Latham.London

Spanish PE and Infrastructure Set For Large-Cap Deals

Posted in EU and Competition, M&A and Private Equity

Pressure to put dry powder to work will likely lead to bigger and bolder PE transactions in the year to come.

By Manuel Deó

Spanish private equity (PE) houses are sitting on large piles of dry powder as they scour the Spanish market for investment opportunities, as is the case in much of Europe. According to Pitchbook, total deal value has decreased by 15.3% compared to the same period in 2017.

This dry powder will not simply disappear. The pressure to put that money to work will likely lead to bigger and bolder PE transactions in the year to come, as PE firms take on more ambitious targets across the country. PE firms will need to source more off-market deals and corporate carve-outs in 2019. These transactions will likely be more common in the next few months as PE firms continue to operate in a competitive sellers’ market.

Limited partners will put more pressure on PE firms to generate returns, inevitably leading to more headline-grabbing buyout attempts. The greater capital needs of larger deal sizes likely will fuel a revival of consortium deals, in which two or more sponsors pool their resources as co-investors. An uptick in consortium-led deals can be positive for corporate boards and senior management, because such deals widen the range of possible investor structures, and deepen the pool of accessible capital and expertise to enhance shareholder value. Continue Reading

UK Scores Highly on Anti-Money Laundering Review

Posted in Finance and Capital Markets

FATF has published its highly anticipated report on the effectiveness of the UK’s anti-money laundering and counter-terrorist financing measures.

By Jon Holland, Rob Moulton, and Jonathan Ritson-Candler

On 7 December 2018, the Financial Action Task Force (FATF) published its highly anticipated mutual evaluation report of the UK. The report sets out the UK’s global standing in combatting money laundering and terrorist financing. The report is generally positive, ranking the UK as either highly or substantially effective in its fight against money laundering and terrorist financing in the majority of areas. The report does, however, highlight some concerns about the UK’s approach, particularly in relation to the Suspicious Activity Reporting (SAR) regime, the utilisation of financial intelligence, and the FCA’s role in the supervision of firms’ compliance with anti-money laundering (AML) and counter-terrorist financing (CTF) rules.

The UK’s last FATF evaluation took place in 2007 and in light of recently heightened sensitivities around money laundering, the government was motivated to ensure that the UK maintained its status as a global financial centre with robust tools to combat financial crime. The report summarises the FATF’s analysis, based on its on-site visit in March 2018, of the UK’s compliance with the FATF 40 Recommendations and the effectiveness of the UK’s AML and CTF regimes. It also provides recommendations as to how those systems can be strengthened.

Key Findings

The report is largely positive and states that the UK:

  • Has a robust understanding of the money laundering and terrorist financing risks to which it is subject.
  • Proactively investigates, prosecutes, and convicts a range of money laundering and terrorist financing activity, securing approximately 1,400 convictions a year for money laundering offences.
  • Has improved its legal framework since the 2007 evaluation by implementing the People with Significant Control (PSC) Register to aid enforcement agencies, regulators and businesses in identifying the ultimate beneficial owners of UK-incorporated companies.
  • Ensures that all entities within the FATF definition of “financial institution” (e.g., banks and regulated investment firms) and “Designated Non-Financial Business Professionals” (e.g., lawyers and accountants) are subject to appropriate AML and CTF rules and are supervised for compliance with those rules.

Continue Reading

FCA Proposes Permanent Product Intervention Measures for Retail CFDs and Binary Options

Posted in Finance and Capital Markets

The rules will echo ESMA’s temporary measures, however the FCA will extend the CFD restriction to capture closely substitutable products (such as turbo certificates). 

By Rob Moulton, David Berman, Charlotte Collins, and Gabriel Lakeman

The FCA has launched two consultations on:

  • Banning the sale, marketing, and distribution of binary options to retail consumers (CP18/37)
  • Restricting the sale, marketing, and distribution of contracts for difference (CFDs) and similar products to retail customers (CP18/38 and Annex)

These measures are largely the same as ESMA’s temporary product intervention measures in relation to CFDs and binary options, which were first announced in March 2018 (see Latham’s related blog post for more detail). The ESMA measures, which apply for a maximum of three months at a time, but can be extended by ESMA, have already been renewed twice. At the time ESMA’s measures were first announced, the FCA stated that it expected to consult on whether to apply them in the UK on a permanent basis.

