American National Group is a multi-line group of insurance companies, and Brookfield Reinsurance looks to own, operate, and build on the long-standing stability and success of the American National Group. The American National Group acquisition was part of a broader industry trend of acquisitions of insurers that coincide with insurance companies expanding interest in private credit assets to provide better returns amid record-low interest rates. Other firms to acquire significant insurance assets at the time included Blackstone Group, Apollo Global Management, and KKR & Co.
In 2023, Brookfield Reinsurance has continued its acquisition strategy. In February, it announced that it would acquire the U.S. commercial speciality lines platform of Argo International Holdings, a provider of property and casualty insurance products, in an all-cash transaction valued at approximately $1.1 billion. Then, in July, Brookfield Reinsurance announced an agreement to buy American Equity Life Insurance Company (NYSE: AEL). That deal, a cash and stock transaction that valued AEL at approximately $4.3 billion, followed Brookfield’s initial partnership with AEL in which it agreed to reinsure up to $10 billion of fixed index annuity liabilities and made a 19.9% equity investment in the company in October 2022.
This scope of mergers and acquisitions activity reflects efforts by Brookfield Reinsurance to expand its insurance business in an economic climate that has changed since it acquired American National Insurance in mid-2022. Since that time, the Federal Reserve has raised interest rates 11 times to combat rising inflation. Brookfield Reinsurance will own and operate insurance companies for decades into the future
Nevertheless, M&A activity in the insurance industry has remained resilient despite macroeconomic changes since mid-2022. According to a PwC report, during the six months from mid-November 2022 to mid-May 2023, a total of 194 insurance industry M&A transactions were disclosed, accounting for more than $7 billion. This contrasts with the earlier six-month span from mid-May to mid-November 2022, which saw 263 disclosed transactions with a combined deal value of $2 billion.
Acquisitions pursued by Brookfield Reinsurance fall in line with this trend.
The deal with Argo was seen as a noteworthy step toward broadening Brookfield Reinsurance’s offerings, with Argo's U.S. commercial speciality lines platform seen as a complementary addition to American National Group’s existing casualty market participation.
As part of the agreement, each issued and outstanding Argo common share was converted into the right to receive $30 in cash at the merger's closing, which Brookfield funded with existing cash on hand. This per-share price offered a 6.7% premium to Argo’s closing share price on the day before the merger, Feb. 7, 2023.
The acquisition of AEL targeted its fixed annuity business, one of the largest in the industry.
“Given the complementary nature of AEL’s leading fixed annuity business to our existing platform, we expect to accelerate growth in collaboration with our distribution partners and employees while continuing to meet the needs of our policyholders and other stakeholders,” said Jon Bayer, managing partner at Brookfield Reinsurance, in a statement when the deal was announced. “Under its current leadership, AEL has been transformed into an innovative, asset-light insurer that is positioned for growth, and we look forward to building on our successful partnership.”
Under the terms of the deal, AEL shareholders will receive $55 per share, with a mix of cash and Brookfield Asset Management Ltd. class A limited voting shares, valuing AEL at a 35% premium compared to AEL’s closing share price before the deal.
Post-acquisition, AEL's headquarters will remain in Des Moines, Iowa. Brookfield Reinsurance also plans to maintain AEL's charitable contributions and focus on alternative asset strategies, with a considerable portion of AEL’s assets expected to be managed by Brookfield Asset Management Ltd. The transaction is slated for closure in the first half of 2024.
Brookfield made this investment in the casualty insurance market and annuities amid a broader downturn in M&A activity and a more uncertain macroeconomic environment. And it’s not the only large firm to make these kinds of investments. Nevertheless, other recent acquisitions include Stone Point Capital LLC’s 20% acquisition of Truist Insurance Holdings Inc. for $1.95 billion and RenaissanceRe Holdings’ $3 billion acquisition of American International Group Inc.’s treaty reinsurance business.
The insurance M&A sector has been resilient largely because, despite rising rates and inflation, stable assets like casualty insurance and fixed annuity writers are attractive investments for acquiring firms with the capacity to invest patiently and to operate insurance companies that serve the interests of policyholders.
Casualty businesses generate consistent revenue through premium collections from policyholders, irrespective of the economic environment. In times of economic turbulence, the predictable revenue from premiums can provide a financial cushion, making casualty insurance platforms targets for diversification and long-term investment.
According to Brookfield’s most recent letter to investors, the company’s insurance investments seem to be following this playbook, paying off despite high interest and inflation.
“During the quarter, our average investment portfolio yield increased to 5.4% on approximately $45 billion of assets, about 220 bps higher than the average cost of capital,” reads the letter. “We continue to see a path to annualized earnings from this business of $800 million by the end of 2023 and, given tight credit markets, this puts us in an enviable position.”
Admittedly, 2020 was the year when the early pandemic lockdowns prevented a lot of deal activity, but it is certainly true that deals in the TMT sector have rebounded to beyond the levels they were even before the very first lockdown.
In terms of mergers and acquisitions (trade, PE, IPO, and early-stage investment), the TMT sector represented roughly a quarter of all 2021 deals in the UK, the biggest single sector. KPMG’s TMT Corporate Finance team advised on a record number of transactions throughout the year – 21 in total. We hear more about them from Graham Pearce – Partner and Head of TMT, Corporate Finance at KPMG UK.
How has the pandemic impacted the enterprise technology market?
