Two other companies, the Organisation for the Review of Care and Health Applications (ORCHA) and Peak Technology Solutions also increased their space. All firms had previously occupied smaller spaces on the site.

MCS is a certification company for green energy technologies such as heat pumps and storage batteries. The firm completed its move into its Violet office in July. The office – which spans 4,416 square feet – will serve as a base for the company’s 30+ employees.

MCS chief executive Ian Rippin hailed the move as a positive step for the company. “Our investment in a purpose-built, high-specification workplace at Violet – in the heart of a buzzing technical campus – will continue to reflect our values of collaboration and help to foster even more talent within MCS well into the future,” he said in a statement.

Peak Technology more than doubled its own footprint from 2,000 square feet to 4,200 square
feet, with aims of improving its performance and becoming better able to manage its manufacturing assets and their environmental impact. Likewise, ORCHA is taking up a 4,500 square foot premises to enable the addition of 100 new team members to its headcount.

Advisers on the transaction:

Wellensiek

Rosin Büdenbender

Iuslake

Görg

Latham & Watkins

Noerr

Dentons

Brinkmann & Partner

Milbank

KSBG has been established by six municipal utilities of the Rhine-Ruhr area as an acquisition and financing vehicle for STEAG, a leading energy producer and energy services provider with over 6,000 employees and 7,200 megawatts of installed capacity. STEAG Group, having for decades been one of the leading German operators in the sector of hard coal-fired power generation, is in the process of repositioning itself and focusing on business areas and markets with growth potential, in particular renewable energies.

Dr Achim Compes, Partner at Görg, was involved in the transaction as Corporate, Corporate Financing and Energy legal adviser of the shareholders of the KSBG/STEAG Group.

Further areas of legal advice included:

• Restructuring - Martin Stockhausen, Görg
• Corporate - Christoph Niemeyer, Görg
• Tax - Adalbert Rödding, Görg
• Financing - Thomas Lange, Görg
• Public Procurement - Kersten Wagner-Cardenal, Görg

The shareholder Stadtwerke Dortmund AG was advised by Freshfields (Lars Westphal, Konrad Schott and Hauke Sattler. Görg closely cooperated with Freshfields.

As a mechanism for fostering growth and increasing shareholder value, M&A is an important tool. In particular, cross-border mergers and acquisitions (M&A) can be a useful springboard for those eyeing expansion and future prosperity. Cross-border M&A​ has emerged to quickly gain access to new markets and customers. Cross-border deal activity continues and companies will need to weigh the risks and rewards of engaging in these ventures against making greenfield investments.

Advantages of cross-border M&A include expediting time to market, gaining access, scale, brand recognition and mitigating competitive moves. At the same time, companies are acknowledging the challenges posed by cross-border deals in terms of market assessment, regulatory evaluation, cultural fit and deal structure evaluation.

M&A market development and forecast

Based on international data^*, global M&A activity in 2019 was down 6.9% compared with 2018 (which was a historical high), but still above 2016 and 2017 levels. Cross-border transactions have been reduced in the same time period by 6.2%. Taking a deeper look in the different regions of the world, transactions developed in different ways. While APAC and Europe report a significant downturn, MEA, Japan and Latin America report an increase. Also, Inbound and Outbound transactions evolve in different ways.

Figure 1 - M&A Market Datasource*: Baker McKenzie, Mergermarket, Deloitte - own illustration

M&A professionals expect that global deal-making will experience a continued hangover in 2020 due to ongoing worldwide economic uncertainty and the risk of a global recession. The deal flow in the next years will be mainly driven by technology, market consolidation, investor activism and private equity.

However, acquisitions do remain an important growth strategy for companies worldwide. It’s expected that economic conditions will improve by sometime in 2021 and the forecast predicts a subsequent uptick in transaction activity – especially in cross-border transactions.

The rewards of cross-border M&A

Several drivers create a considerable business case for cross-border M&A transactions. Saturation or slowdown in core markets and the need for diversification are the primary drivers. But regulatory uncertainty in home markets and high repatriation costs of overseas earnings, technology and productivity enhancement synergies are important drivers as well.