Given that the ESMA measures will fall away due to Brexit (although the timing will depend on whether or not a transitional period is agreed), it makes sense for the FCA to act now to ensure that the measures will continue to apply if the UK leaves the EU without a deal. Continue Reading

Latham Launches 5th Annual Private M&A Market Study

Posted in M&A and Private Equity

Latham & Watkins’ 2018 survey of European private M&A transactions analyses the acquisition and equity documentation for more than 210 European deals signing or closing between July 2016 and June 2018. Key highlights include:

  • The use of the locked box on UK deals has reduced slightly, although it continues to be the norm on deals with PE Sellers.
  • Warranty & Indemnity (W&I) Insurance continues to increase in popularity, particularly in deals involving PE Sellers, and increasingly tax indemnities have been given backed by W&I Insurance.
  • Warranty limitation periods continue to decrease (both for fundamental and commercial warranties).
  • Debt financing conditionality in equity commitment letters is now relatively unusual.

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Opportunities and Challenges for Private Equity Investment in the Insurance Sector

Posted in Finance and Capital Markets, M&A and Private Equity

By Simeon Rudin and Beatrice Lo

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Recent private equity investments in high-profile deals, such as Bain Capital’s acquisition of esure and Apollo’s acquisition of Aspen Insurance, have brought European insurance sector deal values to record highs. Regulatory changes and regulators’ changing perceptions of PE firms have contributed to increased M&A activity, bringing new opportunities for insurance business investments from buyout firms and increasing competition for insurance assets. In our view, with more PE firms and other new entrants in the market for insurance sector targets, there will be a strategic advantage for firms that are well-prepared and familiar with industry-specific issues, which require navigation to achieve a successful deal.

Drivers of Insurance M&A

The implementation of the European Solvency II Directive (Solvency II) in 2016 introduced major changes to solvency and supervisory regulation for the insurance industry. As the industry has adapted to Solvency II requirements, the process of achieving capital compliance has required that European insurance groups examine their businesses. Such examination has resulted in these groups frequently identifying assets and businesses suitable for divestment. Brexit may lead to further review of assets and capital requirements, which in turn may create sale opportunities — for example, disposals by UK insurers of marginal EU businesses. This shuffling of assets (by sale of companies, transfers, or reinsurance, depending on the circumstances) has created opportunities for private equity to access insurance investments. Continue Reading

Private Equity Takes the Driver’s Seat in Italian Automotive Deals

Posted in Finance and Capital Markets, M&A and Private Equity

Deal making is likely to surge as companies seek funding and private equity firms scour the market for buyout opportunities.

By Andrea Novarese and Cataldo Piccarreta

Italy is poised to help steer automotive deal activity in the final weeks of what has been another bumper year for the industry. According to PwC, global automotive deals reached US$59.3 billion in the first three quarters of 2018 — marking the highest year-to-date value in a decade. As the end of 2018 approaches, automotive deal value is on course to race past previous years at a promising time for sector consolidation and innovation. In particular, private equity firms are on track to play a crucial role in driving deals in the country as Italian businesses seek external investment.

A combination of factors is causing Italy’s automotive companies to increasingly turn to PE funding. For starters, Italy’s autonomous driving development is moving at the wrong speed. According to Roland Berger in Automotive Disruption Radar #4 (2018), Italy ranks 13th among European countries for electric vehicle public charging infrastructure.

In addition, Italy’s automotive industry is highly fragmented and mostly family-owned, which will likely lead to increased demand for investment from financial sponsors. The Italian auto market is currently dominated by small and medium-sized enterprises (SMEs), many of which will require significant additional capital to develop next-generation products. An increase in deal making is probable as companies seek funding and PE firms scour the market for buyout opportunities. Continue Reading

China’s War on Pollution Hits Private Equity Deal Environment

Posted in Environment, M&A and Private Equity

By Paul Davies and Catherine Campbell

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In recent years, China has taken significant steps in developing its environmental policy. In 2014 China’s Premier Li Keqiang declared a “war on pollution”, which began in earnest in 2017. Since then, regulators have been more proactive in enforcing environmental regulations. Factory closures have become a key part of this strategy, causing significant disruption to the global supply chain this year.

