M&A Guide 2021 – Bermuda Update – Corporate/Commercial Law



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This country-specific Q&A provides an overview of Mergers
& Acquisitions laws and regulations applicable in Bermuda.

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 begin 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 last year, 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. 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 company or companies cease to exist.

Conversely, an amalgamation between two (or more) Bermuda
companies is typically effected pursuant to section 104 of the
Companies Act and, upon completion, each of the companies become
and continue as a single amalgamated company and the undertaking,
property and liabilities of each becomes the property of the
amalgamated company.

The Companies Act does not legislate as to whether a transaction
should be structured as a merger or an amalgamation. Commercially
and optically, companies might proceed by way of an amalgamation if
structuring the business…



Read More: M&A Guide 2021 – Bermuda Update – Corporate/Commercial Law

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