M&A in uncertain times: International M&A - Updates from the UK, EU, Middle East and Asia

Nurhan:           Welcome to the fifth installment of Gowling WLG's M&A webinar series. M&A In Uncertain Times. Today our panel will discuss the impact of COVID-19 on M&A activity in certain jurisdictions around the world with a particular focus on the UK, France, Dubai and China. If you missed any of our prior webinars in our series, including those on Preparing Your Business for Sale and on Deal Dynamics Arising Out of the Pandemic, to name a few. The on demand versions are posted on the Gowling WLG website. But before I continue on, before we get started, a number of housekeeping points. To view the presentation and all speakers please click on the speaker view in the upper right hand corner of your screen. For questions throughout the session please use the Q&A button at the bottom of your screen and we'll try our best to answer some of your questions at the end of the session. You should feel free to reach out to our team afterwards, as well, if you have any other questions that we can answer. The presentation will be recorded and posted on our website in a few days. This program counts for 1 hour of CPD credits. So for those in Ontario, for example, 1 hour of substantive credits towards the mandatory annual CPD requirements of the Law Society of Ontario, will be allocated. Also, we have our legal disclaimer, as you can see. Today's session is a high level overview. For specific advice we encourage you to contact your legal counsel in your local jurisdictions. As you know the situation is extremely fluid and changing daily. Continuing to our panel today, our panel is comprised of Barbara Jouffa, a private equity and M&A partner in our Gowling WLG Paris office. We also have with us Chris Towle, a private equity, M&A and indirect real estate investment partner at Gowling WLG's UK offices. Tim Casben, who's the leader of the corporate team and managing partner of Gowling WLG Dubai office and we have Peter Zhang, the leader of Gowling WLG's China initiative and a partner in the Toronto Office. My name's Nurhan Aycan. I am a partner in the Toronto office and practice in the areas of M&A corporate finance and private equity and I also head up the Turkish Country Desk. I'll be moderating the discussion today. Continuing to our agenda, for the remainder of the hour we'll be comparing and contrasting deal dynamics and the social and economic impacts brought by on the pandemic on M&A transactions in key jurisdictions around the world. Specifically, our panelists will be exploring the following trends in the countries where they work, and the differences in those trends across those jurisdictions. We've narrowed it down to kind of four topics. The effect of COVID-19 on transaction timing and mechanics, as well as contractual and diligence issues. Second, issues relating to valuation. Third, employment and labour issues particularly in the context of the re-opening of businesses as various jurisdictions are opening up around the world. Lastly, foreign investment and changes to applicable regulatory routines. Of course, as much as possible we want this to be an interactive session. We would love to have your questions at the end of the session when we'll have a change to go through them.

Now, just turning to topic one, my first question for the panelists to set the stage and provide some context, is that we want to ask about the transactions that have been worked on recently. How has COVID-19 affected the transaction flow and the process for completing the transaction? What contractual or diligence issues should buyers and sellers be mindful of in negotiating the closing M&A transactions in the current context? We are trying to build on the webinars that have been previously posted, and so what we're trying to do is not go back to those topics that were covered previously, but to add on them and build on it in the international context. Having said that, I wanted to start with Chris Towle who is in our UK office, and wanted to hear from him with respect to this question. Over to you, Chris.

Chris:               Thanks, Nurhan. It's probably a similar pattern for all of us in all of our jurisdictions at the moment. From an M&A perspective, certainly in the UK and I think in Europe and I'm sure elsewhere, activity is sharply down over the last 6, 7, 8 weeks. We would usually expect to see at this point in the year, this point in the cycle or indeed. that we were seeing before the COVID-19 situation came to be quite as significant as it is at this moment in time, so all significant M&A transactions that we were working on in the UK, other than those which are generally, strategically important for clients for a particular reason to continue with, have either gone on hold, rarely aborted to be fair, so rarely gone off but gone on hold, or at least significantly slowed down. So those transactions which are proceeding are proceeding at a, honestly a snail's pace, not just a much slower pace, with both parties really feeling around trying to work out what's going on, looking after the essential points in front of them in respect of both their businesses in the meantime, and largely waiting to see what might occur over the coming months. On a broader base we see most of our corporate clients pausing their transaction activity for now whilst they reserve their cash position, protect their business, deal with the multitude of other issues that this situation has brought to their door in respect of their existing employee situation, business situation, contract situation, generally. From an investor perspective, a private investor perspective, similar activity, to be honest. Pretty much paused overnight whilst those private equity investors look at their existing portfolios. Make sure those existing portfolios are as well looked after during this period as might be case, and now starting to, with a degree of confidence I think, plan for what might happen in the coming months (ie: as we turn the corner, as, sadly, some businesses are up for sale because of a new distress position that they find themselves in, perhaps looking for additions to those portfolios to strengthen those portfolios). I think deal flow at the moment, very slow. Deals that are proceeding, very slow. But confidence still there in the market at large. That this is, we would hope, temporary. Short, sharp, very, very painful but temporary process which people are already starting to look to the opportunity for, as we come out the other side of it. In terms of the impact on the transactions themselves, I think that the key impact is really just the timing, and implications for those transactions. So both investors, buyers, sellers alike are not in a rush to transact unless they really, really need to. Unless there's a distress situation or a particular reason for pushing the transaction through, at any pace. In the main, people are slowing right down. Obviously things like due diligence are far more challenging when you can't get out and about in the same way that you ordinarily would do. We'll talk surely about valuation implications but the CV-19 situation's clearly impacted almost all businesses in one way or another. At the moment, whilst we're in the middle of it, it's difficult, I think, for sellers as well as buyers to have a genuine handle on that and therefore, what the implications might be in terms of a sale process today and the ongoing management of the business going forward. In the main, longer periods by agreement between both sell side and buy side, because there just continues to be uncertainty.

