Guide to Payment M&A

Signing to closing

In between signing and closing, a potential buyer should work on satisfying the conditions and any other pre-closing actions obligations. There should be a particular focus on IP transactional services, CP risks and co-ordinating international filings.

IP and data considerations

Transitional services. Unless a target company can be immediately integrated into a buyer group at closing, it is likely that certain transitional services will be required. A transitional services agreement (TSA) may be agreed prior to signing, or between signing and closing. Considerations in the payments space include, for example, regulated outsourcings as the provision of certain transitional services may be a regulated outsourcing to which the European Banking Authority Guidelines and FCA SYSC Rule 8 apply.

OSS. OSS due diligence may have highlighted the use, by the target, of problematic licences that may result in vulnerabilities, or the parties may have agreed to conduct an OSS audit between signing and closing. In either event, there may be conditions to closing governing the replacement of problematic OSS.

People related considerations

If the transaction involves a business acquisition rather than an acquisition of shares, the period between signing and closing will be an important period for the buyer from an employment perspective. The seller may have consultation processes to run in automatic transfer jurisdictions and offers of employment will be needed in non-automatic transfer jurisdictions.

The buyer’s thoughts are likely to turn to terms and conditions post-closing and whether it is willing or able to replicate the arrangements operated by the seller. Equally, where problems have been identified in employment contracts as part of the due diligence exercise, the buyer should be planning the steps it intends to take to correct those problems promptly following closing.

Key litigation risks

CPs to closing in payments deals can be complex. SPAs for payments companies will typically contain a requirement that, in the period between signing and closing, the buyer and the seller must take steps to obtain the regulatory approvals, with the obtaining of such approvals generally being a CP to closing.

The comparatively complicated nature of CPs in payments transactions brings with it litigation risk. A buyer looking to walk away from a deal may assert that a CP has not been met. There is a related risk that, if regulatory approvals are not granted, one party will assert that the other has breached its obligations to take steps to secure those consents. To manage these risks, particular care must be taken when crafting the pre-closing CPs, which should set out each party’s obligations in precise terms.

Merger control (antitrust considerations)

Given that transactions can trigger merger control filings and foreign investment filings in several jurisdictions, it is important to put in place processes to co-ordinate filings across the different authorities. As soon as the transaction has been signed, pre-notification discussions should be started with relevant authorities. It is important to engage with authorities early to help them understand how the technology and infrastructure work on a technical level. The legal and business teams should be prepared to respond to requests for information from the authorities in relation to the draft filings.

Foreign investment filings considerations

As soon as the transaction has been signed, pre-notification discussions should be started with any FDI authorities that need to review the transaction. If concerns arise, executives of the investor may need to meet with government authorities to understand the concerns and what possible mitigation measures/remedies would be adequate to resolve such concerns. If it is likely that measures/remedies will be required to obtain clearance, preparations should start as soon as possible, as this may involve, among other things, finding divestment buyers, drafting agreements with third parties and government authorities, and/or designing internal compliance protocols.

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