UK UPDATE – Understanding and Dealing with Hedge Funds and Shareholder Activism Across Europe: The Impact of the Financial Crisis
Executive summary:
The attached guide takes a pan-European look at trends and developments through the 2008 financial crisis and in the period since, focusing on:
- the position of hedge funds: their behaviour, performance and strategies in that period, as well as the changed regulatory landscape they now face, and
- activist behaviour by both hedge funds and other investors during that period.
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Global Technology M&A Update – Technology M&A Surges In Difficult Environment
Five disruptive technology megatrends drove the value of global technology mergers and acquisitions (M&A) up 41% in 2011, while volume increased by 13% — even as the value of global M&A in all industries fell slightly amid economic uncertainty, according to Ernst & Young’s Global technology M&A update, October — December 2011 and year in review.
According to the report, the year’s most notable deal drivers were five technology megatrends: smart mobility, cloud computing, social networking, ‘big data’ analytics and a growing sense of blur, as industry sectors blur together and the technology industry itself disrupts other industries — challenging whether certain companies are pure technology companies or have entered the industries they are disrupting.
In addition, an increasing need for information security is being driven by all five megatrends. These disruptive innovations are remaking the technology industry while enabling transformative change in other industries as well.
2011 technology M&A highlights
- Megatrends, mega deals: thirty-four deals rose above $1 billion in 2011 — including two above $10 billion — compared with 26 in 2010 and 19 in 2009.
- The “social-mobile-cloud” phenomenon dominated deal-driving trends in 2011. We call this a phenomenon because the trends reinforced and accelerated each other over the course of the year.
- Business intelligence and analytics emerged as a major deal-driver in 2011, powered in part by the social-mobile-cloud phenomenon.
- Aggregate deal value (for deals with disclosed values) reached $168 billion (up from $119 billion in 2010).
- Private equity (PE) deal values soared 67% to $33 billion.
- Full-year deal volume was up 13% to 3,006 deals.
- Average value per deal (for deals with disclosed value) was $167 million, up 27% over 2010 and the highest annual average deal value in the five-year history of the report.
Fourth quarter 2011 technology M&A highlights
- Deal-making growth slowed in the last quarter, showing that technology is not fully immune to the global macroeconomic uncertainty.
- At 676 deals, deal volume declined for the third consecutive quarter. It’s down 4% YOY, 11% sequentially and 15% since peaking in the first quarter of 2011 at 794 deals.
- Aggregate announced deal value was $32.2 billion in 4Q11, up 7% YOY but down 43% from $56.4 billion in 3Q11.
- Cloud computing, smart mobility and social networking continued to dominate deal-driving trends in 4Q11.
- Business intelligence and analytics increased again across a spectrum of industry-specific uses, though with a strong concentration in online advertising and marketing.
Deal-driving trends, big and small
Established companies made major consolidation plays and placed big bets on the five megatrends in 2011. Software as a service (SaaS) deals rose to prominence in the fourth quarter: two SaaS deals topped $1 billion — the first time any SaaS deal topped that mark.
At the same time, a multitude of smaller deals demonstrated the strategic importance of certain technologies, especially social networking and information security, but also health care information technology (HIT), online and mobile games and advertising and marketing technologies. There were 100 — 150 deals in each of these areas in 2011, including many deals that overlapped several of them.
Consolidation and restructuring
Semiconductor consolidation also drove big-ticket deals. Five of the year’s top 10 M&A transactions, worth a combined $21.2 billion, involved established semiconductor companies as both the buyer and target. Restructuring deals were announced in many other sectors, especially the communications equipment and computers, peripherals and electronics sectors.
Cross-border growth
For the year, cross-border deals grew in aggregate value at about the same rate as in-border deals; they increased faster in deal volume, at 19% compared with 10% for in-border. The year seemed on track for even greater cross-border growth until macroeconomic uncertainty returned in the second half of the year, appearing to damp down deal flow across borders more than in-country. Our report includes region-specific snapshots for the Americas, Asia-Pacific and EMEA (Europe, the Middle East and Africa) regions.