Nurhan:           I agree and I have been seeing in our LOI's that we've been entering into that exclusivity periods have been longer just to take into account the difficulties around due diligence and getting to the root of that, as well as we get to our discussion on valuation, trying to get a handle on the impact on the financials and cash flow positions of various businesses. Peter, let's turn to China. What's happening in China in this context?

Peter:              Now that China has opened up, but there are still some special COVID-19 layers, I think I'd like to give my observation on special due diligence requirements, in terms of for special COVID-19 related matters implemented by different jurisdictions. One example now in China is even the country is re-opened, but for tracing the infraction context purpose. Personal health QR code on cell phone, is used everywhere to monitor the virus infection. So people is required to report travel history, regularly, on cell phone application. So the application updates each person's health code daily and give them a colour. So green is, this ..., has no travel history in the last 14 days out of city. No close contact with the infected case. So if a certificate for safe. So yellow, alright, meaning alert. So almost all venue now in China they check health code before admitting people in. Even recently opened this new park in Shanghai, they track health people's health code before admitting them in. Also, before boarding transportation local, you need to show your health code. For international travelers they ask you to download international ... for health code. I think for our mergers, acquisitions, deal diligence as part of the due diligence process, special attention should be given to this kind of new measures. In terms of China, we have ... routine there so we can help clients do the most updated due diligence, otherwise the client potential impact for special measures. Another observation I'd like to give is related to the flow of transactions from China. Here in Canada we still see Chinese investors coming in to acquisitions but they put extra conditions for closing and they closing period is extended. A recent announcement of transaction is about TMAC, TSX listing mining company. They buyer is a Chinese public mining company, it's called the Shandong Gold. The Shandong Gold has entered into an original agreement, it was TMAC, to acquire 100%25 of TMAC. So in this deal they put in closing condition that Shandong Gold should have access to the mining site of TMAC. So TMAC's mining site is in Nunavut, Ontario, of Canada. Another one in Boston, US. So this is rare from my experiences. So the other special clause is the extension for closing period of this deal. So in this deal they put in 6 months plus 3 months extension for closing. Compared to other two similar transactions, those two are 4 months plus 2 months. So this closing period is unusually long. I think that's the parties reaction to potential impact of COVID-19. But that's my observation from China perspective.

Nurhan:           ... That's a long closing period and a separate extension period ... Tim, let's turn over to you, ... and Gulf region.

Tim:                 Yeah. I mean very much similar to what Chris had said, really. Obviously the impact here is in some ways no different from the impact that's happening all over the world. The situation is incredibly fluid as it is everywhere else. A good example of that is 2 days ago Saudi Arabia announced that they're increasing VAT from 5%25 to 15%25 and clearly that's going to have a very dramatic impact on sort of F&B retail, etcetera. The UAE have come out and said that they're not intending to increase VAT in line with that which is great. But it really is a good example of the impact that sort of government intervention can have in the current times. There are few nuances here, unlike other jurisdictions, so insolvency laws here are slightly less developed, in some ways they may be in, for example, the UK or Canada, and that has an impact where you have distressed sales and distressed businesses. So what you can't do in the UAE is have a pre-pact situation where you can effectively revive a company, say out of the administration, and there isn't that short sharp administration process where you have an acquisition and you get the afterwards. That's a considerable issue, obviously, in distressed times such as these, because it just doesn't give the opportunity for many of those distressed companies to come out the other side. The other big issue is payments. That's quite a considerable issue across the whole region. That obviously impacts from cashflow. So if you are looking at acquiring in this region and the ... and due diligence in that property is going to be very important and, realistically, you're going to need considerable cash injection as well. I guess that kind of leads to structuring as well. If you are going to have to inject cash for an acquisition, but for example, your structuring it on an earnout basis. You've got to get over that phycological hurdle that you're sort of funding the seller through the company to payout the seller's earnout, etcetera. That's a bit of a mind shift that people probably have to think about. People also being pretty inventive here at the moment. So I've got a transaction on at the moment where a party really wants to exit a company here, it's in the event business, that business owns a couple of assets that have significant value, or should have significant value in the future, so they're just exiting with a vendor loan and security over those particular events. So you're seeing some pretty inventive solutions to structuring transactions at the moment. I've got another transaction at the moment where one of the concerns is supply chain. They're looking at sort of spare parts and issues around that so that was a specific area focus for them. Then overnight, actually, we've had an example of what we expect to see a lot more of, where the local franchisee of an F&B brand has turned around and said they just can't survive and wants sort of put of the franchise arrangements. We expect to see more of that. So that's a quick overview of what we're seeing in the Gulf.