Based on these general considerations, companies take the extra effort of cross-border M&A transactions only if they can achieve substantial rewards from the specific target. Historically, the most important reward was to diversify the revenue streams of companies; either in product diversification or geographic diversification (portfolio diversification). At the same time, a regulatory environment which ensures investment protection or generates substantial tax benefits is a meaningful reward which can be realised (favourable regulatory environment).

By entering a new market through acquisition, companies can aid cost efficiencies if it increases sales (cost synergies). Besides costs, new markets create access to new customers and allow to scale fast (scale efficiencies), whilst besides these key rewards, companies can realise other rewards like access to new talents, adding new distribution networks or securing new product technologies.

The risks of cross-border M&A

Like with every strategic decision, rewards come with some specific risks. Due to the fact that every country has different tax laws, tax is a considerable risk. At first glance, getting tax security seems tedious, but getting blindsided by tax regulations can be very costly (tax). Besides tax regulations, other countries have different regulations for products, operational management, human resources, etc. This risk enforces a detailed analysis of the regulatory landscape of the target. A country’s political stability can also begin to totter, especially in the case of a change in Government; not only for developing countries but also for mature states (political landscape). In addition to “hard” facts, differences in culture and talent should not be forgotten.

Due to these risks, acquiring companies may have to recalibrate their perceptions of risk and their traditional due diligence process to address both common and unique risk factors that accompany cross-border M&A transactions. The deal team will need to focus on common risk factors such as national and regional tax laws, availability, accuracy and reliability of the target, company’s financial information, the country’s political stability and the target’s compliance with the required regulations.

Integrated M&A Maturity Model for efficient cross-border M&A deals

The complexity of cross-border M&A forces companies to establish efficient structures and processes. With integrated M&A transaction management, all necessary components for a successful transaction can be bundled. This approach ensures that all necessary experiences in merger & acquisition projects in terms of integrated control tools, project management tools and more are in place. With M&A 4.0 oriented platforms and tools it´s possible to increase process and cost efficiency, transaction security and the speed of the transaction.

Executive summary for cross-border M&A

Companies can generate significant rewards in cross-border M&A and increase their corporate value. Executives should plan ahead, conduct thorough due diligence and closely manage pre- and post-deal execution.

Below are some leading practices, based on the experiences of several M&A deals:

• Establish a sound M&A organisation through an integrated M&A maturity model.
• Ensure that the deal objectives/rewards are known and managed in all phases of the M&A lifecycle.
• Integrate all due diligence activities and manage the specific cross-border risk proactively.
• Optimise the deal structure to meet the deal objectives/rewards.
• Define the overall integration scope, approach and plan for achieving both day 1 and end-state goals.

About ARTEMIS Group and the Author

ARTEMIS Group is an international and cross-sector corporate finance and M&A consulting boutique for start-ups and medium-sized companies, active in the market since 2001. The core services cover mergers & acquisitions, corporate finance and advisory services. Based on a wide strategic partner network, ARTEMIS Group has a footprint in all relevant markets.

Torsten Adam, Managing Partner at ARTEMIS Group, has more than 25 years of work experience in mergers & acquisitions, corporate finance and advisory services. His core competencies are in the M&A transaction management, cross-border projects, structured and project finance as well as advisory services. He has been involved in numerous projects in the fields of automation & digitalisation, renewable energies & cleantech, agriculture & food and FinTech/financial services. Adam has overseen various cross-border M&A transactions with involvement from Asia, Africa, the Americas and Europe.

IFC’s financing will help improve Argentina’s mobile and fixed broadband infrastructure through the installation of high-speed fiber optic and the upgrade of wireless transmission equipment by Telecom Argentina. This second financing follows an earlier one in 2016 and will help revert a decade-long trend of underfunding in Argentina’s telecommunications sector which has hampered coverage, quality of services and data transmission speeds, particularly outside the city of Buenos Aires.

Becker, Glynn, Muffly, Chassin & Hosinski LLP acted as international transaction counsel to IFC for this financing, having previously worked with IFC on a 2016 financing of a Telecom Argentina subsidiary.  The Becker Glynn team was led by Partner Peter Hosinski, with primary assistance from Associate Andres Sardi.  Partner Rachel Wasserman, Counsel Kenneth Stuart, and Foreign Associate Helena Romero also offered assistance to the team.