The range of digital technologies that we came to depend on so much during the pandemic, especially those designed to improve remote working and collaboration, are now completely ingrained within the world of work. We may settle into a hybrid-style way of working going forward, but those collaborative tools are all here to stay as part of that. Indeed, technology requirements have gone beyond these initial use cases to cover other areas including improved cloud integration and enterprise software tools to support the needs of a hybrid workforce; customer engagement; better oversight and control of complex supply chains as well as seamless mobile technology and edge computing.
How active has private equity been in fuelling recent transactions?
In 2021, private equity (PE) firms continued to show significant interest towards tech firms, given the sector’s resilience and the enhanced demand for digital and SaaS solutions from the enterprise through to everyday lives. Tech businesses are typically fast-moving, and often have significant needs for investment early in their lifecycle. As is common in many sectors, entrepreneurs and owners can be open-minded to receiving external investment to either scale, de-risk, or both. As such, PE has been a very active player in the TMT deals arena.
The tech sector in the UK is decentralised – there is a large presence in London (like most sectors) but equally, there are many other established tech hubs in places like Manchester, Leeds, Cambridge and Glasgow, to name a few. These cities act as magnets for institutional investment, and we have seen a significant amount of private equity-sponsored deal activity outside of London.
As institutional appetite to invest right across the enterprise software sector has skyrocketed, this has had the knock-on effect of increasing valuation multiples.
Has there been strong investment from the US?
In terms of transactions involving software and technology companies that came to market in 2021, private equity was an extremely active participant. As part of that, more and more in the UK, US PE acquirers are becoming more active and bidding aggressively for high-quality assets, even those that would previously have been deemed too small to garner interest from across the Atlantic. I saw this happen in many of our processes last year, and about a quarter of our deals last year in the sector drew significant minority or majority investment from American investment houses.
Are there any particular sub-sectors of enterprise software that have been especially active in terms of deals?
Drilling down into the sub-verticals of enterprise software, we are observing record levels of activity in areas including accounting and financial software, such as the acquisition of asset finance software provider White Clarke Group by Thoma Bravo-backed IDS and the acquisition of process automation player Xceptor by Astorg and Corsair Capital. We are also seeing architecture, engineering, construction (AEC) software prove particularly attractive for investors, with deals including the acquisition of NBS by Byggfakta Group and the acquisition of Causeway Technologies by Five Arrows.
Other sub-sectors where there have been marked increases in deal activity in the software space include supply chain, logistics and workforce management. My view is that all these areas are where inefficiencies – brought to the fore by the pandemic, Brexit or wider economic factors – have led to an increase in digital transformation and innovation to solve complex issues. Our own experience mirrors these trends; we advised on deals in all these sub-verticals last year.
Will demand for enterprise software continue its current trajectory?
As institutional appetite to invest right across the enterprise software sector has skyrocketed, this has had the knock-on effect of increasing valuation multiples. We can see similar evidence in the public markets, where global listed SaaS businesses have seen their own valuations increase significantly from historic averages of around 10x revenues to mid-to-high teens.
It is impossible to say with any certainty what the future will hold around valuations, but I believe it is a symptom of the structural shift of many advanced economies, such as the UK, towards creative and digital sectors that has driven a lot of this activity and that is unlikely to change. Furthermore, digital transformation going right through established sectors and being used to chase efficiencies across the supply chain is also more anecdotal evidence that the demand, and therefore price, of software businesses will continue to increase.
Well, the good news is that as the year draws to an end, there are plenty of great deals to be had for a variety of reasons. Anyone who wants to get a great deal when it comes to their new vehicle will find that this time of year is a great chance to get some fantastic 2020 car deals. In fact, 2020 car deals could be a golden opportunity in the US for those who want to purchase a new vehicle.
There are many reasons why you may be looking to get a new vehicle at this time of year. Some people are looking forward to starting the New Year off in a nice new car that is perfectly suited to their needs. Others want to upgrade their vehicle and benefit from the great deals at this time of year, while some may be investing in their first car. Whatever the situation, this could be a great chance for you to get the perfect car for your needs without breaking the bank.
It is, of course, important that you shop around to find the best deals on a new car, as they can vary from one dealership to another. Make sure you do not just snap up the first deal you come across, as there may be better ones out there, so you need to put in some research. By doing this, you can ensure you find the best vehicle at the best price, and that you get a great deal when it comes to things such as getting finance.
The good news is that you can do this with ease online, so finding the best deals is nowhere near as difficult and time-consuming as it once was. You can even email dealerships to see which of them can provide you with the best driveaway deal, as this is a very competitive market, and many will be willing to be flexible with regard to costs and terms. So, make sure you avoid rushing into any decisions, and be certain to put some time and effort into finding the very best deals.
One other thing you need to keep in mind is the running costs involved for the vehicle you purchase. While the initial price is important too, you need to make sure you look at how much you will need to pay when it comes to repairs, filling up the tank, and even finding the cheapest auto insurance. So, make sure you take all of this into consideration when you are looking for the ideal vehicle among the end of year bargains available.
While the initial price is important too, you need to make sure you look at how much you will need to pay when it comes to repairs,
So, why are there so many great deals available on 2020 cars at this time of the year? Well, there are many reasons behind this, and a lot of people are eager to snap up vehicles at this time of the year because of these reasons. Some of the reasons there are great deals available include:
One of the reasons why this is such as great time of year for new car purchases is that dealerships often provide access to very attractive finance deals, and this is to entice people to make purchases of 2020 cars as the year draws to an end. Of course, the fact that fewer people have been going to showrooms this year due to the global situation means that dealerships are under even more pressure than usual to try and make deals more appealing to drivers. So, this year you could be especially lucky when it comes to bargain vehicles.