Nurhan:           Thank you. ...

Tim:                 Nurhan, we're struggling to hear you, actually.

Nurhan:           Is that better?  So clearly there's opportunities in the Gulf region and it goes without saying that the question that comes up is most often in terms of valuation. ... buyers and sellers in their corporate transactions, obviously. The value of a business, generally, will be no doubt impacted by COVID-19 in one or another. What key valuation issues are you seeing and how are the parties to amend any transactions addressing that is certainly needed in purchase agreements that you've seen so far? Chris, what are you ... take this question on first.

Chris:               Thank you. I guess from my perspective, so I completely agree with you. Valuation issues are coming to the fore already, as you expect. I think really we face to issues within M&A transactions in relationship to broad issues in relation to valuations at the moment. Issue number one being how do we value the businesses at the current time or going forward. Do we take into account the impact of CV-19 or not? Issue number two being, depending on where we get to with that, how do we share the risk of getting that wrong? So, in relation to the question on how we value, I think probably we're all of the view that there will not be, or there's very unlikely to be, very many businesses who have been completely unaffected by the CV-19 situation. So in some cases we'll all have clients who actually are doing really very well out of the situation, because they're essential businesses, for one reason or another. Maybe they're in the supply chain to an essential business. Maybe they're delivering food stuffs. Whatever it might be and they have seen a significant spike in activity as a result of the CV-19 situation. Probably more likely are the number of clients who have seen a decline in their current activity levels as a result of CV-19. Whether that be because they've had to close down operations for a period, or work in different ways, or just because people aren't out there buying their products, shopping in their shops, whatever it might be. So, in the main, one end of the spectrum or another, all businesses really will have been affected at least to some degree. Some very significantly, some less so, as a result of this period and likely that affect, hopefully it will soften with time but it's not going to stop overnight. These businesses are not going to go back to normal. There will be, for many of them, a new normal which may be better. They may have streamlined their businesses. They may have not. They may have found new ways of working. Better supply chains, whatever, but clearly they will not have the some consistent track record of financial records that they might have been able to present 3 months ago. They would have shown a consistent behaviour. A consistent type of track record in terms of turnover profit and the rest of it. The big question is, from both the buy side and the sale side, how do we treat this period? How do we treat the coming months? Do we just pretend that it didn't happen? Do we exclude them for the purposes of valuation? May be there's an impact on the cash reserves in a company because it's used some cash. May be there have been some short term costs when it comes to closing down a manufacturing plant, or re-opening one, more likely. But how do you value that? The reality is lots of conversation around that, but so far as we're seeing, really in relation to deals at the moment, no particular consensus. Obviously you can argue it from both sides and, indeed, there are always two sides to a transaction. Nature dictates that probably either party is arguing that from the opposite position, and hoping if CV-19 has given their business a boost to take that into account, whereas obviously the buyer would suggest that's it an anomaly and shouldn't be. If their business has been suffering, if you're the seller you're going to want to suggest that actually it's a short term thing and shouldn't be taken into account. At the moment, in the main, what we seem to be seeing is people largely agreeing that we should slightly wait and see. We've got a longer, as we've already discussed, slower drawn out sale process, typically. There is time to gather better information. This has been such a short sharp situation so far that's it very difficult with any certainty to judge the longer lasting effects of this situation on any particular business. So, yes, we can all say you've had a difficult time. You've closed down for 6 weeks. There will be costs of re-opening. There might be employee costs. There might be reduced operation for a period because of social distancing, whatever it might be. But it's very difficult without a crystal ball, without that benefit, predict what the ongoing effect on a particular business will be. So in the main, I think we're seeing people slowing things down, looking to gather better information. Take either a more risk based approach, because in a few months time it will be more obvious because the particular target business will be in a more difficult situation, and therefore the buyer will have a better bargaining position to assert whatever position it wishes to assert. Or, indeed, the business will be performing at a more consistent basis and it's easier to make a call that way. In very few cases, we've seen one particular side of that coin being imposed, strongly, over the other unless there is a fairly traditional bargaining position that's being utilized to one person's benefit or the other. In terms of how the risk sharing is addressed, depending on where you get to without valuation in the first place, to be honest, at the moment we're seeing fairly typical approaches to that in discussions (ie: should there be some form of slightly more drawn out, slightly more sophisticated completion accounts process or earnout process or other type of deferred consideration). Again, typically, the normal arguments are applying. So, of course, if you are the seller you'd rather get paid fully, day one. If you're the buyer you'd rather de-risk for a period and require that there's evidence of the business performing to a certain standard before you hand over the rest of the cash. So far those conservations are not yet getting, apart from particular strategic business acquisition cases, not yet, I don't think, getting to a point where we would see them to be particularly different trends to the norm. Yes, people are more focused on those situations. But, again, I think largely because of the slower slope down, more drawn out processes we're seeing. It's not as dramatic a problem as it might otherwise be because we're just naturally not seeing the same turnover of M&A activity as we might and therefore, whilst these are very real problems, they're not quite as urgent as they might because in the most part people have got more time to think about it, plan, do some further investigation, due diligence, in relation to the ongoing performance and, critically, I think, wait to see how and in what state the business is transacting as various jurisdictions start to re-open. The market places, commerce, factories are allowed to re-open, different work places are allowed to re-open. It's very difficult to make that kind of decision right now when so many people remain in lockdown and so many of those businesses remain mothballed. So, so far, I mean that's probably not a super helpful answer because no real magic or very whizzy technical solutions to the problems we face, but in the main, I would say a very collaborative approach from both the buy and the sell side to being sensible. Waiting to see, gathering more information and hoping things become clearer as  we progress.