2012 outlook mixed, but strong in the long run
The disruptive megatrends of ‘social-mobile-cloud’ and ‘big data’ analytics have helped fuel a significant rise in global technology M&A activity since 2009, despite a slight pullback due to macroeconomic pressures in late 2011,” says Joe Steger, Global Technology Industry Transaction Advisory Services Leader at Ernst & Young. “The same pressures suggest we might be in for slow growth in 2012 — but the long-term outlook for technology M&A remains strong due to ongoing disruptive technology innovation.
GLOBAL INFRASTRUCTURE REPORT – Setting Strategic Priorities
China
China’s unprecedented infrastructure building spree is stampeding ahead. The country is able to fund projects totaling trillions of dollars because it was largely unaffected by the recent global economic downturn.
Infrastructure growth plans on a large scale
Beijing, Shanghai and Guangzhou have some of the most sophisticated and integrated transport systems in the world.
- World’s largest high speed train network: China is almost finished with a 10,000-mile honeycomb train network linking major cities across an area about the size of the United States.
- National infrastructure plans: Other Chinese infrastructure plans include a nationwide toll highway system, comparable to the US interstate highway system; 1,900 miles of new urban transit systems and streamlined harbor port terminals and new airports.
- International infrastructure plans: China also has ambitions to build high-speed rail lines across Asia and India, ultimately connecting to Europe’s systems. In exchange for constructing the transcontinental lines, China would receive natural resources needed to support its various burgeoning industries. The government has already made deals with Myanmar for lithium and with Russia on a trans-Siberian link.
Infrastructure growing pains
China’s rapid transformation from a largely rural and agrarian country into an urban-oriented industrial giant is causing growing pains that even spending nine percent of GD P on infrastructure annually cannot surmount.
- Traffic congestion: Major cities are struggling to handle traffic congestion as China’s expanding middle class keeps buying cars in volumes the new road systems cannot handle. A 2010 IBM survey ranks Beijing’s “commuter pain” as tied for the world’s worst with Mexico City.
- Pollution: Vehicle emissions also contribute to the familiar opaque, yellow-gray pollution haze that afflicts most urban areas.
- Quality concerns: The recent ouster of the lead official overseeing its high-speed rail development raises questions about the construction quality of the expansive system.
India
Can India possibly build the necessary infrastructure — for power, water, transportation—fast enough to sustain growth and meet its economic potential? Or will the nation hurtle into a rut, unable to support its vast population and business engine with basic services?
Success will help transform India into one of the world’s 21st-century economic powerhouses. Failure condemns the country to further poverty.
Infrastructure challenges
- The World Economic Forum rates India’s infrastructure 89th of 133 survey countries.
- India’s transport minister admits 16,000 of nation’s 70,000 kilometers of highways “aren’t worth driving on.”
- More than 600 million Indians live without electricity, 40 percent of the country’s water is wasted in inefficient farming, and 11 percent of urban residents and 65 percent of rural villagers have no access to toilets.
Solutions for a growing India
The national government recognizes its challenges and is committed to doubling infrastructure spending to $1 trillion between 2010-2017. Officials hope the private sector will raise half the budget.
However, not every infrastructure project remains on track. The government’s “Power for All” mission continues to fall short of its goal: experts estimate that India will need 160,000 megawatts of additional capacity by 2017, alone costing $405 billion.
Foreign companies see opportunities in operating ports, airports and highway toll concessions, but become frustrated dealing with India’s famously inefficient bureaucracy.
Brazil
Brazil’s growth prospects hinge on how fast it can upgrade its infrastructure.
Broad infrastructure challenges
- A 2009–2010 World Economic Forum survey rated the country’s transport /electric/water systems among the world’s worst.
