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.
Terms of the Deals
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.
M&A Opportunities in an Uncertain Economy
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.”
The transaction process was led by Dentons, assisted by HPP Attorneys, Wenger Vieli, Setterwalls, and Binder Grösswang Rechtsanwälte.
HPP Attorneys advised on the transaction with a team comprising partners Andrew Cotton (M&A) and Anna Roubier (FDI/Regulatory).
Q&A with HPP Attorneys
Please tell us more about the role you played during this transaction.
As the transaction involved a target that supplies defence and law enforcement agents (‘DLE’), the transaction also required a pre closing approval by the Finnish FDI screening authority, the Ministry of Economic Affairs and Employment of Finland.
HPP Attorneys assisted Beretta Holding in submitting a complete notification to the Finnish Screening Authority and the subsequent regulatory process. The transaction was cleared in a speedy manner during Phase I proceedings, with no requests for further information.
How does your work on this deal fit the profile of your firm?
The work on the Beretta Holding/RUAG Ammotec transaction reflects very well the type of assignments that HPP Attorneys handles on a regular basis. We have extensive experience in multijurisdictional matters and regularly assist clients in cross-border transactions, including with respect to regulatory processes, such as FDI and merger control clearances. HPP regularly partners with leading law firms around the world in servicing our clientele.
What impact is this deal expected to have for the wider firearms market, and for RUAG International?
HPP assisted Beretta Holding with the Finnish FDI regulatory process. The Finnish Screening Authority concluded that the transaction has no impact on a key national interest and cleared the acquisition in Phase I proceedings.
Turbulence always creates opportunities for winners and losers to emerge but, following a brief pause on activity at the outset of the pandemic in 2020, dealmaking rebounded strongly throughout 2021 and Bloomberg Business Week notes that global transactions are set to top $5 trillion by the end of the year.
These figures come despite economic volatility and the prospect of tougher competition regulation. Capital, appetite and opportunity have not been in short supply, and investors – particularly within private equity – have been keen to make up for lost time and put excess cash stockpiles to work. The low-interest rates environment is also a factor that has driven activity, alongside the abundance of capital flowing into the economy and chasing deals. This liquidity can also be explained in part by the availability of cheap debt. The coming together of these factors has created a strong pipeline of dealmaking activity and intense competition to get transactions done.
Tim Nye, head of corporate at Trowers commented: "Competition has been so fierce that pent-up demand has led to the amount of capital that can be put to work outweighing the number of deals available. The knock-on impact of this is that confidence has sky-rocketed and valuations have soared."
He adds: "These trends show no signs of abating, based on our conversations within the dealmaking community, and we, therefore, expect a continuation of strong M&A activity throughout 2022".
Dealing with change
The health, social and economic challenges created by COVID-19 meant that organisations of all shapes and sizes had to adjust their business plans and corporate growth strategies. For many, organic growth became more difficult and dealmaking, therefore, grew in importance as a primary option for achieving scale or entering new markets.
The ability to be nimble and agile during intense uncertainty and upheaval has been a key for success, and the best way to pivot into new areas over the past year has often been through merger or acquisition.
In certain sectors where disruption has led to huge changes in demand for services, consolidation and the birth of new market entrants have also provided dealmaking opportunities. Healthcare – and particularly HealthTech – has been an active sector as a result of spiking demand for services related both to the pandemic and to the maintenance of business-as-usual healthcare provision as backlogs grew in the wake of lockdown and other restrictions.
Elsewhere, Real Estate has been heavily impacted during 2020-2021 thanks to social restrictions inhibiting peoples’ ability to carry out a range of activities – from working in the office to visiting retail destinations and using leisure and hospitality venues. With smaller organisations struggling with this uncertainty, and the recent or impending withdrawal of government support schemes, some consolidation activity has occurred with larger entities buying up smaller rivals.
Other sub-sectors have been impacted differently, with industrial and logistics sites seeing spikes in demand thanks to the growing use of online retail and home deliveries as people were forced to spend more time in their own properties.
The ESG imperative
Towards the end of the year, COP26 took centre-stage in November, as world leaders gathered in Glasgow to discuss the changes and commitments that need to be made to achieve net-zero goals and turn the tide in the fight against climate change. The pandemic also helped to thrust ESG considerations into the spotlight, as the impact of an unprecedented global crisis was felt acutely in all corners of the world.
