The past few years have seen a range of public sector assets transferred to a new company – often known as a “newco”. Under these arrangements, a private sector partner runs the new business, but ownership is shared by the private and public sectors. As a lawyer who has worked closely with government on commercialisation and public-private joint ventures, I have been involved in several such transactions, including for the Department of Health, Cabinet Office, and Defra. These deals are innately complex, but several potential challenges can be avoided if the process is carefully managed.
It's a total cliché, but preparation really can avoid a lot of pain. Carrying out an early stage review of the business to spot any red flags adds a lot of value and can reduce risk. In an exercise I was involved in, we discovered regulatory non-compliance around a reimbursement scheme, which could have been damaging if discovered by a bidder at the due diligence stage. However, spotting it first allowed the issue to be promptly resolved in a positive way. A bidder whose own due diligence shows up problems can become alarmed – but if these problems are identified up front and then dealt with, or at least explained to the bidder, they'll have less of an adverse impact.
The size and multi-disciplinary nature of the team needed to complete these kinds of transaction can sometimes come as a surprise – to the private sector partner in particular. The public sector team responsible for the deal will be multi-faceted, including specialists from commercial directorates, HR, procurement and finance. Legal advice may be provided by in-house teams or from the Treasury Solicitor's team, who are likely to have a number of specialists to advise on discrete areas such as pensions, employment and state aid.
Experienced external legal and financial advisers will also be needed. The most successful transactions we have seen have featured regular calls and meetings for this wider project team – keeping everyone updated and ensuring that key points are actively being dealt with and potential problems being spotted at an early stage. For instance, at one of our project meetings, the team around the table were able to immediately spot some potential state aid concerns with a proposed financial model and come up with changes to avoid these – thus accomplishing in 10 minutes what might have taken several days in an email chain.
It’s also vital to have a team which understands the process and timelines around a transaction. Understanding the role of the Treasury and Cabinet Office in obtaining clearances and approvals will help ensure efficiency, while acknowledging the different environment for the "newco" is also very important. For example, while a business could freely use Crown copyright as a Crown body, once it becomes a private sector organisation – even if jointly owned by government – it would be required to obtain specific rights to use Crown copyright.
Transactions of this nature are not directly comparable to private sector mergers, acquisitions and commercial deals since there are invariably wider political sensitivities. These can include concerns over whether moving to a private provider might hit the continuity of the supply of products and services, or whether such deals will protect British jobs and scientific expertise. But being able to structure the procurement and transaction to address concerns like these will result in a better outcome for the UK taxpayer, a more rapid approvals process, and the avoidance of what everyone dreads – that front page "bad news" story.