Below, Rune Sørensen, at Nets, explores with Finance Monthly the impact that sophisticated card infrastructure can have on mobile-led banking.

All this innovation is pushing and pulling card infrastructures in ways no-one could have predicted a decade ago. Mobile banking, ecommerce integration, loyalty and rewards schemes and even IoT payments all link to cards. That’s a lot to ask of a back-end system.

So the question is: how can issuers balance a need to be perceived as innovative with providing a reliable, compliant and fit-for-purpose payment infrastructure?

Payment revenue is falling, so issuer’s profit margins are being squeezed. Technological change is advancing faster than internal systems can be updated, and the demand for developers with the skills to design and implement back-end solutions is growing faster than supply. As a result, the most forward-thinking banks are taking a critical look at their go-to-market strategies, and questioning if a business model where they design, implement and maintain their own systems is still feasible.

Technological change is advancing faster than internal systems can be updated, and the demand for developers with the skills to design and implement back-end solutions is growing faster than supply.

Take payment gateways as an example. Banks need a payment gateway to the card schemes as they are the backbone of broad e-commerce payment acceptance for their customers, thereby enabling banks to benefit from the international e-commerce market - set to grow to $4.5 trillion by 2021[1]. To avoid locking themselves in with a single scheme, these gateways must also be card scheme agnostic. Issuers now have the choice of whether to develop and maintain these gateways themselves, or to prioritise reliability and time to market by working in collaboration with a trusted partner.

The debate around outsourcing infrastructure has been simmering under the surface for the last few years, and was brought into focus by the Second Payment Services Directive (PSD2). Open banking is bringing huge opportunities to banks because the importance of national borders in the provision of financial services is diminishing. This opens up the market and benefits consumers, and enables banks to target whole new countries of potential customers. However, these opportunities come hand in hand with two significant challenges.

Open banking is bringing huge opportunities to banks because the importance of national borders in the provision of financial services is diminishing.

First, banks must ensure that their payments infrastructure is compliant not only with EU and their own national regulations, but the domestic regulations of any other international markets they intend to enter, as well as the complex and constantly evolving requirements of the card schemes. Card scheme compliance alone is a great responsibility, demanding increasingly more resources as the service portfolio diversifies and becomes more complex, predominantly driven by mobile payment enablement. This is an enormous undertaking – and one difficult to justify when there are dedicated providers of back-end systems offering full compliance for less than it would cost a bank to create and maintain it themselves.

Second, scalability is key. In the increasingly globalised world of financial services, exciting new products must be made available to all customers at the same time, without any of the downtime associated with launching new products and systems. Stability and security are fundamental to banks; innovation alone means nothing.

It’s clear that, in an era where banking and financial services are evolving faster than ever before, banks need to put their money where it counts. A flexible and reliable card infrastructure will be crucial to a successful transition as more and more financial services move to being predominantly mobile – and in the future, maybe even mobile-only.

Although most consumer-facing financial institutions now offer mobile applications, that doesn’t mean that they are ready for a world where smartphones are the primary point of contact with their customers. This is a new reality, and as the industry changes issuers must evolve too. Those that survive and thrive will be the banks that focus on their delivered customer journey and value-adding core business areas – and it’s time to ask if this really includes developing and maintaining back-end systems.

So, put your cards on the table. Is your infrastructure up to the challenge?

[1] https://www.shopify.com/enterprise/global-ecommerce-statistics

Blockchain has been synonymous with crypto currencies for some time but its range of applications and roles in the wider digital transformation are now much more fully understood. This is certainly true of the financial industry, which is gradually shaking off its legacy systems and incorporating this revolutionary technology into an ever-growing number of uses.

Blockchain is correctly described as the technology behind crypto currencies, recording transactions made between parties. But its key and unique feature is its capacity to provide an undisputed audit trail. It establishes an incorruptible digital ledger of transactions that can be programmed to record every data item of value.