- Only about one-seventh of Brazil’s roads are paved; much of the highway between its two largest cities, Rio de Janeiro and São Paulo, is only two lanes; and a bus trip between Rio and Brasilia, the country’s capital, can take 17 hours.
- Port access remains limited because of poor roads and inadequate freight rail, hobbling the country’s significant export potential, and current power production cannot support its rapid industrialization.
Infrastructure projects kicking into high gear
Winning host rights to the 2014 World Cup and the 2016 Summer Olympic Games is helping kick the country into gear to capitalize on the fast-approaching global sporting events.
- In 2010, the government committed to a $900 billion infrastructure plan. It includes construction of a $19 billion high-speed rail line from Rio de Janeiro to São Paulo, and new power plants, hydroelectric dams and ports.
- Rio plans to upgrade three major highways and create rapid bus transit lines linking game venues, downtown, the suburbs and its International Airport, which will add new runways and terminals.
- Rio also plans to revamp its port district — Porto Maravilha — by selling development rights and using an expected $1.7 billion in proceeds to help overhaul lighting, streets, sewers and water lines.
IRISH UPDATE – Trends and Prospects in Irish M&A Activity
Highlights:
- M&A activity in Ireland has been affected by global and national economic difficulties experienced over the past three years, but Ireland’s M&A activity has recovered from the historic lows experienced in 2009. This recovery looks set to gather pace in 2012.
- Much of Ireland’s M&A activity during 2011 was driven by the restructuring of the financial services sector by the State. Additionally, there was significant inward investment by foreign investors in Ireland, in particular in Ireland’s IT and pharmaceutical sectors.
- As in 2011, State initiatives are likely to drive much of the M&A activity throughout 2012. In particular, it is expected that the State will commence the heavily anticipated sale of State-owned assets. Additionally, it is expected that the National Asset Management Agency (“NAMA”), which has acquired the ‘bad debts’ of five of Ireland’s domestic banks, will accelerate its asset sales during 2012.
MAIN ARTICLE
Introduction
M&A activity in Ireland has been affected by the global and national economic difficulties experienced over the past three years. This was most strongly felt in Ireland during 2009, when there was an acute dip in M&A activity. Since then, Ireland has recovered very well. The significant rebound in M&A activity during 2010 was maintained (and improved) in 2011 and, overall, prospects for 2012 look promising.
2011 M&A Activity in Ireland
There were almost 190 M&A transactions in Ireland during 2011. Of these, the 80 largest transactions had an aggregate value of about €14.3 billion. The most active sectors throughout this period were Financial Services, IT/Telecoms, Health/Pharmaceutical and Food/Food services.
Financial Services: Throughout 2011 the financial services sector outperformed all other sectors in Irish M&A, with about 73% of aggregate value during the year being credited to this sector.
On 31 March 2011, the Minister for Finance of Ireland (the “Minister”) announced the State’s plans to restructure and recapitalise the Irish financial sector. By 31 July 2011, the following transactions had completed: (i) the acquisition by Allied Irish Bank, p.l.c. (“AIB”) of EBS Building Society following its demutualisation, (ii) the acquisition of 99.5% of Irish Life & Permanent plc (“ILP”) by the Minister for €2.3 billion by way of subscription for shares, (iii) the subscription by the State for shares in AIB for €5 billion bringing the State’s ordinary shareholding up to 99.8% of AIB and (iv) the recapitalisation of Bank of Ireland (“BOI”) by way of a State underwritten rights offering (the “BOI Recapitalisation”).
Immediately following completion of the BOI Recapitalisation, a group of North American investors led by Fairfax Financial Holdings purchased (in aggregate) a stake of just under 35% in BOI from the Irish State valued at €1.1 billion. Other investors in this group included WL Ross & Co, the Capital Group, Fidelity Investments and Kennedy Wilson. This transaction was hugely significant for Ireland, and was hailed as a massive vote of confidence in BOI, one of Ireland’s pillar banks, and also in Ireland’s long-term prospects.