Another reason why this is a great time to get excellent deals on 2020 year cars is that dealerships are getting themselves ready for the next models for 2021. Naturally, in order to do this they need to shift as much of their 2020 stock as possible, and in order to do this they are prepared to offer some very attractive deals to motorists.
Of course, every dealership salesperson has their sales goals and targets on their minds, but never more so than at this time of the year. This is often their last chance to boost their figures and get that bonus next year, so they will go out of their way to secure more sales. For drivers, this means being able to access some great deals and save a lot of money on the cost of buying a 2020 car.
This is the time of year that has become known for special deals on cars, so this is one of the reasons why it is a great time to purchase a 2020 vehicle. However, it is also a time of the year when people who bought cars previously on a three-year lease come to the end of the lease. Salespeople at dealerships want to make the most of this situation by offering tempting deals to those who may now be looking to buy a vehicle as their lease nears its end.
As most people know, January and February can be very difficult months financially following the Christmas splurge. In addition, many people get the January blues and don’t want to start doing things like hunting for cars. Both of these situations can cause a slump in sales for the first couple of months of the year, which is obviously bad news for dealerships. Many try to counteract this by boosting sales before Christmas, and this is achieved by offering great deals.
As you can see, there are lots of reasons why this is a great time to get the best deal when it comes to buying a 2020 car.
The salaries today barely cover the monthly expenditure. Medical and education costs have skyrocketed, which can take a toll on your entire savings. It is also possible that you might require a loan to cover expenses. It sounds intense, doesn’t it? We all are going through similar circumstances and thus it is important to get complete financial freedom.
Apart from the typical ways of earning money, you should consider a few unconventional ways that can get you financial freedom, some of which could also cover your retirement years.
Money saved is money earned. Finding coupons and deals on every purchase of products or services, especially big ones, can save you a tremendous amount of money in total. There are a number of online platforms and sites that also provide you cash back on every purchase. Not only are the products trusted, but you also get a wide variety to choose from through a single portal. The money you put to purchase cuts a certain percentage of commission, half of which reaches back to you.
Investing in a property or a piece of land in your younger days would surely require a huge amount of money, either through your savings or by taking a loan. But it would bring you a massive return after a couple of years. Property rates are revised every seven to ten years and thus the resale price would almost be multiplied by two to three times. The resale price would completely secure your retirement, also compensating for your principal amount. If you are worried about paying the mortgage in your initial years of debt, you can rent your property and use the money to pay your loan installments. This might also bring you extra income every month in some cases.
If you are fond of babies, what is better than getting paid to spend some time with them? If you are experienced with looking after babies, you can take up a babysitting job. It is always in demand because parents are generally working and away from home. Add the earnings in your monthly expenses and you are almost covered. Walking a dog is another blissful job which you would look forward to every day. It is highly likely for you to get a dog walking job if you approach elderly people who own one.
This job might be the most easy going and undemanding at all. Although it does not pay the equivalent of a month’s salary, you are still getting some extra bucks while lying in bed during your leisure time. Filling online surveys for money is highly popular among students, as it takes little effort and makes their spare time more productive. Also, the fact that it just takes a few minutes to fill in one form, you can aim at filling in at least three or four per day and that should help you earn a few bucks. Earning money while passing time, sounds terrific, right?
Even though setting up a blog can be a dreary task, it will promise you revenue generation once it has reached your target audience. Becoming successful in blogging requires patience, as there are thousands of sites within the same discipline. If you want quicker fame, your blog needs to stand out and should carry its own language. Being different is the mantra. Whether you are an artist or a writer, your content should connect and relate to your audience. Once it is a hit, you are bound to generate passive income for a lifetime.
Freelancing jobs will not only provide you with the financial freedom to some extent, but also give you the convenience and flexibility of working according to your schedule and from any part of the world. A lot of online platforms are looking for freelance writers, designers, and developers on a regular basis. Part-time jobs such as food delivery or working in nearby coffee shops for a few hours a day can help you collect a good sum of money which you can directly add to your savings.
From meager to highly critical approaches, every way is useful to generate extra income that can support you in the present and ensure your future. Start experimenting and get going; the time is right. Solidifying extra sources of revenue will provide you with the financial freedom that will make your life more enjoyable.
To hear about valuations and middle market M&A, Finance Monthly reached out to the experts at IBG Business.
IBG Business exists to bring merger and acquisitions skills, resources and knowledge to middle market business owners selling (or buying) businesses. “The firm is defined by its expertise, character and commitment to delivering exceptional results”, says IBG Oklahoma Managing Partner and Principal John Johnson. “Our team brings extensive background, robust training and deep resources to each deal. Time and again, the precise execution of our refined professional process has yielded maximum value under optimal terms and timing for our clients.”
Owners should seek professional help prior to selling a business or planning an eventual exit. IBG Denver Managing Partner and Principal, John Zayac, explains the complexities sellers face: “Price is often a starting point in the discussion, a common marker for value. However, it is only the tip of the iceberg. Price is predicated on a complex foundation of components including shifting responsibilities for risk, tax treatment and intangible values, all of which may move dramatically as a sale is negotiated”. Regarding the question “What is my business really worth?” Gary Papay, IBG Pennsylvania Managing Partner, also asks “And why? Knowing the reasons underlying the value of a business can reveal value-enhancing improvements or set up better initial positioning of deal terms.”
Casual opinions of what a business is worth are as abundant as sparrows. Those opining rarely have knowledge of the particulars of the business, the deal terms, an understanding of the sector or any transaction expertise. All are imperative to formulating a competent view on value. Sellers often reach out to valuation specialists for a fair market value opinion, but these regimented, theoretical valuations - while an improvement on sparrows - are better suited to litigation, divorce, or estate planning.