The role of corporates in driving the ESG agenda is vital. With governments, regulators, customers, employees, lenders, insurers and investors increasingly judging companies based on their ESG commitments, these themes are working their way onto the transactional agenda, too.
Just under two-thirds of respondents to a recent Trowers & Hamlins research survey identified ESG as either a significant dealmaking factor or an important factor ‘to a certain extent’, as pressure mounts for due diligence into potential acquisition targets to go deeper than ever before when analysing ESG issues. Large financial institutions from banks to insurers are factoring ESG risks into their pricing decisions, so an ability to demonstrate ESG credentials in those areas is becoming more and more important. With the direction of travel clear for all to see, savvy leaders will already be looking to get ahead of the curve on this to save themselves potential exposure later down the line.
Alison Chivers, corporate partner at Trowers explains: "ESG is an opportunity to set yourself apart from your competitors. If you’re not doing it, you risk finding it harder to get investment, financing or insurance. If you are taking the lead, you can expect to see the benefits.”
As we enter 2022, the embedding of recent and new regulation and guidance will only heighten the need for organisations across all sectors to get their ESG houses in order – this will cover a range of risk areas from working conditions, gender pay and executive remuneration reporting through to climate and sustainability policies. As data and disclosure in these areas become more sophisticated, potential transactions may be scuppered if the ESG numbers do not add up. This in particular is one strong trend from 2021 which we are expecting to become even more deeply ingrained in the minds of dealmaking decision-makers through 2022.
A growing number of corporate investors and private equity firms are employing transactional risk insurance in merger and acquisition agreements to help accelerate M&A deals. Can you tell us a little bit about this trend?
The market for transactional risk insurance (Warranty and Indemnity or W&I)) has been steadily growing over the last 20 years. What had always been seen as a slightly ‘luxury’ product has now become mainstream. The growth of the marketplace came when risk appetite waned and deal teams and their lenders looked for a more ‘belts and braces’ approach to M&A transactions, without diminishing the quality of their bids to sellers. Equally, turning down the peace of mind of an insurance solution was not a risk many wanted to take, as it could prove a costly mistake if a claim did arise. At the same time, the increased availability of the product with new competing insurers in the market meant prices were driven down and more attractive. The industry has also proved itself to be effective in paying claims, which has given confidence to buyers of the product.
What has prompted this increase?
This is due to a number of factors coming together – the fact that the product is much more widely available and understood is probably the most important. Clients need to have confidence in the ability of the insurer to perform in the tight timescales we have come to accept in the M&A world. Also, there is estimated to be in the region of $1.5 trillion of private equity capital currently waiting to be deployed. This makes the buyer’s market extremely competitive and everyone is looking for an advantage in trying to win the bid. By securing an effective insurance policy, buyers and sellers are in a better position when negotiating the respective reps in the sale and purchase agreement (SPA).
How does transactional risk insurance make the negotiations easier?
From a seller’s perspective, this cover can allow them to exit deals with increased funds (no retention), to reduce or eliminate post-closing indemnities, reduce contingent liabilities as well as protect passive shareholders who may not have been part of the sales process. From the buyer’s perspective, it can help to increase the indemnification they have as protection, over and above what they would have received from the seller. In addition, it protects key relationships with retained management at the target company and eases the collection of monies due in the event of a claim, especially in the case of distressed sellers and allows buyers to obtain recourse for unknown issues. By working closely with the W&I insurer at an early stage, the buyer can give the seller comfort around these risks earlier in the bid process, providing them with a potential advantage over competitors.
How has DUAL Asset responded to this trend?
Whilst the W&I market has increased significantly in M&A transactions in recent years, on average buyers still only tend to purchase around 10% of the total enterprise value (EV) of the deal. Whilst the risk appetite in the deal partly drives the decision on the level of cover, the primary consideration is the cost of the policy. This can be between 1% and 5% of the coverage. DUAL Asset identified a niche in the marketplace to offer a much narrower coverage than the traditional W&I policy (covering tax, employment, contracts etc). Our policy covers the basic fundamental warranties in the SPA at a lower price point, and potentially up to the full EV of the deal.
The policy that we originally launched in Europe and now offer globally, including North America, typically sits above the existing W&I policy, as an excess for the covered reps. In some instances, it can be a standalone policy to compliment the W&I policy. Occasionally, in real estate deals, where the buyer decides there is no need for a traditional W&I policy, the DUAL Asset policy can just cover the structural elements of the deal.