M&A activity throughout 2011 in the financial services sector also reflects the significant de-leveraging by Irish banks of their ‘non-core’ assets. Activity in this area has been significant, and is likely to remain a staple of Irish M&A for some time to come.
Not surprisingly, a number of deals in Ireland in 2011 were driven by financial restructurings, most notably including the acquisition of Quinn Insurance by the Liberty Mutual Group and Anglo Irish Bank.
IT/Telecoms: In recent years, Ireland has become a hub of IT activity with many significant IT companies (like Google, Facebook, Yahoo!, LinkedIn and Zynga) establishing their headquarters in Dublin. As with other years, Ireland’s IT/Telecoms sector saw a great deal of M&A activity, most deals demonstrating the continuing desire of foreign investors to invest in Irish IT companies. Notable transactions in this areas include BAE Systems’ acquisition of the Norkom Group for €180 million and Telecity Group plc’s acquisition of Data Electronic Services for €100 million.
Health/Pharmaceutical: Ireland also has a very strong Health/Pharmaceuticals sector, and is home to 15 of the world’s top 25 medical devices firms. The trend in the pharmaceutical industry was, again, investment by US corporates in Irish companies. The largest deal in this sector was the acquisition by Alkermes Inc of Elan Drug Technologies for €669 million. This deal structure was innovative, as it involved Alkermes’ migration to Ireland (forming Alkermes plc) by way of merger, whilst maintaining its New York listing. Over the past three years many companies have chosen to migrate their top holding companies to Ireland (e.g. Seagate, Warner Chilcott, Covidien and Accenture) whilst maintaining their listings in the United States. However, this was the first time such a company implemented its migration to Ireland through a merger.
Food Services: Significant transactions in this sector included Greencore plc’s acquisition of Uniq plc for a reported €128.5 million, which was a strategic investment designed to strengthen Greencore’s market position and Glanbia’s acquisition of US company Bio-Engineered Supplements and Nutrition Inc for a reported €107 million, a transaction that was in keeping with Glanbia’s growth strategy. The main theme across the food services sector, however, was consolidation, with the most notable transaction of this type in this sector being Kerry Group’s acquisition of Cargill Flavour Systems for €171.8 million. Another innovative transaction in this sector, also designed to achieve consolidation, was the proposed acquisition by Greencore of Northern Foods by way of merger of equals. Although this transaction did not ultimately complete (due to a rival bid), it did mark the first use of the European cross-border merger regime in a transaction involving public limited companies listed on regulated markets in Ireland and the United Kingdom – and it demonstrated that this merger regime can be used beyond the realm of intra-group reorganisations.
Despite turmoil within European and global markets, the continuing ability of Ireland to attract foreign investment remains clear, in particular in the IT/Telecoms and Health/Pharmaceutical sectors. Strategic investments (both domestic and overseas) by Irish companies also continued, in particular for Irish listed companies who have, or are able to access, a variety of financing sources – including, as one example, CRH plc which spent €600 million in development during 2011.
M&A Outlook for 2012
The primary threat faced by M&A activity in Ireland is uncertainty within the euro-zone, in particular in relation to the future of the euro.
Indeed, late in 2011 the proposed sale of Irish Life (the insurance business of ILP) to Canada Life at a price in excess of €1 billion failed at a late stage and the collapse of the deal was widely attributed in the press to the buyer’s concerns about the euro-zone crisis. The Irish Government attributed the failed deal to the challenging European market environment, stating that it was not supportive to achieving a valuation that recognises the strength of the Irish Life business.
Notwithstanding, market-players remain optimistic that there will be a buoyant M&A market in Ireland throughout 2012. Indeed, there are already indications of strong activity in the M&A market in Ireland in the short to medium term.
It is expected that State initiatives are likely to continue to be key contributing factors to M&A activity in Ireland over the next twelve months.