The most useful guidance for prospective sellers will combine sophisticated appraisal techniques with recent ‘boots on the ground’ experience on actual transactions. A market-informed opinion of the value of a business will gauge how potential buyers might respond to its sale. The opinion should provide a range of values, articulate what factors underlie the opinion, and comment on possible impacts of different deal structures. Strategies to minimise obstacles and enhance value may be offered.
Seasoned mergers & acquisitions advisers can also expertly evaluate and manage the nuances and practicalities that arise in the ‘real world’. In any transaction, the buyer and seller have opposing goals: each seeks to best serve their own interests but must ultimately acquiesce in some part to the other while retaining sufficient benefit for themselves. The odds of success in this process dramatically improve when it is proactively managed by a seasoned professional who can keep polarising realities within a cooperative framework. The parties will also be more likely to work well together post-close.
Pre-sale valuation work and pro-active management of transactions are key, but subtle dynamics and market factors unique to a deal can also be vital determinants of value. IBG Arizona’s Principal and Managing Partner Jim Afinowich and Managing Director Bruce Black recently worked on a deal that perfectly illustrates such market dynamics. The client’s firm, a niche food manufacturer, initially might have had a competent fair market value of around $20M. IBG perceived growing demand in the industry vertical, and thought an opportunity existed with the evolving market dynamics. They advised the client to decline early offers and to continue to build value in the business. Improve it did, but IBG’s “read” on the market and recommendation on timing made a tremendous impact for the client: a buyer seeking market control and expansion in the vertical ultimately out-bid several competitors to buy the company for the cash price of $120M. While such extreme opportunities are uncommon, the “savvy” of a seasoned dealmaker can radically impact what is already one of the biggest financial events in the lifetime of a business owner.
Business owners must understand optimal timing and valuation complexities prior to any sale. Today, demand remains robust for quality middle market businesses and valuations are still excellent, but a cooling in the market is anticipated. Active mergers and acquisition broker and advisory firms prepared to assess opportunities with a ‘real-time’ read on transaction market remain the most vital resource for owners seeking to sell for top value.
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In light of Donald Trump’s dramatic withdrawal from the Iran Nuclear Deal, Katina Hristova examines how the pullout can affect the global economy.
As with anything that he isn’t fond of, US President Donald Trump hasn’t been hiding his feelings towards the Joint Comprehensive Plan of Action between Iran and the five permanent members of The United Nations Security Council plus Germany. Pulling the US out of the agreement on the nuclear programme of Iran, which was signed during Obama's time in office, is something that Trump has been threatening to do since his 2016 election campaign. And he’s only gone and done it. Earlier this month, he announced America’s immediate withdrawal, saying that the US will reimpose sweeping sanctions on Iran’s oil sector and that “Any nation that helps Iran in its quest for nuclear weapons could also be strongly sanctioned by the United States”. And as if this isn’t alarming enough, President Trump has also said that the US will require companies to ‘wind down’ existing contracts with Iran, which currently ranks second in the world in natural gas reserves and fourth in proven crude oil reserve, in either 90 days or 180 days. This would hinder new contracts with Iran, as well as any business operations in the country.
Since Washington’s announcement, signatories of the Iran Nuclear Deal, still committed to the agreement, have embarked on a diplomatic marathon to keep the deal alive. On 25 May, Iran, France, Britain, Germany, China and Russia met in Vienna in a bid to save the agreement.
So how will this hurt the global economy?
Deals worth billions of dollars signed by international companies with Iran are currently hanging by a thread. The main concern on a global scale is that the US’ decision threatens to cut off a proportion of the world’s crude oil supply, which has already resulted in an increase in oil prices, with crude topping $70 a barrel for the first time in four years.
Additionally, European companies like Airbus, Total, Renault and Siemens could face fines if they continue doing business with Iran. Royal Dutch Shell, who is investing in the Iranian energy sector, is potentially one of the biggest companies to be affected by Trump’s withdrawal which could put billions of dollars’ worth of trade in jeopardy. As The Guardian points out: “In December 2016, Royal Dutch Shell signed a provisional agreement to develop the Iranian oil and gas fields in South Azadegan, Yadavaran and Kish. While drilling is still a long way off, sanctions are likely to put any preparations already being made on ice.”
French company Total, who’s involved in developing the South Pars field, the world’s largest gas field in Iran, is in a similar situation.
Airbus and Boeing, two of the key players in the international aviation industry, have signed contracts worth $39 billion to sell aircraft to Iran. As The Guardian reports, the most significant deal is an agreement by IranAir to buy 100 aircraft from Airbus.
A spokesman from Airbus said that jobs would not be affected. “Our [order] backlog stands at more than 7,100 aircraft, this translates into some nine years of production at current rates. We’re carefully analysing the announcement and will be evaluating next steps consistent with our internal policies and in full compliance with sanctions and export control regulations. This will take some time”. Rolls Royce is also expected to be indirectly affected if Airbus loses its IranAir order, as the company is the key engines provider to many of those aircraft models.
Another European company that will be hurt by the sanctions announcement is French Renault and PSA, who owns Peugeot, Citroën and Vauxhall. When sanctions were lifted back in 2016, Renault signed a joint venture agreement with the Industrial Development & Renovation Organization of Iran (IDRO) and local vehicle importer Parto Negin Naseh, worth $778 million, to make up to 150,000 cars in Iran every year. This is one of the largest non-oil deals in Iran since sanctions on the country were lifted. Last year, local firm Iran Khodro also signed a deal with the trucks division of Mercedes-Benz, with car production scheduled for this year.