How do you think the market will continue to evolve?
There is no doubt that the market will continue to grow. The US leads the way in terms of policies and premiums paid, but penetration of the M&A market for Transactional Insurance still lags behind Europe. We are also likely to see buyers trying to push to breadth of coverage, as they seek to maintain their competitive edge in the marketplace. Insurers will also be asked to look at new acquisition vehicles such as SPACS (Special Purpose Acquisition Companies), which have become popular in the US, to see if they can be included in the process. As long as there continues to be a global M&A marketplace, Transactional Insurance, including traditional W&I and DUAL Asset’s Fundamental product, will continue to play a big part in enabling M&A transactions to complete smoothly.
* Source: DUAL research 2019
Andrew Hillier is the Executive Chairman at DUAL Asset. DUAL Asset specialise in providing transactional insurance solutions in Legal Indemnities, M&A, Probate and Aviation, and are backed by some of the most respected insurance companies in the world. DUAL Asset also created the first and still only legal indemnity comparison site in the UK.
DUAL Asset underwriting Limited is an Appointed Representative of Dual Corporate Risks Limited which is authorised and regulated by the Financial Conduct Authority number 312593.
In any M&A sales process, the seller’s counsel will negotiate a non-disclosure agreement (NDA) with potential buyers and their legal counsel. The one-way NDA that each buyer executes protects the seller’s confidential information. There could be 30, 40, 50 or more potential buyers in a highly competitive M&A sales process, which means an NDA for each potential buyer. Scott Rissmiller has counselled sellers in two different sales processes in the last nine months that involved over 30 and over 50 NDAs, respectively. While some buyers sign the NDA as provided, many buyers negotiate it. Comments on an NDA from the two types of buyers (i.e., strategic and financial sponsors) will vary, especially regarding certain NDA provisions.
The seller’s counsel will not get every point they want in the final NDA from each potential buyer, and thus their counsel must identify the areas to focus on when encountering comments from a potential buyer. Scott lists the three particular areas that often generate comments from any buyer (though their specific comments may vary) as follows:
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Access to and distribution of confidential information
The NDA defines the scope of confidential information (which is broad but often non-controversial) and will specify to whom the potential buyer can share confidential information. To start, the seller should only permit a buyer to share confidential information with their representatives (e.g., officers, directors, accountants, attorneys, bankers, etc.) who need to know such information. A financial sponsor will also want to share confidential information with other parties, including their lenders, partners, operating partners, and perhaps even portfolio companies. The seller will want to avoid the sharing of confidential information with a portfolio company, especially if it competes with the seller (or any part of their business). However, the seller may be willing to permit a financial sponsor with only a few portfolio companies (none of which compete with the seller) to permit disclosure to portfolio companies. A financial sponsor may want to also specify that a portfolio company is not deemed to be a “representative” and thus subject to the NDA unless that portfolio company receives confidential information. In that case, the seller should specify that a portfolio company is deemed to be a representative if it receives or is given access to confidential information—the key factor being whether a portfolio company can access confidential information, not whether it actually receives confidential information. A strategic buyer may want to share confidential information with subsidiaries and/or a subsidiary’s officers, directors and employees. In that situation, the seller is also focused on limiting disclosure, especially because a strategic (or its subsidiary) likely operates in the same industry and may directly compete. The seller and their advisers should evaluate these types of comments on a case-by-case basis and consult with their business representatives and bankers to determine the nature and history of the particular buyer and whether it presents a legitimate opportunity and justifiable risk.
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Non-solicitation
In order to receive confidential information (including information regarding key executives and employees) and potentially meeting with key executives, a buyer is often required to agree to a non-solicitation provision so that it cannot poach the seller’s employees. This is of greater importance with strategics who compete with the seller or a financial sponsor with competing portfolio companies, especially if the seller is selling only certain assets or a line of business. For some buyers, the seller may be willing to limit the non-solicit to senior executives. Aside from customary non-solicit carve-outs (such as public advertisements), sellers prefer including “direct or indirect” language with respect to solicitations so that a buyer cannot have a representative circumvent the non-solicit. Some financial sponsors may want express language stating that the non-solicit does not apply to any portfolio company that has not received confidential information. Most NDAs specify that it applies only to the representatives who receive or are given access to confidential information, thus eliminating the need for any such express language, which could otherwise be interpreted as a blanket waiver in favour of the buyer.
