Chapter 8 of Gilbert + Tobin’s Takeovers + Schemes Review 2023 (below) explores the use of implementation agreements and bid conditions in public mergers and acquisitions in 2022.


Implementation agreements in 2022

Implementation agreements continued to be a standard feature of agreed transactions in 2022.

Only two of the 34 recommended transactions in 2022 did not involve an implementation agreement, each as a result of circumstances specific to the relevant deals. These were:

  • HOCHTIEF AG’s successful $6.8 billion all cash acquisition of CIMIC Group by off-market takeover. HOCHTIEF held ~78.6% in CIMIC, and had CIMIC board representation, at the time of making its offer. Its priority was to announce its offer shortly after CIMIC’s results announcement (giving it scope, in the post-results window, to increase its voting power before the offer opened (which it did, to 83.15%)) rather than take time to negotiate an implementation agreement (particularly given HOCHTIEF AG did not need deal protection measures to protect against interloper risk); and
  • Genesis Minerals’ $127 million all scrip takeover of Dacian Gold by off-market takeover. In this case, Genesis Minerals was engaged in parallel discussions regarding a merger with St Barbara, the consummation of which may have been impeded by the mutual restrictive covenants typically found in an implementation agreement.

Deal protection measures

In addition to standard obligations on the target board to recommend the transaction to shareholders (in the absence of a superior proposal and, where applicable, subject to a favourable independent expert’s report), implementation agreements in 2022 continued to include the usual suite of exclusivity provisions in the vast majority of agreed transactions, namely:

  • restrictions on the target soliciting competing proposals (i.e. no-shop) and talking to potential competing bidders unless approached with a potentially superior proposal (i.e. no-talk);
  • obligations on the target to notify the bidder if it receives a competing proposal (i.e. notification obligation); and
  • matching rights in favour of the bidder if a superior proposal emerges, giving the bidder an opportunity to match or better the superior proposal before the target board can change its recommendation.

While our Review generally tracks deal protection measures in binding scheme and takeover implementation agreements, there were important developments in deal protection measures during the period prior to entry into binding implementation agreements. The Takeovers Panel has released a Consultation Paper seeking submissions on its revised guidance note on deal protection, including by clarifying the Takeovers Panel’s approach to ‘hard’ exclusivity with no fiduciary out in the period prior to a binding agreement, following the Panel’s decisions in AusNet Services (in 2021) and Virtus Health (in 2022). The Virtus Health decision and the Panel’s proposed reform are discussed further in the section on the Takeovers Panel in our Regulator influence, trends and developments in public M&A in 2022 chapter.

Frequent deal protection mechanisms

“Frequent deal protection measures”: Implementation agreements in 2022 continued to include the usual suite of exclusivity provisions in the vast majority of agreed transactions, including no-shop (94%), no talk (94%), break fee (94%) and matching right (91%)

Break fees

In 2022, target boards agreed to pay break fees in 94% of agreed transactions on the occurrence of certain trigger events, including a change in recommendation by the target board or material breach of the implementation agreement by the target.

Where recommended transactions in 2022 did not have a break fee it was for similar reasons to that seen in 2021, including the Absolute Equity Performance Fund and CD Private Equity Fund acquisitions (both low-premium fund transactions; the latter transaction also involved a bidder which was a related party).

For the most part, the quantum of break fees stayed within the Takeovers Panel’s 1% guidance (based on the target’s equity value at the offer price). The highest percentage was in Aura Minerals’ $79.3 million acquisition of Big River Gold, which had a break fee and reverse break fee of $920,000 (representing 1.2% of the target’s equity value). This relatively minor departure from the Takeovers Panel’s guidance is consistent with what we have seen in the past, where a break fee in excess of 1% of the target’s equity value can be justified in relatively lower value bids where it is clearly demonstrated that the bidder’s actual costs exceed the 1% threshold.

Continuing the trend of 2021, 66% of transactions valued over $50 million included a reverse break fee in 2022. This figure was the same as 2021, but up on the years prior (38% in 2020, 48% in 2019 and 54% in 2018).