Iranian firm HiWEB has been working alongside Vodafone to modernise the country’s internet infrastructure, but it looks like the partnership will have to be reconsidered.
The White House and President Trump appear aware of the danger that a rise in oil prices on an international level pose to the economic growth of the Trump era, however, they also seem ready to embrace the economic and geopolitical challenges that are to follow. Although the consequences of US’ Iran Deal pullout are not perfectly clear in the short term, they will undoubtedly become more visible as sanctions take effect. The deal has its flaws, however, completely withdrawing from it and threatening the US’ closest allies can only compound those issues and create new ones. It is hard to predict what will unfold from here and where Trump’s strategy will take us. The one thing that is certain though is that the world doesn’t need more hostility.
In good times and bad, M&A remains one of the best ways to get ahead of the competition and increase opportunities – and returns – for businesses. It also represents an immense commercial activity that drives significant macroeconomic value across the globe. But why are still so bad at it? Below Finance Monthly hears from Carlos Keener, Founding Partner at BTD Consulting, on M&A tactics and the value in improving on our own.
Even during the ‘Great Recession’ of the last decade, the worst since the 1930s, the poorest year for M&A saw over 35,000 global deals representing $2.25tn – equivalent to more than 3% of global GDP. M&A impacts national economies, individual businesses, and everyone involved.
Yet far too many deals still fail to achieve their objectives. By most measures, long-term M&A success rates remain very low compared to other growth or investment activities. Underneath many celebrated cases of outright merger collapse lies a general prevalence of underperformance, one that has remained unchanged in over 30 years. An Accenture report, Who says M&A doesn’t create value, published in 2012, actually celebrated the view that as many as 58% of all acquisitions added shareholder value 24 months post-close. Problem solved? We think not.
We do not believe such figures deserve the complacent optimism they receive. If you ‘play the M&A odds’ and do no better than your peers, your business is likely to be walking away from approximately half of a percent of its enterprise value with every single deal. That could easily add up to millions if not tens of millions of pounds.
Even so, this is about more than just the numbers. Underperforming acquisitions damage shareholders, careers, brands, communities and opportunities for companies and people alike. Executive survival in serial acquirers is notoriously short: according to one study, disciplinary replacement of CEOs is 77% higher than in non-acquisitive companies.
This endemic level of failure rarely prompts serious remedial action or increased rigour the next time there’s an M&A opportunity. The reason stems from the unique ‘gain today, pain tomorrow’ nature of deal-doing which can be typified by a few characteristics such as:
Studies of M&A and integration best practice are widespread and largely focus on tangible, concrete ways to improve individual steps along the process. They might advocate more due diligence, earlier integration planning, increased focus on culture or better communications. These can certainly help individual cases, and yet overall levels of M&A success remain largely unchanged. Best practice is available, understood, widely applied, and yet it is clearly insufficient.
Our own experience and research suggests that success rates are stuck because in most cases both organisations and the external groups that support them fail to understand and grapple with the leadership behaviours that really underpin M&A performance. These behaviours embody the culture, mindset, motivations and actions necessary for sustained success. Our detailed research report Inconvenient Truths identifies 10 critical leadership behaviours both pre- and post-close that impact M&A performance. Here are three of the ten to consider before embarking on your next deal:
All of this might seem obvious. But these points are rarely tackled head-on, and in part that’s because they can by difficult to address. A strong, robust M&A process can help encourage these ‘good behaviours’, or at the very least highlight when they’re not being followed. Those who think this might not be worth the pain and effort might want to know that according to our study, leaders who successfully follow our 10 ‘good habits’ consistently see M&A deliver long-term benefit 72% of the time. That is more than four times more than those who don’t follow the habits. They also saw an increase in share price of 46% over the three years of our study, which is more than twice that of their ‘badly-behaving’ peers.
So here we are in 2018, year in which, if the deal-junkies at Citi are to be believed, portends to be a ‘monster year’ for M&A. Given the globally-synchronised economic upturn, continuing low interest rates, suppressed inflation and roaring capital markets, they could very well be right. Below Carlos Keener, Founding Partner at BTD Consulting, talks Finance Monthly through some of the most anticipated M&A activity of the year.
Indeed the deal frenzy has already begun, with the final half of 2017 witnessing GVC’s takeover of Ladbrokes Coral and the Standard Life/Aberdeen Asset Management merger among others. But a word of caution, at least for those considering acquisitions in the UK: Brexit – soft, hard, or otherwise, is now less than 13 months away, and still we’re without (at time of writing) any certainty on even the outline shape of our future relationship with Europe.
No doubt the lawyers and bankers will continue to talk up the Brexit boom, but the reality on the ground may be rather less clear. At a recent conference, a leading M&A professional representing a FTSE100 organisation disappointingly stated "I think someone in the company is looking into the likely impact of Brexit, I’m sure they’ll tell us if we need to do anything differently as soon they’re ready.” While we all can sympathise, that’s not nearly good enough.
Making a rational assessment of the likely risks UK firms may see over the coming years doesn’t require a crystal ball view of what form Brexit will ultimately take. A look at some upcoming or predicted deals for 2018 illustrates this well.
1. Prompted by its recent struggles, Capita, the outsourcing and professional services group, has just announced that it will be disposing of its less profitable and strategically-central assets and services. Firms heavily reliant on professional service revenue are typically the first to be hit hard in a downturn or in times of uncertainty, and even with a clear, decisive Brexit, lack of business certainty may extend for many years as post-Brexit regulatory and trade conditions – and how they are to be applied – crystallise and settle.