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Retention of confidential information
Buyers typically want language expressly permitting a buyer to retain confidential information in electronic archives pursuant to normal course computer backup operations or to comply with applicable legal and regulatory requirements and record retention policies. An issue arises when the NDA has a relatively short set term because the seller will want any confidential information retained by the buyer after the term to be protected by the NDA’s confidentiality and non-use terms beyond such term, as certain confidential information will not go stale or may be trade secrets. For example, say a strategic buyer drops out of the sales process where the seller is selling a line of business; in that case, the seller is still operating following the transaction, and yet a competitor now has the seller’s confidential information. The seller has a few options, including (i) specifying that confidential information retained for archival purposes or compliance reasons is subject to the NDA for as long as it is retained or (ii) setting a tail period beyond expiration or termination, and/or requiring the buyer to limit access to such retained information to only legal and compliance personnel who need to access it. Financial sponsors with extensive portfolios or who investigate hundreds of potential deals may object to long-standing obligations due to the administrative burden. The seller’s counsel should, as with any other sensitive part of the NDA, consult with the business representatives and bankers to determine what may or may not be acceptable in the circumstances.
Takeaways
- Evaluate comments on sensitive parts of the NDA on a case-by-case basis and gather input from the business representatives and bankers regarding that particular buyer.
- After receiving comments from a few buyers, the seller and their counsel and bankers should discuss and agree on “ground rules” for comments on the NDA to help streamline the process.
- Recognise that each buyer and their portfolio of companies or subsidiaries will vary—changes from one buyer may be acceptable but similar changes from another buyer may not be.
- Specifically draft the non-solicitation provisions to make clear what is permitted so that it is also clear what is not permitted.
- Include tail language so that confidential information that is necessarily retained remains protected.
Nick Collevecchio, Counsel in Venable’s corporate group, contributed to this article.
UK telecoms giant TalkTalk has agreed to a £1.1 billion takeover deal proposed by Toscafund – its second-largest shareholder – and private equity investors Penta.
TalkTalk announced details of the takeover bid early on Thursday. Should they approve the deal, TalkTalk investors will receive 97 pence per share, a 16.4% premium on its share price on 7 October when talks first began. If this occurs, TalkTalk will be de-listed from the London Stock Exchange.
Including debt, the deal values TalkTalk at around £1.8 billion. Toscafund, which is controlled by hedge fund tycoon Martin Hughes, already controls a 30% stake in the company.
Sir Charles Dunstone, chairman of TalkTalk, spoke optimistically about the benefits the deal would bring for the ISP. “Being a private company would allow us to accelerate adoption and focus on our role as the affordable provider of fibre for businesses and consumers nationwide,” he said.
“The telecoms industry is going through a fundamental reset and we are keen to play our part in it.”
TalkTalk is a budget broadband and phone provider that provides services to around 4.2 million UK customers. In addition to announcing the takeover deal, it published its half-year results on Thursday, showing a statutory pre-tax loss of £3 million during the six months leading up to 30 September compared to a £29 million profit during the same period in 2019.
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The company said it had been heavily impacted by the COVID-19 pandemic, which had left engineers unable to visit customer premises to connect them to the network. It also noted that the closure of third-party overseas call centres had been a detriment to its customer service capabilities. While revenues from phone calls also slipped, the broadband provider noted that data usage had increased more than 40% during lockdown periods.
Shares in TalkTalk were up 1.7% in early Thursday trading. The Toscafund-Penta takeover is slated to take place in the first quarter of 2021.
AstraZeneca, the British pharmaceutical company currently working in collaboration with Osford University on a COVID-19 vaccine, announced on Saturday that it would acquire US drugmaker Alexion for $39 billion.
As part of the deal, the FTSE 100 firm said that Alexion shareholders will receive $60 in cash and about $114 worth of equity per share, a premium of more than $50 per share. Alexion shareholders will own around 15% of the merged company.
The boards of both firms unanimously approved AstraZeneca’s takeover, which is expected to close in Q3 2021. The deal was the result of exclusive talks with no competitor involved, and will broaden AstraZeneca’s portfolio with access to Alexion’s rare-disease and immunology drugs.
"Alexion has established itself as a leader in complement biology, bringing life-changing benefits to patients with rare diseases,” AstraZeneca CEO Pascal Soirot said in a statement. “This acquisition allows us to enhance our presence in immunology.”