Nurhan:           ... that is on the valuation side new things are being looked at that weren't as darkly looked at. For example, I've seen in a transaction I'm working on where we have considerations to supply chain now being looked at very carefully. In fact, looking at whether how difficult it would be to re-tool for just in case delivery of inventory as opposed to just in time. Local production versus just in time delivery and the impact of that one a business and its valuation. So there are multiple considerations that are coming around as a result.

Chris:               On that point, in particular Nurhan, that's an easy point that actually probably affects the UK more than most of the jurisdictions at the moment. Because one very, very small benefit that's come out of this process is we've all stopped talking about Brexit for a period of time. But obviously lots of UK businesses had been starting to turn their attention to European supply chain issues, for example, do they need to reassure in a way that they haven't done before. This whole process has refocused people's attention on questions like that in a much more significant fashion. But out of that, for a number of businesses, will come positive. People will re-engineer in a more efficient way and right size their businesses in a better, more impressive and probably more profitable way going forwards. Possibly not for the majority but in a number of cases, I'm sure.

Nurhan:           Right. Peter, let's turn to China. What are you seeing in China in terms of this issue on valuations?

Peter:              I think ... situation with so many uncertainties they reminds my experiences in China, years ago. So when the Chinese market is deemed as an emerging market, so for acquisition purposes it's very hard to evaluate a target business because many companies they don't have a long track record. Also it's hard to find good comparables in stock market. At that time to drop money from pockets for buyer, buyer normally will ask to include an earnout clause in the transaction agreement. Some even require the seller to guarantee the 3 year financial performance for the target, after closing. Some even go further to ask the controlling individual sellers to provide personal guarantee to the performance of the target business. This practice now is still popular there in China. Especially for public companies because they have concerns to the impact of acquisition to their stock price performance. So that's why I think I totally agree with Chris so we may see more price adjustment clauses in transaction agreements like clauses like performance based, earnout earning, even vendor take-back clauses. But on the other side of coin, I think, the seller will have similar concerns to the financing capability of buyer. So would buyer be able to pay? In this regard, I like to share good news in the Chinese market, so that's the reform of our Chinese IPO regulatory process. Before the Chinese actually old process is an improvement in the process. So the government has strict control to the flow of IPO. The government approval in the process is usually slow. Sometimes it took 3 to 4 years. I have a banker friend, while waiting for his client's IPO application to be approved, he had two ... Now changed with one life. From last year the ... has started to change. They opened a new board. It's called Shanghai Suntech Innovation Board. It's like Nasdaq in China. Now it has already 100 companies listed. This board implemented a new IPO approvement process. It's called a registration process. The future of this new process, first the future is significant speeding up of actual review. In this new process the IPO candidate file prospectors and other documents to stock exchange, to Shanghai Stock Exchange. After being satisfied with how the information disclosed the exchange will send the application to the security regulator commission for registration. This process, on average for the last around 100 companies, average took about 4 months. That's significantly faster than before. The second feature of this new board, new process, is a relaxed financial performance and a change of control requirements for IPO candidates. Before they ask 3 year profit for performance, and no accumulated loss, and under similar control for 3 years. Now they've relaxed all those requirements. Now 2 year similar control is okay and they don't ask for profits anymore. The third feature of this new process is the special voting rights. We may recall in the year 2015, when Alibaba was considering where to do IPO, it choose US instead of Hong Kong. At that time many people, especially Chinese people, expected Alibaba would go public in Hong Kong, first. At least first. And why not Hong Kong, they chose US? Because Alibaba's corporate government structure is intellectual. It's two large shareholders, at that time were Softbank and Yahoo, and the ... and father team only hold a minority shares. But they had special working rights so they had control to the company. So keep the control to the company so Alibaba chose US, New York Stock Exchange instead of Hong Kong, because at that time Hong Kong didn't allow special working rights. Their listing rules is about similar shares with similar rights. Hong Kong reformed it's listing rules and Alibaba went back to Hong Kong to do second listing last year. So this is the third feature. The fourth feature of this new process is open to international companies. International companies can issue CVR's. It's called China Depository Receipt. It's like foreign companies to issue shares in the US in form of ADR's. I think with this, now the Chinese government is collecting public opinions to rules of this new registration process. I think the new process will be enforce this year so it will attract public companies to do listing. More companies to do listing to finance from public market and it also will help international companies exit from their market. That's my observation to the ... I think with more liquidity on the market it will help pricing and valuation of potential transactions.