Divesting in an effort to return to core is a traditional approach when the future is relatively predictable and fairly speedy recovery is anticipated. But that’s not exactly the scenario ahead of us. Capita will need to prepare its balance sheet for an extended period of uncertainty while retaining sufficient service diversity and operational agility to accommodate new market demands, conditions, constraints (and yes, opportunities) as they emerge. It is adaptability and not strength which may win the day.
2. The global Pharma sector is likely to see significant M&A activity in 2018 as new drug pipelines soften and US corporate tax reductions take effect. One of the most prominent deals in recent years in this sector was the asset swap and joint venture creation between GlaxoSmithKline and Novartis. And last month GSK’s new CEO, Emma Walmsley, expressed an interest in acquiring Pfizer’s Consumer Health division, estimated to be valued at over $15bn.
Like any global manufacturing organisation with highly-complex supply chains in which materials may cross borders multiple times before reaching the market as a finished product, GSK will need to be extremely careful to scenario-plan the potential impact of new hard, soft or otherwise cross-border tariffs and associated regulations as they come into force.
Business cases that assumed free trade across the EU should be re-examined, and supply chains reviewed to minimise any potential increased cost. Acquisitions of EU-based manufacturing capabilities with the ability to serve local markets may help buffer the firm against any emerging trade barriers.
3. News appeared in January that Fox still wants full control of Sky, despite rejection of the deal by British regulators. The rejection shows the growing importance of political and economic nationalism which can trump investor returns, competition or corporate tax repatriation.
A report in October 2017 by Latham & Watkins describes governments and regulators taking an increasing interest in ’foreign’ acquisitions of nationally important companies in the name of national security. In a twist on this, at the time of writing GKN, the FTSE100 aerospace and automotive giant was fending off an unsolicited £7bn takeover bid by Melrose. While a ‘UK only’ deal, politicians including Vince Cable were commenting on the risk the deal may pose to the UK’s industrial strategy.
Economic nationalism begins at home. So, any UK business looking to buy or sell across borders will need to consider how the deal would look to the public and politicians, not just the shareholders.
4. One area in which everyone agrees change is upon us is FinTech. 2017 deals included Vantiv/Worldpay and JPMorgan Chase/WePay. Brexit’s impact on London’s financial sector will accelerate M&A in the coming years within a sector that’s evolving at warp speed. It will be more important than ever to predict the effects of changes. How will the financial regulatory landscape diverge between the UK and the EU post-Brexit? How will GDPR, data protection and safe haven legislation and practices impact market opportunities and operational challenges across borders? And more tactically – if the FinTech gravity moves or disperses (say to Paris), how will FinTech firms find and retain the top technical talent they need?
As ever, change provides an opportunity and a threat to businesses doing M&A. Size alone will not guarantee success. The successful organisation will pull ahead through a clear strategy and use M&A to expand or adapt their propositions and capabilities in the market. Whatever form Brexit takes, one thing is certain – interesting times lie ahead.
Agave Partners is a cross-border investment bank specializing in the access to the Chinese market for innovative product companies in such domains as Semiconductors, Telecommunications, Data Centres, Artificial Intelligence, Robotics, Automotive and Avionics.
With offices in San Francisco, Beijing and Chicago, Agave Partners represent US and European companies interested in developing strategic partnerships in China for their commercial development and for restructuring their capital. The company realizes Corporate Financing and M&A transactions.
Agave’s ability to source the right strategic partners in China is in their unique blend of banking and operational experiences allowing to align corporate strategies and structure transactions beyond the aptitude of traditional investment banks. Founder and Managing Director Robert Troy tells CEO Today more about it.
Could you tell us a bit about Agave Partners’ M&A practice?
Our M&A practice focuses on mid-market US and European innovative companies, to which we provide our expertise in identifying Chinese industrial groups able to acquire companies whose offering fits the domestic needs.
Our unique positioning in this practice comes from the combination of our effective presence in China with an office in Beijing dedicated to developing strategic relationships with large industrial and private equity groups, and our expertise in technologies at the core of capital-incentive domains that align with the strategic roadmap of these groups.
These are critical ingredients to maximize the outcome of a deal that is beneficial to both parties, while efficiently navigating through the multiple hurdles, be they administrative, financial, or cultural.
Can you detail a recent transaction that Agave Partners advised on? What were some of the issues that you were faced with?
Agave Partners Advisors was mandated by Kalray SA to source a strategic partner in China with interest in using Kalray technology in its application domain and interest in investing in the company.
We prospected industrial groups that we know to be innovation hungry in highly competitive segments of the Chinese market, including data centres, avionics and automotive; searching for a company which can get a strong strategic advantage at adopting Kalray technology for serving its clients.
Because Kalray technology is very advanced, we found various industrial groups in China, among the most sophisticated, curious about it and genuinely interested in discovering how this technology can be put into practice in their product lines; how it offers a discriminant competitive advantage in better serving their clients; and questioning how fast the market can adopt.
On the buyer’s side, we were confronted to the challenge of promoting a disruptive technology and navigating the full cycle of technology assessment in situations involving product designs and many other steps driving to the strategic decision. Our blend of technologists and bankers’ expertise happened to be of critical importance.
On the seller side, we enjoyed a high-level cooperation with an agile client, not short of commitments when extensive travels and endless negotiations were required to match interests, assess the risks, commit on future developments and overall demonstrate a willingness to engage in a powerful but controlled relationship. Our key contributions have of course been to assist in structuring a complex deal negotiated by parties which were not even speaking the same language and belonging to extremely different business cultures. Our multicultural team made of people used to work and deal in Europe, the US and Asia has certainly been the second key factor of success.