Ludwig Hantson, CEO of Alexion, also hailed the deal: "We bring to AstraZeneca a strong portfolio, innovative rare disease pipeline, a talented global workforce and strong manufacturing capabilities in biologics.”
Shares in AstraZeneca fell 9% on Monday as investors moved to price in the deal, which is now awaiting regulatory approval before it can go ahead. Shares in the company have fallen by around 17% from their peak in July, as Pfizer and Moderna have made swifter progress in developing and receiving approval for their COVID-19 vaccines.
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AstraZeneca also revealed on Monday that it will take out a £13 billion ($17 billion) bridging loan to finance its takeover bid.
UK-based insurance giant RSA has accepted a £7.2 billion cash offer from Canada’s Intact Financial and Denmark’s Tryg, marking one of the biggest takeover bids in Europe this year.
RSA said in a statement on Wednesday that its directors had backed the Intact-Tryg bid unanimously, and recommended that shareholders vote in favour of the offer.
The deal values RSA at 685 pence per share, representing a 50% premium on the company’s share price prior to news of the consortium’s takeover bid breaking earlier in November. If approved by RSA shareholders, the company would be split between Intact and Tryg, with Intact holding on to RSA’s operations in Canada, the UK and elsewhere, while Tryg would take over its businesses in Norway and Sweden. The two firms would co-own RSA’s Danish unit.
Tryg will pay £4.2 billion for its portion of the business, while Intact will pay £3 billion.
RSA is best known in the UK for its “More Than” brand, which provides home, commercial and motor insurance. The firm also maintains large operations in Ireland, Scandinavia and Canada.
Martin Scicluna, chairman of RSA, urged investors to back the offer. “We believe that our staff, our businesses and our customers can prosper under the stewardship of Intact and Tryg, two great businesses with long histories and strong reputations,” he said.
The chief executives of Intact and Tryg welcomed RSA’s acceptance of the deal and the opportunities for expansion that it is likely to provide their businesses.
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RSA’s largest shareholder, Cevian Capital, also said that it supported the takeover. “We assess that the long-term competitiveness of RSA’s business will benefit from combining with Tryg and Intact, the best-performing non-life companies in their respective geographies,” said Christer Gardell, Cevian’s co-founder and managing partner.
Shares in RSAS rose 4% in early trading on Wednesday following the news, reaching 673 pence apiece.
Saudi Aramco, the world’s largest oil company, has hired a group of major cash in an effort to raise cash as the price of oil slumps further.
A bourse filing from Aramco revealed that the company has contracted Goldman Sachs, JPMorgan, Morgan Stanley, HSBC and NCB Capital to arrange investor calls ahead of a multi-tranche US dollar-denominated bond issuance. The calls will begin today.
A host of other banks are also involved in the deal, including BNP Paribas, BOC International, BofA Securities, Credit Agricole, First Abu Dhabi Bank, Mizuho, MUFG, SMBC Nikko and Societe Generale, as shown by a document issued by one of the banks.
Aramco did not share details on the size of its latest proposed issuance, though its benchmark multi-tranche offering is planned to consist of tranches for three-, five-, 10-, 30- and/or 50-year tranches, subject to market conditions. Benchmark bonds generally see a minimum value of around $500 million per tranche.
The move comes as ratings agency Fitch revised its outlook on Aramco from stable to negative last week. Earlier this month, the company posted a 44.6% dive in third-quarter net profit compared to Q3 2019 as the COVID-19 pandemic continued to drag oil prices down.
Aramco has already raised a $10 billion loan this year and requires $37.5 billion to pay dividends for the second half of 2020. It also requires cash to fund its $69.1 billion purchase of a 70% stake in Saudi Basic Industries (SABIC), which is set to be paid by instalments until 2028.
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Oil prices fell to historically low levels in March and April in the initial onset of the pandemic, with West Texas Intermediate even falling into negative value for the first time ever. Though WTI and Brent crude made a comeback in August, prices have since dropped again on fears of a highly damaging “second wave”.
Big Four accountancy firm PricewaterhouseCoopers (PwC) plans to sell its fintech unit amid mounting scrutiny on its potential conflicts of interest within the sector.
The unit, eBAM, uses PwC-developed technology to automate regulatory risk analysis for around 10 major London-based finance firms. It is set to be acquired by its management and rebranded as LikeZero in a deal backed by UK-based private equity firms Souter Investments and Manfield Partners.