One area of activity is expected to the sale of certain assets owned, or partially owned, by the State. In a report commissioned by the State (the McCarthy Report), a number of significant and valuable assets were identified for potential sale. Some of the assets identified for sale include the businesses of Ireland’s national electricity provider (ESB) and gas provider (Bord Gáis) and the State’s 25% stake in the national airline (Aer Lingus). The timing of any such disposals continues to remain unclear as the State insists that there will be no ‘fire-sales’, but M&A activity remains anticipated as it has been widely reported that both the EU and IMF are putting pressure on the Irish State to dispose of these valuable assets.
Another area of expected activity arises in relation to NAMA. NAMA was established in 2009 to purchase the ‘bad debts’ of Irish banks, mainly loans related to property and property development. NAMA also acquired the security for these loans. Since its establishment, NAMA has acquired loans with a nominal value of €72.3 billion from five Irish financial institutions participating in the initiative. NAMA’s objective is to obtain the best achievable financial return on these loans for the State on this portfolio over an expected lifetime of up to ten years. The Board of NAMA has set a number of debt reduction targets over its expected life, including a target of 25% by 2013. Additionally, by the end of 2011, NAMA had approved the sales of assets totalling €6.2 billion and had appointed a panel of advisers in relation to proposed sales. Accordingly, it is generally expected that, during 2012, disposals by NAMA of loans and assets will accelerate.
Coupled with these initiatives is the ongoing restructuring of the financial services sector in Ireland. It is likely that there will be further M&A transactions in the financial services area, in particular to achieve the deleveraging of the Irish banks.
According to Ernst & Young’s 2011 annual globalisation index published on 31 January 2012, Ireland is the world’s second most globalised nation in terms of GDP, and Ireland is forecast to remain in this position until at least 2015. The report also states that Ireland is the most globalised nation in the western world. This report confirms that Ireland is, and despite recent economic difficulties, remains a leader in international trade.
The strength of the investment opportunities available in Ireland continues to be very attractive to a broad range of investors and we expect growing levels of M&A activity during 2012.
GLOBAL STATISTICAL UPDATE – XBMA Quarterly Review for Third Quarter 2011
Executive Summary/Highlights:
- Global M&A volume in Q3 was relatively sluggish at US$507 billion, marking the second consecutive quarterly decline, but aggregate global volume for 2011 year-to-date is still 4% higher than volume for the first three quarters of 2010.
- Cross-border transactions have rebounded somewhat since 2009, with 36% of 2011 global M&A involving an acquirer and target in different jurisdictions, up from the low of 27% in 2009 and continuing apace with 2010 figures.
- Stock market volatility, fear of a “double dip” and concerns over European sovereign debt have put a number of deals on hold – but would-be acquirers’ considerable cash stockpiles, strengthened balance sheets, access to attractive financing (for many investment grade borrowers), and need to expand into new markets are continuing to drive acquisitions, particularly in market segments and regions where target valuations remain attractive.
- So-called “megadeals” have been more prevalent than last year, with eight deals in 2011 exceeding US$15 billion in value (including three deals in the third quarter – Express Scripts / Medco Health Solutions, United Technologies / Goodrich, and BHP Billiton / Petrohawk Energy), as compared to just four “megadeals” during all of 2010.
- Spinoff activity has picked up, as companies seek ways to create shareholder value in volatile markets.
- Distressed deals have declined sharply to US$50 billion globally so far this year.
- Energy & Power was the most active sector for both domestic and cross-border transactions over the last 12 months, with the Materials and Financial sectors coming next.
- The decline in deal volume in Q3 was most pronounced in Europe (37%), presumably because of sovereign debt concerns, with a relatively modest decline in the United States (12%). While deals driven by emerging markets continue to grow, the United States and Europe accounted for 68% of deal volume in Q3, with five of the ten largest deals announced in Q3 involving both a U.S. target and a U.S. acquirer.