Nurhan:           Sounds interesting, Peter, especially it gives the opportunity, I guess for, roll up risk strategies that ... public market ... as part of financing some of these companies coming out of COVID. Now, ...  many businesses were closed or reduced their physical operations with employees moving to remote working arrangements, such as ourselves, and then it's now some jurisdictions begin to flatten the curve and re-open their economies, one of the key issues that businesses need to contend with is actually how to manage their workforce and safely return to work. Given that our ... are in various stages of recovery, we'd like to ask how their business environments are changing or preparing, rather, to re-open ... considerations. I'm going to first turn to Barbara, and I know, Barbara, in France you recently got some good news lifting your lockdown yesterday, in fact. So what are your ... in terms of employers obligations to their employees and steps taken, either now or in the coming weeks, as the businesses are restarting their operations?

Barbara:          Well, France was always an interesting jurisdiction when it comes to employees. So, in France employers have a safety obligation to take all necessary measures to guarantee and protect their safety, physical and mental health of their employees. Before COVID they already had to put everything down in the documents and since the COVID-19 have to up to date it in order to assess the risk and safety of their employees. As you just said, Nurhan, France has just started to end it's lockdown yesterday and some of the companies have re-opened. Either home office still needs to be prioritized and all the employees that really physically need to go back to work will go back to work actually. We'll implement some measures that have been set out by the French Minister of Labour. So in practice, these measures will depend on the type of activity and sector of the company. They will include some of the measures that we have seen all over the world so that is, for example, providing facial masks to the employees, encouraging them not to take some of the collective transport means and not travel if not really necessary. We're arranging the premises so that you don't have too many employees in the same office. This is where we ... avoiding all the open spaces, try not to ... Employers shall really define also an action plan in case they suspect someone in the employees to be proven of contamination, such as taking the temperature check before they get in the building, and informing the employees representatives in case of that. I would say that tip number one would be for employers to cooperate with the employees representative, to avoid them claim, and to get written proofs of the written measures that have been implemented. Why do I say that? It's just because we've been in contact of the COVID-19 we've seen that several trade union have already had fought five complaints against very big companies, such as Amazon, and Amazon was compelled to close its French distribution centers because they could not prove that took necessary measures to protect the employees. I would say that this is tip number one. Really work in cooperation with the employee representatives and tip number two, make sure that you've done everything possible to avoid any criminal law risk injunction. Which means get all the proofs you can on the measures you have implemented.

Nurhan:           You talked about developing an action plan in the case of suspected contamination and so one of the issues everybody's worried about is a recontamination, or the restart of COVID-19 in work places, etcetera. What steps do you recommend that business owners take to mitigate that risk and avoid future claims and complaints? I guess in the context of an M&A transaction obviously there's a due diligence aspect to that as well.

Barbara:          Yeah. Well, in case of an M&A transaction I would say that first, the acquirer should check that the measures have been taken within the company. That they have talked with the employees representative and that they have sufficient proofs. In case of recontamination, well, you cannot really do anything right now to prevent that. The only thing you can say is that in case of someone contaminated then you've done everything, which means you checked the current temperature, you ask him to come physically in front of all the employee's representative, and the employees, that someone was contaminated in the office and make sure that they also can be tested.

Nurhan:           Great. Thanks, Barbara. That's good advice. I wanted to turn to the Gulf region, Tim. What do you see in terms of labour and employment matters as things are opening up in the Gulf region?

Tim:                 There's sort of a number of challenges that I hear. So I don't see any tax free environment like the UAE. It's not really possible or practical, particularly with the number of ex-patriates as well, to introduce following, or something similar. There's been some real challenges for employers, and I guess for the government really, of how to deal with the situation. Although the government has done is they've introduced some legislation which allows the conservative employers to reduce salary on a temporary basis. There's also sort of an option for employers to request unpaid leave, again, if accepted. Some of the free zones have gone a lot further than that. So, the DIFC, which is the Dubai International Financial Center, for example, have actually made it possible for employers to reduce arbitrarily, so without consent, salaries of employees and/or put them on unpaid leave. That's a pretty dramatic change of legislation although it is temporary. What we're really seeing, I guess, is more reduction of salaries so people are trying to preserve jobs by reducing people's salaries. That's something that a lot of businesses are looking to do. So there is a desire, I think, to ... to sort of preserve jobs rather than make redundancies. The other issue here is there is naturally a sort of formal redundancy law. From an M&A perspective that's something to be aware of. So if you're acquiring a business here, expecting to be able to restructure the labour force, while you don't have unions here and there isn't really a sort of redundancy protection either. Unless you can show justifiable reason and the employee could have a claim for arbitrary dismissal which would result in 3 months pay being awarded, up to 3 months pay. I guess the only real sort of benchmark we've got for that is what happened in 2009. The courts, back then, came out in favour of the employees. Just because of the financial circumstances it wasn't regarded that that was a justifiable reason for dismissing employees. So, from an M&A perspective that's something, certainly, to be aware of. The other issue and nuance from an M&A perspective is accrued liabilities. All employees accrue an end of service benefit here which is equivalent to up to 5 years, 30 days salary. So that can be a significant accrual and a lot of businesses aren't accruing that in cash. There is no cash accrual there so that's something to be aware of. There's also a requirement to pay repatriation flights as well. There are a number of nuances here that you have to be aware of if you're looking at acquiring a business, particularly if you're looking at acquiring the business knowing that there does need to be a sort of restructuring of the employees.

