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Stephenson Harwood senior associate Victoria Silver remembers how important it was to be able to trust her team while tackling the complex completion of the £640m takeover of ACI by Waterfall Asset Management on 15 March 2021.

“To know that you are part of a team that you can rely on is so important, particularly when advising on complex, time critical, high stakes transactions,” she says. Described as a “toxic dispute” by The Times, Stephenson Harwood’s scope of work evolved from what was anticipated to be a vanilla scheme of arrangement to include advice on the termination of ACI’s investment manager, guidance on a competitive manager selection process and creativity in relation to stakeholder communications.

“I felt my voice was really listened to by more senior members of the team,” Silver adds. “I remember the feeling that we added real value to the transaction and truly helped our client, the non-executive board, to navigate a complex and evolving fact pattern by providing sensible legal and strategic advice.”

The firm had a long-standing relationship with ACI, having acted for the company on its IPO in 2014. For some time prior to the unsolicited offer from Waterfall in December 2019, ACI had been trading at a discount despite efforts to address this, which included adopting a change to its investment strategy and the appointment of a new manager in 2017, Pollen Street Capital. Unsurprisingly, therefore, Waterfall’s offer had support from ACI’s largest shareholder Invesco (around 25 per cent) and the ACI board felt that shareholders should be given the opportunity to consider its terms.

Typically for investment funds, the board comprised entirely non-executive directors who exercised oversight of third-party management and administration of ACI’s assets. From the outset, however, the board did not receive the support it expected of its third-party manager, Pollen Street Capital. The manager, an agent of ACI, refused to act in accordance with the board’s instructions to share ACI’s own documentation with the board to facilitate Waterfall’s due diligence process, a prerequisite to any formal bid.

The position was further complicated by the fact that the key documentation contained extensive confidentiality obligations. Despite NDAs being in place, the manager, and certain of the third parties, some of whom had close relationships with the manager, refused to consent to the documents being shared for due diligence purposes.

The board was left with few options, caught in the position of wishing to advance discussions with a credible offeror without the necessary support from its manager. After weeks of delay and frustration the board faced a choice: terminate the manager summarily, serve 12 months’ notice of termination, or try to force the manager to hand over these important documents. The manager, which earned almost £14m in fees from ACI in the previous year, was in a clear position of conflict of interest.

Victoria Silver, Stephenson Harwood
Victoria Silver, Stephenson Harwood

The Stephenson Harwood funds team, advising ACI, was led by partners William Saunders and Elizabeth Field, supported by Silver and associate Alan Sauvain. Silver joined Stephenson Harwood just over 10 years ago as a professional support assistant in the financial services team. She qualified into the funds team in March 2015.

“A lot of the work I do involves acting on the launch of, secondary fundraises for, and related corporate actions for, listed closed-ended investment funds. This includes public M&A transactions, acting both on the bid-side and the target-side and advising listed clients on the Takeover Code. I have also worked with members of our private equity team on a couple of complex secondaries transactions, both buy-side and sell-side. While I enjoy the varied nature of the work in the funds team, I most enjoy working on new fund launches and takeovers, the technical and strategic elements of which are as interesting as they are challenging. We can really add value advising clients on matters that they are not naturally familiar with,” she says.

“The deal highlighted the perceived roles of a non-executive board versus its appointed investment manager, what shareholders’ perceptions of these roles are and how it can be difficult for a non-executive board, who are ultimately responsible for the fund and its investment decisions, to exercise its discretion and control when they are not necessarily involved in the day-to-day management of the fund,” Silver explains.

“It reinforced just how important shareholders are, as the ultimate owners of the company, and the key role they play in holding the board and manager accountable. It showed that less really can be more – being straightforward and direct can get across complex points and messages in a powerful way. The volume of work and time critical nature of many workstreams working on the bid really taught me how important it is to work within a team of people that you can trust and rely on to do a job well.”