In our view, dealmakers should carefully consider environmental and supply chain due diligence in China, as companies work out how to navigate the factory shutdown process. PE firms should review whether portfolio investments and target companies are likely to be affected in the event that critical supply chains are broken. Engagement with environmental agencies in China is useful, but environmental policy and consistent regulatory enforcement are still maturing. The appropriate level of due diligence could prove to be critical to a portfolio company’s ongoing operations. Continue Reading

Public to Private Deals: A Growing Trend for Private Equity

Posted in M&A and Private Equity

By Ben Coleman and Catherine Campbell

Public to private deals (P2Ps) have remained a strong feature of the UK private equity deal market in 2018, with five take-private bids reaching an enterprise value of more than £1 billion already this year. Large P2Ps have already surpassed 2017 totals, which saw just one PE bid for a public company above the £1 billion mark. The increase in P2P deal values has also been coupled with greater P2P activity generally over the past couple of years. There were 18 P2Ps in 2016 and 14 in 2017, compared to just four P2Ps in 2013 and nine in 2014. Club deals have also become more common, demonstrated by Blackstone and CVC’s acquisition of payments company Paysafe last year.

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Will the trend continue?

We believe that the steady flow of P2P transactions is likely to continue, driven in part by a scarcity of high-quality private assets for sale in the UK market. PE deal teams are seeking opportunities in public markets and are increasingly scouring these markets for value. Companies under siege from short sellers, or undervalued by shareholders, can result in under valuations, offering PE firms opportunities and offsetting the significant bid premium required on a public takeover deal. Continue Reading

New National Security Threat to UK Private Equity Deals

Posted in EU and Competition, M&A and Private Equity

By Jonathan Parker, Calum Warren, and Catherine Campbell

The UK government has assumed an increasingly interventionist approach to foreign takeovers in recent years. In June 2018, the UK adopted new powers to review deals on national security grounds, extending the scope and breadth of its control regime. In July, the UK went a step further and published a White Paper on a new and significantly extended foreign investment notification regime, which likely will lead to wider and closer scrutiny of many transactions, including private equity deals.

The government’s jurisdiction over transactions is expanding with most areas of the economy within scope, new information-gathering powers, longer review periods, and stricter penalties for noncompliance. Changes could come into effect as early as next year, and deal teams must assess the implications for private equity deals.

National security review anticipated to catch more deals than current merger control regime

The new regime is intentionally broad and has the potential to catch almost all deals. Indeed, the government has made it clear that no sector is off limits. Energy, communications, transport, and nuclear likely will receive the most focus; however, national security concerns can arise in any deal. Continue Reading

German Federal Court Reinforces Informal Modifications of Property Purchase Agreements

Posted in Commercial, Dispute Resolution

Ruling finds that parties may make informal modifications without notarization after the conveyance has become binding.

By Christian Thiele

The German Federal Court recently ruled that parties may informally modify a property purchase agreement if the conveyance has become binding — thereby confirming prior case law. The Court further held that the parties may also make such informal modifications if they have granted fiduciary instructions to the notary not to file the conveyance with the land register until the purchaser has paid the full purchase price.

The case

On 4 May 2011, the defendant bought three apartments from the plaintiff by virtue of a notarial purchase agreement at a price of €309,692. The parties declared the conveyance and applied for the entry in the land register. In the purchase agreement, the parties instructed the notary to file the conveyance only when the purchaser paid the full purchase price. On 24 July 2012, the defendant demanded a €27,100.76 reduction of the purchase price. The plaintiff accepted the reduction in writing, and the defendant paid the reduced price. However, the plaintiff then requested the payment of the full purchase price, arguing that the reduction of the purchase price was invalid because the amendment had not been notarized. Continue Reading

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