What do you think the next 12-24 months hold for the global M&A market?
Antagonist forces are shaping the global technology market. We see growing altogether (i) a renewed interest of corporations for technology innovations, (ii) a levelling of industrial capacities between continents, (iii) a global awareness of not-to-miss massive game-changer disruptions on their reach to maturity in a variety of application domains including but not limited to automotive, robotics, avionics or healthcare, (iv) the adoption by entrepreneurs and CEOs of worldwide reach as a new normal. We also see necessary geopolitics considerations creating a growing level of uncertainties with high potential for delaying the trend toward a global reach.
This push-pull situation makes it extremely difficult to predict what the future might hold, but in the short term, we don’t see any possible inflexion of the growing M&A trend in the technology sector for a variety of reasons.
What are some of the current projects that Agave Partners is working on? What lies on the horizon for the firm in 2018?
Agave Partners is working for entrepreneurs and CEOs having a worldwide development strategy. As long as 2018 is concerned, we are primarily working at increasing our capacities to respond to a fast-growing deal flow of high quality companies which see China as their next frontier.
We also have the ambition to become an investor in our most promising clients. For this purpose, we recently signed an agreement with China Electronic Corporation Corporate Venture and their HDSC branch to launch a multi-corporate fund involving European and American electronic corporations as well. Agave Partners Funds is a work in progress with expectation to be launched in the spring of 2018.
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According to official data collected this year by Quantcast, in the US alone in 2014, 23% of 133,700,000 Black Friday shoppers camped outside a store the night before, and in 2015, all in all the nation spent around $67,560,000,000 in store and $2,932,000,000 online, with an average accumulated spend of $403.35 per person. These stats go to prove why Black Friday is crucial for the economy, as around 30% of annual retail sales occur between this celebrated shopping spree and Christmas itself. This in turn means more staff are hired in the busy period; according to NRF statistics, between an estimated 640,000 and 690,000 workers in 2016.
As many take part in Black Friday’s magic race for deals, most are either behind the cashier’s desk, managing teams, counting the numbers, or on the other side of the retail coin, making the most of prices. To shed light of the kind of situations, violence and anarchy you can expect from Black Friday this year, taking place on the 24th November, Finance Monthly has put together 10 popular videos displaying the worst moments that have taken place on Black Friday over the past decade. Some of these may completely put you off the idea of taking part in this public event, while some will prepare you for what’s to come, if you’re still daring to make the most of it.
Screaming profanities and ‘squaring up’ to one another, these two shoppers are consumed by the Black Friday fury as Asda’s security staff and various members of the public keep the two from ripping each other to shreds. The passion for justice is palpable as they stare at each other with shopper’s rage. “I’ll be outside mate!”
Here we see hundreds of shopping mall dwellers longing for the shop’s shutters to rise, so they can engage in the Black Friday rush they’ve been waiting for all morning. As the shutters reach but an inch off the ground, fingers curl round the bottom, some people squirm under the rail, and heads start popping through the bottom. Before you can say Black Friday, the horde of shoppers are through the gap below the shutters and racing for a find. The shutters aren’t even half way up yet, but the rules are there to be broken, right?
Just over eight members of staff form a barricade dam of stopping power as they proceed to open shop on this fine Black Friday morning in 2016. As the shutters are half a meter up the doors, look who comes crawling in, their first customer of the day, along with a whole other mass of shoppers ready to dig their claws in the best bargains. As the staff themselves are pushed out of the way, and fail in their mission to barricade until open, members of the public are infiltrating their way through the employees’ legs and getting on with their hunt. The staff are clearly scared and try to shut it back down, having to stomp it to the ground. One guy quite reasonably just lifts his hands in the air and says nah forget it, not today.
A group led by L Catterton, the largest consumer-focused private equity firm in the world, recently announced that it has entered into a definitive agreement to acquire Leslie's Holdings, Inc., the world's largest retailer and online marketer of swimming pool and spa supplies and services. An affiliate of GIC, a leading global investment firm and Singapore's sovereign wealth fund, will also make a substantial investment alongside L Catterton. Terms of the transaction were not disclosed.
Founded in 1963 as a one-man pool supply operation in North Hollywood, Leslie's has grown to become the world's largest and most trusted retailer of swimming pool and spa supplies, with more than 890 retail stores in 35 states and a robust omni-channel platform. With over 30,000 SKUs, Leslie's provides everything pool and spa owners need, from chemicals and equipment, to floats and toys. Leslie's highly trained staff also provides best-in-class, personalized services, including professional on-site installation and repairs. In partnership with L Catterton, Leslie's plans to continue expanding its national footprint and enhancing the in-store and online customer experience.
Scott Dahnke, Global Co-CEO of L Catterton, said: "This is an exciting investment opportunity for L Catterton, and the first from our recently closed $2.75 billion flagship fund, L Catterton VIII. Our investment strategy is based on building enduring businesses, characterized by strong consumer demand fundamentals, and fueled by powerful and growing consumer brands. Leslie's fits this strategy perfectly, as the undisputed leader in the stable and growing, yet still highly fragmented, pool supplies and services category. With a well-deserved reputation for delivering pool products and services at great value, we are excited to work with Leslie's proven leadership team to build on the strong foundation that they have set in place."
"We are thrilled to partner with L Catterton, which brings deep retail expertise, brand building experience and an outstanding track record of growing consumer businesses," said Larry Hayward, Chairman and CEO of Leslie's. "L Catterton's partnership approach with management to create long-term value is highly attractive to the Leslie's team. They clearly distinguish themselves with their growth-oriented focus and their deep understanding of our brand and our consumer. Together with the support of our new partners, we look forward to enhancing Leslie's online and brick and mortar experience, while continuing to provide comprehensive, high-quality products and services to our ever-growing customer base."