In practice, Blockchain acts like a single spreadsheet copied thousands of times across a network of computers. This spreadsheet can be updated on a constant, real-time basis and is shared identically across the network.

Using Blockchain, two strangers can conduct business with no need for a third party, while creating a legally-indisputable record of an agreement. As such, there is no point of weakness at which data can be corrupted or hacked. This issue is of growing importance for those players involved in deals in which adding more contact points increases vulnerability exponentially.

Using Blockchain, two strangers can conduct business with no need for a third party, while creating a legally-indisputable record of an agreement.

Transactions are more efficient and secure

Each year the financial industry conducts trillions of euros-worth of transactions and Blockchain has the potential to revolutionise how these deals are executed.

Blockchain streamlines and speeds up transactions, facilitating fast and secure payments with less cost, potentially anywhere in the world. The security that Blockchain provides is also a key element in that it renders the tactics used by cybercriminals as obsolete.

JP Morgan, HSBC and Bank of America Merrill Lynch are already exploring Blockchain to facilitate international payments and trade-related transactions but Blockchain can also be used in the real estate sector, for example, to conduct transactions, including the transfer of properties and escrowing of funds.

Smart contracts can deliver powerful changes

Blockchain can also be used to apply ‘smart contracts’, which are still at a nascent stage of development, but which have the potential to deliver powerful changes in a wide range of sectors.

Smart contracts have the terms of agreements written into computer code and this enables the automation of certain functions, such as authorised parties conducting transactions according to the terms. A simple illustration of this is a vending machine, which enables a consumer to buy a bar of chocolate at a fixed price without the need for any third party.

Blockchain can also be used to apply ‘smart contracts’, which are still at a nascent stage of development, but which have the potential to deliver powerful changes in a wide range of sectors.

Smart contracts have tremendous potential. They provide security and consistency and help to reduce transaction costs, not least by reducing the need for ‘middlemen’. At present, they are far from flawless and work still needs to be done to address the grey areas that, in practice, often arise in contracts and transactions. There is much room for refinement, but such contracts do already have clear applications. In real estate, for example, smart contracts can keep track of leases and monitor payments. Going forwards, smart contracts can only become much more commonplace in the financial industry.

Incorruptible long-term data storage

The technology by which computers store information has gone through several cycles over the decades. Data carriers have seen evolution from punch-cards and magnetic tape to floppy and zip discs, to the more familiar CDs, DVDs, hard drives and USBs. While the latter formats are still widely used, they are clunky and perishable.

Drooms is the first virtual data room (VDR) provider to recognise Blockchain’s potential in the transaction space and incorporate it into its product offering. By using this technology, information that was previously archived using DVDs, hard drives and USBs can be authenticated at the click of a button.

Such documentation is invaluable in the legal guarantee phase of a transaction. If there is a legal dispute, then there can be no argument as to who accessed which documents and data and when. Parties cannot argue that they were misled with regards to what they were buying.

Drooms is the first virtual data room (VDR) provider to recognise Blockchain’s potential in the transaction space and incorporate it into its product offering.

Drooms is also storing the data on its servers for a fee for the duration of a warranty period. Whereas DVDs might be lost or corrupted over time, for example, this issue does not exist if a data room is available for reactivation whenever required and all data has been verified and archived according to a unique Blockchain record. All parties with a password will be able to access the data at any time and without the need for notaries.

Ahead of the technology curve

Drooms’ current goal in relation to Blockchain is to provide tamper-proof, cutting-edge and long-term data storage and protection with quick, secure and unrestricted access for all parties involved. We currently offer all modern formats of storage, but we have no doubt that Blockchain will eventually supersede these, not least because it will not fundamentally alter the costs of a VDR initially and over the longer run it will only reduce them.

Going forwards, financial professionals need to consider the power of Blockchain to disrupt their businesses and industries and to pinpoint ways in which they can leverage this ground-breaking technology to their advantage.

Further ahead, we see tremendous potential in applying Blockchain to the incorporation of digital signatures and improving contract analysis. Enabling clients to sign documents within a data room, thereby avoiding third-party involvement and the need to print and sign documents before re-uploading them to the system, boosts efficiency without creating inferior versions of contracts.