Michael Lines, PwC’s former head of contract solutions, will become CEO of LikeZero. Speaking with Financial News, he said that the unit’s sale was prompted by regulations limiting the services that Big Four firms could provide to the financial institutions and listed companies they audit.
Specifically, restrictions introduced by the Financial Reporting Council – the UK audit watchdog – prohibit PwC from selling its own technology to their audit clients. The FRC also prohibits non-audit PwC clients from continuing to use PwC-developed technology if they become customers of the firm’s audit business.
“In the current environment, PwC [is]... not really the right home to turn LikeZero into a proper global business,” Lines said.
In 2016, the FRC introduced measures restricting Big Four firms from providing audit clients with fintech solutions as part of an initiative to reduce conflicts of interest in the financial services sector. It built on these measures in 2019 by banning auditing firms from providing certain clients, including banks and insurers, with advisory services such as remuneration and tax advice. The move was intended to strengthen auditor independence following a number of scandals, including the collapse of department store chain BHS and outsourcer Carillion.
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Chris Biggs, Partner at Theta Global Advisors, commented on the announcement: "This announcement is another move by a Big Four firm to realign its business model with the FRC regulations to prevent a conflict of interest with its auditing clients.”
“The global pandemic has shone a light on the practices of the Big Four and their interests in the auditing and non-auditing space. Now, they are beginning to sell-off businesses that could be deemed to go against regulations and this is unlikely to be the final announcement in the space.”
eBAM’s technology allows financial institutions to automatically search complex legal documents potentially thousands of pages long for risks that could arise from significant regulatory events, such as Brexit.
The value of the deal is not yet known, and is set to be announced later today.
Finablr Limited, the owner of Travelex and other money changing companies including UAE Exchange, announced on Tuesday that it had been approached with a takeover bid from Prism Advanced Solutions.
The details of the deal were not disclosed, but it is understood that Prism’s offer was made for purchasing 100% of the share capital of FInablr and its subsidiaries. The two companies are now working towards finalising the exact terms of the deal.
“After months of hard work under very trying liquidity conditions compounded by the impact of the coronavirus on our operations, I am excited to now go forward with Prism,” said Bhairav Trivedi, CEO of Finablr, in a statement. “We are honoured to be involved in this game-changing transaction in the Middle East."
Prism Advanced Solutions is a consortium of investors with connections to Israel, fronted by Guy Rothschild, a Swiss-based financier and former CFO at Maclaren.
“We acknowledge that it's going to be a challenging journey and that there would be difficulties along the way, but we are confident that with the support from all parties involved we will realize Finablr's full potential,” Rothschild commented on the deal.
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Finablr has come under great financial strain this past year as it was reported to be $1.3 billion in debt, with further losses coming as the COVID-19 pandemic impacted the company’s forex business. Its shares were suspended in London in March, having fallen 95% prior to their suspension, and its CEO and CFO subsequently resigned
A filing with the London Stock Exchange (LSE) indicated that Prism intends to restructure and settle Finablr Limited’s debts and will shuffle its board. The offer also includes the provisions of providing working capital for Finablr and its subsidiaries.
Both parties aim to close the deal within the next four weeks, once a share purchase agreement has been negotiated and Finablr has gained the approval of its shareholders and regulators to go ahead with the merger.
Betting giant Caesars Entertainment has tabled a £2.9 billion bid for UK-based bookmaker William Hill and is in “advanced discussions” regarding a takeover, according to an announcement from the US company.
Caesars offered William Hill’s shareholders 272 pence per share for the UK firm, a premium of 57.6% on its 1 September closing price, the last day before Caesars first approached the company about a potential takeover.
Caesars said that William Hill’s board was “minded to recommend” the offer to its shareholders.
News of a bidding war between Caesars and buyout fund Apollo emerged last week, boosting William Hill’s shares to 312 pence each by close of play on Friday. However, Monday trading saw it shed around 11% to 278.5 pence, leaving the company with a value of £2.9 billion.
Caesars already owns a 20% stake in William Hill’s operations in the US, which includes exclusive rights to operate sports betting under the Caesars brand.
"The opportunity to combine our land based-casinos, sports betting and online gaming in the US is a truly exciting prospect,” said Tom Reeg, CEO of Caesars. “William Hill's sports betting expertise will complement Caesars' current offering, enabling the combined group to better serve our customers in the fast growing US sports betting and online market.”
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Apollo – which is also one of two firms competing to buy UK supermarket giant Asda – has yet to publish details of its potential offer for William Hill.