Nurhan:           Thanks, Tim. I know the UK was unfortunately one of the regions hit hardest by COVID-19 and so I wanted to turn to Chris. What do you see in terms of the gradual re-opening of businesses in the UK?

Chris:               Well, I guess what we're seeing, primarily, is that it is a lot more difficult than the sudden closing of the businesses in many ways. Clearly, a large number of corporates in the UK, and a large number of employees, generally, as in every other jurisdiction have been affected by the situation and have been required to find new ways of working. In some cases that involves closing down entirely for a period. As Tim mentioned in some cases, a lot of cases, that's involved following employees for significant periods already and, possibly in some circumstances, significant periods to come. The government's just announced today in the UK that the follow time, the follow scheme, is extended until October. They're clearing expecting, up until now they've been rolling it out on a month to month basis, they're clearing expecting it's going to be necessary for certain parts of the industry. The reality is, I think for most of our clients, they reacted at a sudden point in time when they required to do so because the government taught all them that they needed to close their doors, send people home. If you could work from you could. Only a very small minority of people in necessary roles were required, or allowed, to go out and do their jobs to some faction or another. Shutting down is clearly difficult, painful, dealing with loss of employee issues, but from a corporate governance and risk perspective I think opening back up, in many ways, is much harder. There have been significant financial implications for employers and employees of closing down, but the ongoing risks associated with not getting the next stage quite right, I think it probably more significant, potentially from a corporate perspective. I would say the two main issues we're grappling with are how, when, what speed, following what regulations do you re-open safely? Tell your staff to come back, potentially, into harm's way and do their job in an environment which is not at home with their family in a restricted social circle. How do you keep abreast of those guidelines because they're changing on a daily basis, literally. Further explanation being provided at all times. Critically, and again from an M&A perspective now or in the future, how do you demonstrate that you follow proper governance in making those decisions in the first place? As we all know it's very, very different when you're looking back through a lens in 6 months time and assessing whether or not the right regime was followed. The right decisions were made. How do you set yourself up and mitigate your risk for that future scenario, now, when we're going through the process? I think, here, the situation is compounded and much more significant for international corporates where they're dealing with a number of different jurisdictions, operations in different jurisdictions. So, as Barbara and Tim have just demonstrated, there are very different rules in play in different jurisdictions. Different rules in play at different stages, at different paces, in different jurisdictions. So, our normal process, from a corporate perspective, where decision making is, in the main significant decision making, is usually relatively centralized to a degree it's difficult to follow in this kind of scenario. If you take a major US corporate with operations in ten different jurisdictions, some of them in Europe, some of them in Asia, it's not really possible to make a corporate decision in the US applied on a top down basis to the other jurisdictions, because each of those jurisdictions will have different rules and regulations, all of which are coming out at different times and changing in different ways, which you can't really hope to imagine unless you're talking to people on the ground, both from an advisor perspective and from an implementation perspective. I think the key point, from a UK perspective and, critically in relation to more global organizations or transactions, is that you really do need to look at this on a local level because the rules and regulations are not, in any way, shape or form, one size fits all. Lots of jurisdictions are looking to each other for guidance if they're ahead of each other on the curve, but that is guidance only. We're all facing different challenges at different times. Local advice, I would say, is critical and take it as rent that you probably need up to the minute local advice, because the situation is so fluid and constantly changing. From a general corporate governance perspective, and I think this feeds into ongoing M&A activity, I think governance and demonstrable governance, so being able to show that you went through a proper process at the time in considering how you should follow the regulations, how you should re-open, what implementation steps should be taken, what safety steps should be taken, and of the like, is going to be pretty important when you get to a stage in several months time when, in a positive situation, you're looking to buy or sell a target company which has been through this. In a negative situation you're dealing with a potential claim from some other party who feels they have been damaged in some way by your lack of proper process, or procedure or activity. I would say a lot of our clients are necessarily global clients, as you would expect, who are dealing with various jurisdictions and they are questioning how they deal with their central decision making process in a way which is seen to be appropriate. I think, from a UK perspective, there is no question that those decision making processes and regimes continue to be perfectly sensible and perfectly appropriate from a corporate perspective. But if on a local level it's possible to challenge that because you can show that in the US, or in Canada, or in the UK, a decision was taken at a top co level and then enforced upon the subsidiary in France, or Italy, or Dubai or wherever it might be, without sufficient, demonstrable consideration and discussion with the people on the ground that understood the local laws and dealing with the implementation. The reality is you're in a much worst position to mitigate your risk and defend any such claim or demonstrate to a potential purchaser that you did things properly. I think, critically, we would all take this view, as corporate lawyers I'm sure, there is probably very few decisions which corporates take that could not be challenged to some degree, at some stage in the future, when we've all got a different view of the situation and better information. So what's important is that people show proper governance at the time and generally do the best they can. Look at the relevant information, talk to the relevant experts and make a decision in good faith in the best interests of the company, and move forward. I believe that actually most corporates, especially in this situation, are really actually trying to get that right, trying to do that faithfully for the benefit of their employees as well as their stakeholders. But keeping proper records of those decision making processes, on a local level, is likely to be very important, I think, as we move into the coming months, and possibly years when we're looking back at this situation, and God forbid a claim has arisen because an employee has suffered harm and you need to demonstrate that on a UK, or French or whatever basis, it might be that you did not just assert and impose a decision from a different jurisdiction onto that local operation. I guess those are the two key points that I think we're seeing coming out of this, from an employee perspective, it is clearly a very, very difficult everchanging fluid and emotional, an important state of affairs that people are trying to deal with. Dealing with it centrally is not unimpossible to get right, I think. You definitely need to consider the local issues and you definitely need to consider how you demonstrate that you've taken this into account. Having the right conversations and involving the right stakeholders.