Thanks to Blockchain, future data rooms could enable users to read and pull up previously unsearchable contracts that have been signed by specific parties, thereby automating traditional contract management.

Going forwards, financial professionals need to consider the power of Blockchain to disrupt their businesses and industries and to pinpoint ways in which they can leverage this ground-breaking technology to their advantage. Our plan is to help our partners by staying ahead of the technology curve, finding new and innovative ways in which to help them using Blockchain.

Website: https://drooms.com

Headlines have raised fears in recent months that robots threaten many of our livelihoods. However, Jan Hoffmeister from Drooms says that those in the private equity (PE) industry should instead be encouraged by how Artificial Intelligence (AI) technology can give them an edge in a competitive marketplace.

AI technology cannot replace human thinking in relation to strategy and business planning, which are fundamental to PE. But it is an impressive tool when it is correctly incorporated into the more process-driven functions of PE firms, increasing the power to collect, process and distribute information to the right parties with much greater speed and accuracy.

The need to stand out is imperative in the highly competitive PE market. Analysis by EY¹ shows that while the industry has made a strong recovery after the crash of 2008, there is also a lot of ‘dry powder’ sitting in the wings because of intense competition for deals.

Total PE commitments globally stood at US$530.7 billion in 2016, which was close to the US$616.7 billion pledged in 2007. However, in 2017, only US$440 billion of transactions took place versus US$748.4 billion in 2007. In terms of dry powder, there was US$525 billion sitting without investments in 2016.

The key issue is that the right investment targets with appropriate valuations are hard to find. Offering a solution to managing the deal-making process helps a PE firm stand out amid intense competition. Using a virtual data room (VDR), which leverages AI technology, makes a firm best in class, whether it is used for a one-off transaction or to create value in assets over their entire life cycles.

Successful PE firms are thorough in their due diligence, nimble and open-minded to pinpoint the right opportunities and disciplined about formulating the right investment philosophies.

There are two key areas in which a VDR is useful for PE firms, particularly if it is used during the ‘hold’ phase of an asset. The first is consistency, in that documents can be updated regularly, giving the vendor full control over data, sourcing investment targets and achieving correct valuations. The second is responsiveness – documents are always ready, so assets can be bought or sold whenever required.

Given that the intention of PE firms is always to sell an asset, it is especially relevant for them to establish a ‘life cycle’ VDR that can be used to manage a company throughout the period of ownership, from purchase, through management and on to divestment.

A VDR connects authorised users, including those inside a company and their external stakeholders, digitally and in a secure environment with real-time access to all relevant documentation.

A VDR always makes documents relevant to a transaction available to authorised parties and helps ensure that they are up-to-date. All data is stored securely online on a server platform and is always accessible to both internal and external parties, depending on their individual permission levels.

Creating a database in which documents can be updated consistently gives asset owners full control and the ability to react to the latest market conditions, bringing assets to market quickly when the conditions are right, sometimes at short notice.

One of the strengths of the Drooms NXG VDR is its Findings Manager function. This improves the vendor due diligence both prior and during the sales process. It allows for the automatic pre-selection of documents and helps in the assessment of potential risks and opportunities within a transaction. This yields greater control, instills confidence in potential buyers and cuts disruption to existing business.

Those PE firms involved in cross-border deals will find the Drooms transactional room particularly useful. It includes a tool that translates documents in real-time, ensuring risk assessments are maintained in a timely fashion throughout the process.

Essential elements

The integrity of documentation is paramount for PE firms. When deals are going through, unclear, incomplete or erroneous documents can cause all manner of problems, including sales falling through. Documentation must provide an accurate assessment of the value of an asset.

For clarity and transparency, a VDR must also have a stringent and standardised index structure for all assets within a portfolio. All an asset’s documentation should be organised in the same manner, allowing quick access to relevant content for the purposes of comparison. Long-term value can be created in assets if they are encapsulated by standardised and sustainable data – and life cycle data rooms are the optimum tool for this purpose.

The practicalities

In practice, careful planning is essential to manage a life cycle VDR successfully. This starts with getting an accurate snapshot of a project’s current progress using key metrics such as available (and missing) documents.