Reverse break fees

“Reverse break fees”: 66% of agreed transactions in 2022 involved a reverse break fee, which was identical to 2021.]

Reverse break fee triggers included:

  • failure to satisfy conditions relating to regulatory or shareholder approvals required by the bidder; and
  • material breach of the implementation agreement by the bidder (on this, see our comments on Perpetual’s acquisition of Pendal below).

In all cases, the quantum of the reverse break fee was the same as the break fee payable by the target.

Bid conditions

A range of bid conditions were included in the off-market takeovers and schemes announced in 2022.

Frequency of conditions

“Frequency of conditions”:  Across all transaction structures, material adverse change (MAC) conditions were present in only 68% of public mergers and acquisitions in 2022.]


32% of all schemes of arrangement in 2022 were subject to a FIRB condition.

By comparison, only two takeovers (representing 15% of all takeovers) had a FIRB condition, being:

  • Theiss Group Investments’ off-market takeover of MACA; and
  • Alludo’s concurrent scheme and off-market takeover of Nitro Software,

although it is worth noting that BGH Capital and HOCHTIEF AG each sought and obtained FIRB approval before lodging their bidder’s statements for the takeover offers for Virtus Health and CIMIC Group (respectively). This is consistent with 2021 where no takeovers were subject to a FIRB condition.

Material adverse change (MAC)

Across all transaction structures, MAC conditions were present in only 68% of deals, a decline from the levels seen in 2021 (81%) and 2020 (79%), and significantly lower than the near-universal level seen in 2019 (98%), largely due to circumstances linked to the COVID-19 pandemic.

This overall decline was not however due to the incidence of MACs in schemes. 86% of all schemes of arrangement had MAC conditions, the same as in 2021.

Conversely, only 31% of off-market takeovers had MAC conditions, representing a significant drop from the levels seen in the past four years (80%, 82%, 86% and 80%), which skewed the aggregate MAC condition data as set out above. However, of the nine off-market takeovers that did not contain MAC conditions, six were hostile, which is important context to the 2022 statistics. Of the remaining three transactions, two were unconditional from the outset (being HOCHTIEF AG’s acquisition of CIMIC Group, which as noted above, occurred in the context of HOCHTIEF holding voting power of ~78.6% at the time of making its bid, and Australian Laboratory Services’ acquisition of HRL Holdings).

Minimum acceptance conditions

Of the 13 off-market takeover bids in 2022, only five (38%) had a minimum acceptance condition from the outset, which marks a sharp decline from previous years (70% in 2021, 82% in 2020 and 71% in 2019).

Reasons for not including a minimum acceptance condition in the eight off-market takeovers are generally explainable, and include:

  • six of the eight deals were hostile;
  • the bidder holding a significant pre-bid stake (HOCHTIEF AG’s ~78.6% interest in CIMIC Group, AIMS Investment Group’s 43.2% interest in AIMS Property Services Fund, or the in case of the remaining five transactions, an interest of between 19.8% - 20%); and
  • in three instances, the off-market takeover bid was made in the context of a competitive bid process for the target. This included BGH Capital’s successful acquisition of Virtus Health, pipping CapVest Partners’ proposed scheme of arrangement, Strike Energy’s unsuccessful bid for Warrego Energy, losing out to Hancock Prospecting, and Potentia Capital’s bid for Nitro Software.

Generally, bidders who included a minimum acceptance condition as part of their bid opted for a traditional threshold: 50.1% (three bidders) and 90% (one bidder). The remaining bidder, Gold Road Resources, elected a threshold of 80%, so that shareholders in target DGO Gold could benefit from scrip for scrip CGT rollover relief.    

Unconditional bids

Unconditional takeover bids continued to be relatively rare, with only 15%, or two bids, being unconditional from the outset:

  • HOCHTIEF AG’s acquisition of CIMIC Group, where HOCHTIEF held a voting interest of ~78.6% at the time the bid was made; and
  • ALS’s acquisition of HRL Holdings, where ALS held a relevant interest in 19.9% of HRL’s shares.