Nurhan:           I agree with you, Chris. Ontario we have a similar legislation where we have to, notwithstanding whatever the government may legislate in terms of going back to work, etcetera. Our primary obligation on employers is to take every precaution, reasonable in the circumstances, for the protection of the workers and individuals at a workplace. That's the paramount objective, and so I agree you have to definitely look at local counsel, and get their advice on how you do this effectively, and certainly it's going to be an impact in due diligence on a perspective target's ability to comply with those guidelines. I don't want to dwell on Canada. I know the firm has extensive resources on our website relating to employment matters so I'm going to skip the Canadian piece on that. I am going to turn to our last topic which I think is quite important because varying jurisdictions have different reactions to what's happening with COVID-19. As you may have heard the Canadian government announced that they will apply enhanced scrutiny to foreign direct investments, in certain businesses, and all investments by State owned enterprises until the economy recovers from the effect of COVID-19. Clearly, the Canadian government is taking a view that there are valuation discounts, potentially, for Canadian businesses and will take a stringent view with respect to direct investments of any value, controlling or non-controlling, in Canadian businesses that are related to public health or are involved in the supply of critical goods and services to Canadians, or to the government. In addition, as I mentioned, all foreign investments by State owned investors, regardless of value or private investors, will be assessed closely and tied to, or subject to, direction. Foreign governments will have enhanced scrutiny under the Investment Canada Act. Again, we had a webinar recently where Ian MacDonald of our office spoke extensively on this topic. But the long and short of it is that if you're doing a transaction that potentially fits in that bucket, it'd be prudent for foreign investors to give advance notification, under Investment Canada, at least 45 days before closing. But I wanted to turn to other jurisdictions, in particular, I think, China is interesting. So again, I want to review, Peter, what are you seeing in terms of what the Chinese government is doing as a result of the COVID-19?

Peter:              Me? Sorry, Nurhan.

Nurhan:           Yes, go ahead, Peter.

Peter:              Okay. Thank you. So in terms of China, up to now, China hasn't issue any new restrictions or new measures to control foreign investment. I'll say that China has relaxed its control to foreign investment by implementing the new foreign investment law. So that came in force on January 1^st this year. So before all foreign investors to China, they are asked to go through two stage process. First, to get an foreign investment certificate. So in that certificate, the total investment, register chattel, names for investors and scope of business are all reported. That means all those items should be approved, revealed, approved by government first. Then they can register a new entity. Now under the new law foreigners will have national treatment as the local investors. Except for business folding in a negative list, published by the government. All foreign investors now can register their companies in China as local investors. Before, Chinese personal individuals, they cannot be a shareholder of foreign invested company. So now this restriction has been cancelled. Actually corporation, the new foreign investor, the entity, mutual file and that information returned to the government database. Before foreign invested companies, they register under three laws. Joint venture law, foreign invested enterprise law and another law is called, I forgot the name of that law, so it's not under corporation law. When this new law came into force, the other existing foreign investor companies, they have 5 years to transition. To amend their corporate governance as complied to the general corporation law. There is a 5 year transition period. In terms of what the negative risk. There are two big categories. One is called forbidden category. The other is restricted. The forbidden list is not long. Most of it include the ... like ... defense or news media. So most restricted businesses are not only for foreigners. It's also for local investors. Only around forty businesses are specifically restricted to foreign investors. The Chinese government decide it will amend the negative list. In the new 2020 list, the list will be shortened and businesses like medical care, senior care and training, will be taken out from the list. This is like a big change for foreign investment into China. But another thing I like to remind our audience is that China hasn't relaxed its foreign exchange control. So that means capital Yen out of China is still need to be revealed. For example, if a lender is a foreign company, buyer is a Chinese company, the target is foreign company corporate shares in China, in the Chinese entity. So only after the change of shareholder is registered the payment to the foreign lender can be exchanged to foreign currency and ... out of China. Also, another big change, I think, is the finance industry. Before in China the finance industry is restricted to foreign investors. I think in late last year, in the process of US/China trade negotiations, China announced it will relax foreign investment into finance industries in China. The deadline is April 1^st. So there will be no any maximum limit to foreign ownership to Chinese banks, from management companies and securities companies, life insurance companies. I think from this change we may see more M&A's in China with foreign finance institutions involved. I think foreign finance institutions, for a long time they like to expand their business in China. In terms of a merger control there's no change. The invested stakeholder for notification of mergers are still the same. For ...  worldwide revenue is ... R&B and each parties revenue in China is 400 million and the other threshold is all parties revenue in China exceeds 2 billion R&B. Each parties revenue in China is 400 million R&B. So there's no change in terms of investment into China. From legal perspective there are no new controls.