The time frames, processes and the responsibilities of all relevant parties should be defined, and their commitment secured to the proposed solutions, including any changes to management processes.

All the relevant documents must then be collated and, if necessary, digitised before being uploaded to the VDR. Finally, the VDR must be regularly monitored and maintained, updating and adding documents as required.

Most powerful tool in the box

PE firms that wish to manage a market currently characterised by dry powder, high valuation and enhanced competition need to adopt beneficial technologies. A VDR adds value at all the stages of an asset’s lifecycle, including buying, holding and selling, making the whole process much smoother. The value added in terms of making better deals, improving operational efficiency and enhancing the transparency increasingly demanded by stakeholders makes a VDR one of the most powerful tools at a PE firm’s disposal.

¹Source: EY, Global PE Watch, 2017

Tapia, Linares y Alfaro (“Talial”) through Linklaters LLP, London, advised a group of Banks on a high yield bond offering by means of which Blackstone would finance a portion of the acquisition price of Cirsa Gaming Corporation S.A (“Cirsa”). LHMC Finco S.à r.l., a Blackstone special purpose vehicle, has completed a Rule 144A and Regulation S offering of €1.5 billion (equivalent) of euro denominated and dollar denominated Senior Secured Notes.

Talial first assisted the Blackstone Group, through Urina Menendez, London, with multi-jurisdictional legal due diligence regarding Cirsa and a selected number of its direct or indirect subsidiaries. Talial performed legal due diligence on all of Cirsa Gaming Corporation’s Panamanian subsidiaries and assisted Blackstone in obtaining the necessary governmental authorizations and all Panama Law related matters.

Later, Talial was also contacted by Linklaters LLP, London, to advise the group of Banks (initial purchaser) involved in the transaction on Panama Law related matters and the issuance of bonds.

Talial’s  Due Diligence M&A team was led by Fernando A. Linares, with the assistance of  Eloy Alfaro de Alba, both partners of the firm, and other firms’ experts in the corporate, regulatory, labour, taxation, intellectual property, real state and compliance fields, among others. Partners Eloy Alfaro de Alba and Fernando A. Linares also assisted with the financing part of the transaction (bond issue).

Baird Capital, the direct investment arm of Robert W. Baird & Co., announced that it has acquired a majority interest in Collingwood Lighting (“Collingwood”). Collingwood is a leading designer and supplier of residential, commercial and exterior luminaires into the professional refurbishment and new-build markets in the UK and France. Baird Capital Partners James Benfield and Dennis Hall will join the Collingwood board of directors.

Collingwood is headquartered in Northamptonshire, England. The Company’s strong position in its markets is underpinned by its products’ energy efficiency, innovation and quality alongside the high levels of service the company provides its longstanding customer base.

“We are delighted to bring Collingwood into the Baird Portfolio. Its high quality products fit well with our energy efficient products strategy and our global portfolio resources are well positioned to help expand the business and optimise its global supply chain. Collingwood is committed to continue to invest in innovation and technology as lighting maintains its central position within intelligent and connected built infrastructure”, said James Benfield, Baird Capital Managing Director.

Steve Grao, Collingwood CEO commented: “We are excited to work alongside Baird Capital. Their culture is a strong fit with Collingwood and their expertise and global resources will be invaluable as we focus on driving future innovation and growth”.

Humatica provided organisational due diligence services for this transaction.

Interview with Patrick Mina, Managing Partner, Humatica

Can you tell us about Humatica’s involvement in the transaction?

We conducted an organisational due diligence which identified the key organisational bottlenecks for Collingwood to take on and execute a significantly more aggressive growth plan and adapt to a faster paced, numbers focused private equity environment.

What was your specific role?

Humatica has been conducting organisational assessments over the past 15 years and built up a proprietary database of behaviours and management processes that drive accelerated value growth. These are tested in structured interviews with management team members using a maturity model i.e. what good looks like for a company at that stage of evolution, in that type of industry, with that type of value creation plan. We also use targeted data analysis from the data room and other sources, psychometric assessments (where feasible) and deal team interactions to gain further insights.