Highlight: Perpetual's acquisition of Pendal

Since the introduction of reverse break fees which are triggered by material breach of the scheme implementation agreement (SID) by the bidder, there has been commentary of a risk that such fees may be treated by a bidder as an “option fee” which, if paid, enabled the bidder to walk away from the transaction. The court decision in relation to Perpetual’s acquisition of Pendal demonstrated that reverse break fees are not so simple.

In August 2022, Perpetual and Pendal entered into a SID under which Perpetual agreed to acquire Pendal for scrip and cash via a scheme of arrangement.

In November 2022, following market speculation on the merits of the deal and Perpetual’s share price sliding, Perpetual received an all-cash control proposal, from a consortium comprising Regal Partners and BPEA EQT (Consortium). At that time, Perpetual was yet to sign the deed poll in favour of Pendal’s shareholders undertaking to pay the scheme consideration upon the scheme being implemented (signing the deed poll is commonly undertaken shortly before the first court hearing). The Consortium’s offer (and a subsequent revised offer) were swiftly rebuffed by Perpetual, but the consequences of Perpetual walking away from the SID became the subject of comment and speculation.

The parties disagreed on what would happen if Perpetual breached the SID to pursue a “Perpetual Major Transaction” (i.e. the Consortium’s offer), or otherwise did not proceed with the scheme (including because Perpetual’s directors were required by their fiduciary obligation to consider the Consortium’s offer). Perpetual’s view was that Pendal would only be entitled to terminate the SID and claim the reverse break fee of $23 million, with Pendal claiming that it could seek specific performance or injunctive relief to compel Perpetual to proceed with the scheme.

The parties sought the assistance of the NSW Supreme Court to resolve the dispute. The sitting judge considered that two provisions in the SID were key to determining the matter:

  • First, the Court considered the remedies which were available to Pendal. The SID provided for Perpetual to pay Pendal liquidated damages of $23 million in certain circumstances which related to pursuing a "Perpetual Major Transaction" which caused the scheme to fail or otherwise resulted in a material breach of the SID. Perpetual did not, however, have an express right to terminate the SID to pursue a “Perpetual Major Transaction”. Justice Black preferred Pendal’s argument that Pendal was not precluded from pursuing other remedies, as these were not expressly excluded by the SID. It was therefore open to Pendal to, for example, seek and possibly obtain a court order requiring Perpetual to continue with the scheme.
  • Second, the Court considered the limitation of liability on the reverse break fee provision that required Perpetual pay Pendal $23 million in circumstances where Pendal terminated the SID following a Perpetual material breach. Relevantly, the reverse break fee was stated to be the “maximum liability” of Perpetual to Pendal in respect of the SID, and payment of it represented “the sole and absolute liability of Perpetual under or in connection with [the SID] and no further damages, fees, expenses or breaks of any kind will be payable by Perpetual”. Justice Black found that the reference to “maximum liability” was a cap on monetary payments under the SID. Similarly, by excluding other forms of liability, the provision did not, on its proper construction, exclude any other remedy or relief (that is, it was not drafted as an exclusion of other ‘obligations’ or ‘remedies’), and the express inclusion of “further damages, fees, expenses or break fees” was not inconsistent with the grant of other relief.

As such, the Court found that the SID did not exclude Pendal’s right to specific performance or injunctive relief, though did not comment on the merits of whether such an application would be successful. This decision paved the path to Perpetual completing its acquisition in January 2023.

The key takeaway here is that where a bidder wants to walk to pursue an alternative opportunity, and indeed where it is in the best interests of its shareholders to do so, there will need to be:

  • an express termination right in an implementation agreement to enable this; or
  • an effective limitation of liability provision which limits the available remedies to monetary compensation.

The circumstances in which a target company would entertain such a walk-away right may, however, be limited (such as a merger of equals, a reverse takeover or perhaps where the bidder has already been the subject of approaches).

Expertise Area