

• Published date: 26 October 2022
• Subject Matter: Corporate/Commercial Law, M&A/Private Equity, Corporate and Company Law, Shareholders
• Law Firm: Appleby
• Author: Mr Matthew Ebbs-Brewer and Katie Blundy

This Q&A on the Mergers & Acquisitions (M&A) laws and regulations applicable in Bermuda provides an overview of the main themes and issues impacting M&A activity in the jurisdiction. Topics covered include the key laws and regulatory authorities of Bermuda, due diligence procedures, deal protection, public disclosure, director duties, shareholder rights and the current state of the M&A market in the jurisdiction more generally.

1. WHAT ARE THE KEY RULES/LAWS RELEVANT TO M&A AND WHO ARE THE KEY REGULATORY AUTHORITIES?

The Companies Act 1981, as amended (Companies Act) is the principal piece of legislation governing companies in Bermuda and under which most companies in Bermuda are incorporated by registration. As the substantial portion of entities currently formed in Bermuda are exempted companies limited by shares, this chapter primarily focuses on Bermuda M&A transactions involving Bermuda companies.

The provisions by which business combinations (either by merger, amalgamation or, in some instances scheme of arrangement) are effected in Bermuda are contained in the Companies Act. Provisions concerning the compulsory acquisition in connection with a share acquisition or business acquisition are also contained in the Companies Act. If the entity is a regulated entity and either registered under the Insurance Act 1978, as amended (Insurance Act) or the Investment Business Act 2003, as amended (Investment Business Act), these two acts may also be relevant to the transaction.

The regulatory authority responsible for registering a merger or amalgamation pursuant to the Companies Act is the Bermuda Registrar of Companies (RoC). In addition, the Bermuda Monetary Authority (BMA) may also: (i) be required to give permission from an ultimate benef‌icial ownership and exchange control perspective in the event there is an issue or transfer of shares in connection with the M&A transaction, unless a general permission already exists; and/or (ii) if such target or subsidiary (as applicable) is a BMA regulated and registered entity, be required to either be notif‌ied of or provide its approval to the change of control for the target or parent entities (as applicable).

2. WHAT IS THE CURRENT STATE OF THE MARKET?

Bermuda is known as a f‌irst class center for international business and has proactively responded to the COVID-19 pandemic. That said, the current M&A landscape seems to be one of anticipation. Although there has been deal flow in Bermuda throughout the pandemic, including some high value transactions, the volume of transactions has not recovered to pre-pandemic levels. The insurance sector continues to be a primary M&A transaction space but is by no means the only sector experiencing M&A.

Our expectation is that, as the practical restrictions necessitated by the pandemic continue to lift, there will be an increasing confidence from parties wishing to execute transactions. While many businesses have suffered as a result of the effects of the recent years, others are well positioned to take advantage and complete.

Much has been said about the resurgence of SPACs. Not only is Bermuda well placed as a jurisdiction in which to establish a SPAC, being able to draw upon prior experience from formation to end of life cycle, but it is also the location of a number of attractive acquisition targets for SPACs irrespective of their jurisdiction of formation. We would not be surprised if this included transactions in the (re)insurance sector for which Bermuda enjoys such a strong reputation.

3. WHICH MARKET SECTORS HAVE BEEN PARTICULARLY ACTIVE RECENTLY?

The (re)insurance sector continues to remain active. In addition, there has been activity across a range of sectors which is a testament to the value that international business sees in Bermuda.

As Bermuda's technology sector continues to develop we may begin to see entities that have established themselves and began to succeed in Bermuda also become attractive targets or find contemporaries where their synergies make a merger of equals an appealing prospect.

4. WHAT DO YOU BELIEVE WILL BE THE THREE MOST SIGNIFICANT FACTORS INFLUENCING M&A ACTIVITY OVER THE NEXT 2 YEARS?

There is speculation that the (re)insurance market will continue to provide the majority of M&A activity but that is by no means the limit on sectors which operate in Bermuda and in respect of which transactions have taken place. We expect factors inf‌luencing M&A activity over the next 2 years to be driven by the market impacts of the global pandemic and to continue to include a purchasers' desire to increase their global footprint, expand into new products and distribution channels and the need to achieve scale and stronger client relationships as well as parties that wish to come together and take advantage of synergies so that they may grow stronger together while capitalizing on opportunities presented by the global recovery from the pandemic. Such desire on behalf of purchasers may of course be impacted by the economic challenges that are now presenting themselves. Bermuda is also emerging as a leading jurisdiction with respect to digital assets and we would not be surprised to find this market develop both in terms of stand alone acquisitions and mergers of equals.

5. WHAT ARE THE KEY MEANS OF EFFECTING THE ACQUISITION OF A PUBLICLY TRADED COMPANY?

There are essentially four ways of acquiring a publicly traded company; namely merger, amalgamation, scheme of arrangement or the making of an offer to the shareholders of a publicly traded company to acquire their shares.

It is open for a potential acquirer, subject to compliance with rules and regulations of any applicable stock exchange, to present an offer to the shareholders of a Bermuda company which may, or may not, be recommended by the board of that target company. A company (whether incorporated in Bermuda or not) can make an offer to the target company's shareholders to acquire all of their shares in the target company. In the event that the offer reaches certain thresholds of acceptance, an acquirer can f‌ind themselves with certain rights and obligations to obtain the remaining shares as discussed further at questions 25, 26 and 27.

A scheme of arrangement is a court sanctioned compromise between a company and its creditors (or any class of them) or its members (or any class of them). In the context of an acquisition, a Bermuda company or any member may apply to the Bermuda Court requesting that the Court order a meeting at which the members (or any class of them) are asked to consider the scheme. If the approval is obtained of a majority in number representing three-fourths in value of members or class of members, as the case may be, present and voting either in person or by proxy at the meeting, the Court may sanction the scheme and if so sanction, it becomes binding (subject to delivery of the requisite order of the Court to the RoC) upon the member (or any class of them, as the case may be).

Whilst any of these means would be open to a potential acquirer, we frequently see the acquisition of high prof‌ile publicly traded companies in Bermuda acquired by way of merger or amalgamation. Whilst the processes to complete either and practical effect are similar, from a technical stand point, each produces different results.

A merger between two (or more) Bermuda companies is typically effected pursuant to section 104H of the Companies Act and, upon completion, the undertaking, property and liabilities of each merging company is vested in the surviving company whilst the remaining...