Go big or go home

Written by: Jon Watkins Posted: 15/11/2018

BL59_megadeals illoThe global mega-deals environment continues to thrive in the face of political and economic adversity, And the Channel Islands are right at the centre of the action

Despite increasing political tensions around the world – Brexit in the UK and uncertain trade relations between the US and seemingly the rest of the world, to name just two – the global deal-making environment marches relentlessly on.

The $2.5trn value of total mergers and acquisitions carried out in the first half of 2018 set an all-time record – fuelled in part by US boards seeking to either consolidate their industries or compete against a tide of powerful digital disruptors.

But does that vibrant deal environment reflect the activities of non-M&A investment funds, such as private equity, real estate, infrastructure, and credit and debt funds – which have for so long been an important part of the Channel Islands’ offerings?

The short answer is ‘yes’. According to the latest research from Invest Europe – both private equity and venture capital investment hit 10-year highs in Europe in 2017. And the first half of 2018 was also a record period for global private equity investments, with more capital invested than in any previous opening quarter, according to data provider Preqin.

Recent mega-deals include Carlyle Group and GIC’s acquisition of the speciality chemicals business of Dutch paints giant AkzoNobel for €10.1bn in March. And in January, a Blackstone Group-led consortium struck a deal to buy a controlling stake in financial information business Thomson Reuters for $17bn.

Mark Law, Managing Director, Alternative Assets, Asia-Pacific & Mauritius at Sanne, agrees that the past year has been a buoyant period.

“I’ve been with Sanne in Asia for just over 12 months now and what we’ve seen is a really strong pipeline across the spectrum of asset classes, from private equity to real estate, infrastructure and private debt or credit funds,” he says. “If I were asked which asset funds are the strongest, I’d definitely say private equity and real estate.”

Spending power

Felicia de Laat, Partner at Mourant Ozannes in Jersey, echoes that view. “We work with a number of established houses and they are raising big funds,” she says. “There’s an awful lot of cash to spend. You can see that the size of the deals is getting very big as well. Private equity has been particularly strong. I think there’s increasing interest in infrastructure and also venture capital, which is an area that’s definitely seeing more activity.”

So how do these global trends transfer to activity in the Channel Islands? Daniel O’Connor, Partner in the Corporate and Finance team at Carey Olsen in Jersey, says his organisation has seen a clear correlation. “If we look at the big deal sectors within the Channel Islands, there are key areas,” he says. 

“The first is obviously private equity. In terms of the big deals we’ve launched, Nordic Capital’s ninth fund was $4.3bn – 23 per cent above target and with 10 per cent of that $4.3bn coming from new investors. That’s definitely representative of an increase in private equity activity within the Channel Islands.

“That fund is also representative of another trend,” O’Connor adds. “The fund started with a focus on northern Europe, but now has a global focus – and that delivers a message about deals becoming increasingly global.

“We’re seeing bigger deals and successful managers being able to raise bigger funds. We’re also seeing existing managers branching out and doing things they haven’t previously done – leveraging off their existing expertise to increase their presence in Jersey.”

Nordic Capital’s ninth fund, while a symbol of the big deals we’re increasingly seeing, was dwarfed by the most significant fund transaction in the past 12 months – Softbank Vision’s venture capital fund, which raised more than $90bn and is widely expected to pass $100bn when the final figures are released (see box). 

O’Connor, who advised on the deal, explains that although it was a one-off in terms of scale – the next largest fund is around $15bn – it’s a symbol of the greater appetite for bolder activity and also of Jersey’s appeal.

“This was, of course, an enormous deal,” he says. “But, again, it’s also a Jersey general partner and a Jersey fund, all regulated here. And it’s an existing company that’s branching out. Do I think we’ll see another Softbank? Probably not tomorrow. But they’ve been investing their capital very quickly, so I do think we’re going to see them continue to be active because the appetite is there to do more and to do new things.”

While private equity deals and those such as Softbank Vision have grabbed the headlines over the past 12 months, other trends have also emerged within the Channel Islands – including around which sectors are seeing the most investment.

Trending now

“Of all the big deals we’ve seen on the islands over the past year, I’d say most have centred on financial services, healthcare, consumer retail and tech,” says Mourant Ozannes’ de Laat. “Those are probably the four key areas, and I’d say they’ve been focused heavily on the UK and the US.”

O’Connor agrees. “In the technology space, we’ve seen a lot of crypto deals and I think we’ll see something big happening in the crypto space going forward. That’s partly because it’s one of those areas where a disruptive technology is being used in a lot of different areas,” he says. 

“We’ve also seen investment in financial services payment systems and enabling technologies in the financial services sector significantly increase.”

But what do all these trends mean for the Channel Islands funds landscape going forward? De Laat is in little doubt. “The Channel Islands will continue to be an important player on the global scene,” she says. “The islands are very central and have a strong, stable government and regulatory regime. We have a lot of expertise here and that all helps. 

“We’re also good at doing complex work and I think it’s easy to do business here – we’re quick to market. If you are a Middle Eastern investor or a US investor, wherever you’re looking to do business, you’re looking for a central place and a stable place with a strong regime and high-quality service providers – and Jersey has all of that.”

O’Connor adds: “What underlies all of those trends is that Jersey’s appeal continues to grow. It’s growing because people are looking for tax neutrality, they’re looking for tax transparency – because no-one is interested in jurisdictions that aren’t transparent anymore – and they’re looking for a place that’s stable. 

“Jersey has had the same tax regime for decades, with an English law base that everyone knows. People like that stability – and it puts the Channel Islands in a very strong position going forward.” 

In focus: Softbank Vision

BL59_Daniel_O'ConnorDaniel O’Connor (pictured), Partner in the Corporate and Finance team at Carey Olsen in Jersey, advised on the Softbank Vision venture capital fund – a tech fund larger than any other on the planet, raising funds of around $100bn.
   The deal drew funds from major investors – including Apple, Qualcomm, Larry Ellison (the billionaire founder of Oracle) and the Public Investment Fund of the Kingdom of Saudi Arabia — and has been investing the money incredibly quickly, including a $9.2bn investment in Uber.
   “It’s certainly a big deal, but it’s also important because it’s in the technology space, and they’re looking to get into areas that will affect everyone’s lives,” says O’Connor. “They’re in the space of game-changing technologies and they believe the next information age is already here. They want to build business that makes this possible. And that requires unprecedented large-scale investment. So don’t be surprised if they make a move to raise more money in the future.”

 


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