Nurhan:           Thank you, Peter. It's clear the Chinese government's prioritizing measures to encourage economic activity and ... financial recovery. But not all jurisdictions are the same. Barbara, I know that France is a little bit different. ...

Barbara:          Yeah, well, France is completely different than China so that we are in a similar position than Canada and the COVID-19 has imitated this trend from the French foreign investment relations. For example, the particulars have changed. Before COVID-19 deferring investment physically and the change of control or in position of a line of business or the investor comes from the outside the European economy ... then you would have an acquisition of more than 25%25 of shares of the right of a company. You would submit it to the control of the French Minister of Economy and Finance and that was for the foreign entity sector. So you had defense, energy, transport, public health, etcetera, and since the COVID-19, so you have already France that have announced that they will temporarily decrease the acquisition threshold, that I just mentioned of 25%25, to 10%25 in case the target company is listed and investor comes from outside the European economy ... So, this is exactly for the same reason that you were mentioning, Nurhan, which is to make sure that foreigners do not take benefit of better valuation of listed company in sensitive sectors. The second action that France has already taken is, that they added in the sensitive sector, a sector that we think is very abused now which is the bio technology sector, in order to make sure that we have self-reign activities for bio technology. Lastly, I would also say that the French Minister of Economy and Finance have publicly announced their refusal transaction which was an acquisition from a US company of a French company ... wanted to acquire Photonis, which is a French company for night vision devices, which plays a strategic role in the French military industry and French government declared that they cannot contemplate an acquisition by an American company, as this company shall remain sovereign, as they say, and that there was no debate in the ... I'm really sure that there will be more protection, more scrutiny and that it will be very difficult, I mean ... to acquire a company in France investors.

Nurhan:           Thanks. Thanks, Barbara. I know that we're just over 2:00 o'clock. I think we'll probably go ahead to about 2:10 and then maybe we can look at some questions at that time. But before I finish I wanted to get Tim's view because I think it's important to hear what the regulatory environment is in the Gulf region.

Tim:                 Yes, so I think the GCC has been looking to attract overseas investment for a while now and there's been gradual changes across the GCC. Saudi Arabia has recently made it much easier for foreign companies to have a 100%25 ownership. The UAE is certainly looking at that as well so they've introduced new laws allowing 100%25 onshore ownership. There's a restricted list, similar to Barbara alluded to in France, and it's the areas you'd expect so, gas, telecommunications, financial services and insurance, etcetera. But the UAE is looking to attract foreign investment. One of the questions is what can the GCC do to attract expats. At the moment there are a number of similar ... There's a lot of effort among the free zones to reduce fees. The government's reduced trademark registration fees. They've also reduced user fees, etcetera. There's quite a lot of things that the government are doing to try and attract, and continue to attract, purchase to Dubai. But there's no doubt that the UAE, being a country as it is which relies on oil and tourism, it's obviously going to suffer in the current climate. But as I say they're very much looking to encourage people to set up. If you're in e-commerce, for example, there's a great opportunity here. There's a number of e-commerce companies that are doing fantastically well. Where there are issues there are also opportunities.

Nurhan:           Great. Thank you very much. I think it's all great advice. Before I turn to questions, just wanted to highlight our upcoming webinars, as you see in the slide that gets put up. But we have another one coming up in our M&A In Uncertain Times series, next week, 1:00. Same time. Which is M&A And Succession Planning and then we're also launching a new webinar series which is called Financing In Uncertain Times, which we do invite you to attend. That's for this Thursday. Then you can see the other ones that are in the weeks following. So we are out of time, and we tried to keep it to one hour, but we're just over. I understand if people want to leave. It's just a reminder that this session is recorded and will be posted on our website in a few days and then you can also reach out to any of us with questions and we'll be happy to answer. So thank you very much. We've appreciated the opportunity to discuss this topic with you today. Until next time, stay positive, stay healthy and our very best to everyone. Thank you very much.