Following advice from Stephenson Harwood, the board voluntarily announced news of the offer and announced that it had served 12 months’ notice on the manager. Waterfall was subsequently appointed as ACI’s delegated portfolio manager, which had the added benefit of giving it direct access to the required due diligence materials.

Following the conclusion of its due diligence, which had taken nearly a year, Waterfall made a revised proposal to the board and ultimately 99.9 per cent of voting shareholders voted to approve the scheme resolutions to give effect to the takeover.

Stephenson Harwood advised and guided the board on an ultimately successful strategy which involved voluntarily announcing details of the offer before it would have been otherwise required; and putting the manager on 12 months’ notice of termination.

The voluntary announcement provided the board and its advisers with the legal and regulatory breathing space to discuss with shareholders in fuller terms the offer on the table and reasons for the delay. That announcement was believed to be the first ever voluntary leak announcement made in the context of a possible offer.

Substantial media coverage followed. The firm’s advice remained consistent, and the narrative was straightforward but very difficult to impress upon an increasingly frustrated body of shareholders. The board wanted shareholders to know that the bid was being frustrated by the manager not releasing due diligence materials to its own client and that this was unacceptable and denying shareholders the chance to consider a credible offer. Meanwhile the manager told shareholders that the board was interfering and destroying shareholder value and advised them to reject the possible offer. Eight put-up-or-shut-up Takeover Code announcements were released over a period of eight months.

Stephenson Harwood drafted an announcement released by the board on 5 March 2020, which was a key turning point in the battle. Shareholders were becoming increasingly frustrated with the apparent lack of progress and the constant tit for tat between the board and the manager in separate shareholder meetings. That announcement lifted the curtain for shareholders for the first time, explaining what was really going on behind the scenes and justifying the board’s actions. It was designed to be a hard-hitting, no-nonsense announcement to capture the hearts and minds of shareholders. That announcement, drafted by the Stephenson Harwood team, was described as “…a model for clear investor communications…” by the Financial Times, and “a thing of beauty”.

However, Silver recalls the trickier parts of process being “principles of agency and identifying when the manager was acting on its own account and when it was acting as the fund’s agent, and what the consequences of this distinction were for the fund; deciding whether to terminate a contract for cause or on notice – we worked through all the scenarios to determine the option that would provide the best outcome for shareholders; how to deal with conflict that was played out in the public domain through public announcements – this was really where we saw the benefits of plain speaking to communicate the board’s message in a simple, yet effective, way,” she says.

Asked what made the deal standout most to her, Silver adds: “The public arena in which it played out; the number of legal and regulatory requirements we had to have regard to when deciding on next steps, for example, Listing Rules, Takeover Code, the requirements of particular contractual arrangements, liaising with the FCA and the steps required to appoint the bidder as the fund’s investment manager before the bid was formally made to shareholders.”

However, she added that the variety of work that was required for this one transaction had undoubtedly increased her confidence in dealing with complex matters. “It has brought to light in what were quite dramatic circumstances for the investment trust sector, issues that can arise years into the life of contractual arrangements and reinforced how important it is to properly consider how relationships may change over time when drafting new contracts,” she says.

A key relevance of this transaction is that it heralded the willingness of a small number of non-executive directors to take on its executive manager where they sincerely believed it was in the interests of shareholders to do so. It would have been easier for the board to leave the status quo and so this transaction has demonstrated to many investment funds that positive change can occur even when faced with an unsupportive manager.

About Victoria Silver

2015-present: Associate and senior associate, Stephenson Harwood

2013-15: Trainee solicitor, Stephenson Harwood

Who’s Who: the Stephenson Harwood  team

Lead partners: William Saunders and Elizabeth Field

Supported by: Senior associate Victoria Silver and associate Alan Sauvain

Edward Davis, a partner in the Stephenson Harwood litigation team, provided valuable advice in relation to the contentious aspects of the transaction, alongside George Bompas QC (4 Stone Buildings).

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