Marc Magliacano, Partner at L Catterton, said, "The Company's intense focus on personalized customer service and support has built a strong and loyal base of pool and spa owners who look to Leslie's as a full-service provider for all their pool and spa needs and water treatment solutions. Through its successful omni-channel platform, Leslie's is well-positioned to connect with customers at every point of sale, from retail stores, to e-commerce, to commercial service centers. We look forward to partnering with Leslie's outstanding leadership team to reach even more residential and commercial pool owners to deliver outstanding and reliable product and service solutions and make Leslie's a household name."
L Catterton has significant experience investing in specialty retail brands including Restoration Hardware, Sweaty Betty, Peloton, PIRCH, Hanna Andersson, Pinarello and Baccarat.
Nomura Securities served as financial advisor to L Catterton. Kirkland & Ellis LLP served as legal advisor to L Catterton and Sidley Austin LLP served as legal advisor to GIC.
(Source: L Catterton)
Reynolds American Inc. has reached an agreement with British American Tobacco p.l.c. for a $49 billion takeover that would create the world’s largest publicly traded tobacco business. The takeover agreement is currently subject to a $1 billion breakup fee. This merger brings together some of the world’s best-known tobacco brands, from Lucky Strike and Rothmans, to Dunhill and Camel cigarettes.
As of this week, it was agreed that BAT will acquire the 57.8% of RAI common stock that BAT does not currently own for $29.44 per share in cash and a number of BAT American Depositary Shares representing 0.5260 of a BAT ordinary share, currently worth $30.20 per share based on the BAT closing share price as of January 16th 2017, and the corresponding Dollar-Sterling exchange rate.
The per-share price represents a 26.4% premium to RAI's closing price as of October 20, 2016, the day prior to BAT's public proposal to acquire the outstanding shares that BAT does not currently own. Under the terms of the agreement, RAI shareholders will receive for each share of RAI common stock they own, $29.44 in cash and a number of BAT American Depositary Shares representing 0.5260 of a BAT ordinary share. The BAT American Depositary Shares will be listed on the New York Stock Exchange. RAI shareholders will own approximately 19% of the combined company.
The transaction was approved by the independent directors of RAI who formed a transaction committee to negotiate with BAT, given BAT's existing ownership stake and representation on RAI's board of directors, and by the boards of directors of both companies.
Following the transaction, the combined companies become a stronger, truly global tobacco and Next Generation Products company, delivering sustained long-term profit growth and returns. It will maintain a presence in both profitable developed and high-growth developing markets while bringing together a compelling and complementary global portfolio of strong brands including Newport, Kent and Pall Mall. The companies' combined next-generation product development and R&D capabilities will create an innovative pipeline of vapor and tobacco-heating products, delivering both an array of new product options for adult tobacco consumers, as well as diversified sources of profit growth opportunities for investors.
"Through this transaction, we form an industry leader that will focus on innovation and brand building," said Susan M. Cameron, executive chairman of Reynolds American's board of directors. "This combination will create a truly global tobacco company with multiple iconic tobacco brands, and a world-class pipeline of next-generation vapor and tobacco-heating products."
"The transaction delivers significant value to RAI shareholders, and the independent directors on the transaction committee have unanimously voted in favour of the transaction," said Lionel L. Nowell, III, lead independent director of Reynolds American's board of directors. "This is an agreement that offers a compelling premium to shareholders, as well as continued ownership in a company that is well-positioned for long-term success."
"We look forward to bringing together the two companies' highly complementary cultures and shared commitment to innovation and transformation in our industry," said Debra A. Crew, Reynolds American's president and chief executive officer. "British American Tobacco is the best partner for Reynolds American's next phase of growth, and together the two companies will create the leading portfolio of tobacco and next-generation products for adult tobacco consumers."
"We are very pleased to have reached agreement with the board of Reynolds American as we believe that the combination of our two great companies has a very compelling strategic and financial logic that will provide a lasting benefit to shareholders, employees and all other stakeholders," said Nicandro Durante, British American Tobacco's chief executive officer. "This transaction will not only create a truly global business with a world-class portfolio of tobacco and next-generation products, but will also benefit from the highly talented and experienced employees in both organizations. We believe that this will drive long-term sustainable profit growth for the benefit of all shareholders."
British American Tobacco has a strong track record of successfully integrating acquisitions and remains committed to Reynolds American's US workforce and manufacturing facilities.
The cash component of the transaction will be financed by a combination of existing cash resources, new bank credit lines and the issuance of new bonds. A $25bn acquisition facility has been entered into with a syndicate of banks to provide financing certainty. The acquisition facility comprises $15bn and $5bn bridge loans with 1- and 2-year maturities respectively, each with two six-month extensions available at BAT's option. In addition, the facility includes two $2.5bn term loans with maturities of 3 and 5 years. BAT intends to refinance the bridge loans through capital market debt issuances in due course.
The transaction is subject to shareholder approval from both Reynolds American and BAT shareholders, as well as regulatory approvals and other customary closing conditions. The transaction is expected to close in the third quarter of 2017.
Weil, Gotshal & Manges LLP and Moore & Van Allen PLLC acted as legal counsel, and Goldman, Sachs & Co. acted as financial advisor to the Reynolds American transaction committee.
Jones Day acted as legal counsel and J.P. Morgan Securities LLC and Lazard acted as financial advisors to Reynolds American Inc.
(Source: Reynolds American)