Based on this approach, we identified to what extent the current “baseline” operating model, management and operational processes were scalable and, at a sufficient level, not to have to spend a disproportionate amount of time initially fixing the basics versus growing the business. We also identified the support the management team might need in identifying required organisational changes to their operating model, management and operational processes to deliver the value creation plan on or ahead of time. This involved highlighting any potential skill and behavioural gaps that the management team would need to address to operate as a high performing team on an ongoing basis in the context of an ambitious growth plan.

What were some of the key challenges you faced and how did you overcome them?

We weren’t faced with any challenges apart from some initial scepticism from the portfolio company as to the purpose of our organisational due diligence. This was however allayed once it became clear we were focused on identifying potential bottlenecks and ways to address these to enable them to successfully deliver the value creation plan on time.

To hear about all things joint ventures, Finance Monthly connected with David Ernst, Managing Director of Water Street Partners - a company that he co-founded in 2008.  David is a leading adviser to global companies on strategic transactions and governance, especially JVs and partnerships. In addition to a book, Collaborating to Compete, David has published articles in the Harvard Business Review, CFO Magazine, the Financial Times, McKinsey Quarterly, and a number of other publications. David was previously a Partner at McKinsey & Company, Vice President at Evans Economics Inc., and an Economist at Chase Econometrics.

Water Street Partners advises clients on transactions and governance. The firm’s transaction work specialises in joint ventures and other non-M&A partnerships, both in new deal formation and restructuring. Water Street Partners advises clients on corporate and joint venture governance, working with corporate and joint venture boards, management teams, and individual shareholders.

Since its establishment a decade ago, the company has worked on hundreds of transactions valued at more than $500 billion - supporting clients around the world and across industries.

What are the right and wrong reasons to use a joint venture?

There are several ‘right reasons’ to use joint ventures, and some situations when a JV is a bad idea. First, JVs are an appropriate strategic vehicle to combine complementary capabilities of two companies – for example, when one company brings product/technology, and the other company brings distribution or sales. Second, JVs are a good way to enter new geographic markets at lower risk than go-alone strategies. And third, joint ventures can be good ways to combine activities into ‘shared utilities’ – such as when multiple health-insurance or credit-card companies create a jointly-owned company to support their processing needs. JVs are also a reasonable fallback strategy when an outright acquisition would be attractive, but isn’t possible either because of national regulations which prohibit foreign ownership, or because the target company isn’t available for sale. In these cases, JVs can be a way to enter a relationship that can be a stepping-stone to a later full combination.

As for the ‘wrong reasons’ to use a JV, they include: using a JV principally as a way to access capital; venturing with a partner to try to fix a weak company; and using a JV to avoid selling a business that doesn’t fit in the corporate portfolio.

Once a company has decided to use a JV, what ‘killer questions’ should dealmakers ask to ensure the venture is successful, and to avoid doing a bad deal?

When clients come to us in the deal strategy phase, we aim to ensure that the JV negotiation process leads to either a ‘quick no’ or a ‘good yes’. Joint venture dealmakers should ask themselves five questions – if the answer to any of these is ‘no’, they should not proceed with a JV deal.

• Is a robust deal rationale in place? Dealmakers should ensure that the strategic reasons and business case for the JV are clear and compelling. They should also be confident that other approaches – i.e. go-alone, simpler partnerships, or M&A transaction – can’t achieve the same objectives quicker, more simply, or at lower cost and risk.
• Is there a good partner ‘fit’? Do the partners bring capabilities, compatibility, and commitment? Partner screening should begin with partner capabilities – the geographic, product, or functional strengths that the potential partner will contribute – which are core to the reason for selecting them as JV partners.
• Has the team considered various deal concepts, i.e. competing options for the scope, contributions, economic model, and staffing of the JV? The greatest benefit of the JV structure is that it can be tailored across many dimensions – but teams rarely take the time up-front to consider the broader set of deal options before digging into details and writing the legal agreements.
• Do the financial arrangements align partners – and are they ‘fair’? Few JVs end up as successes for one of the partners and failures for the other. Financial arrangements should reflect the value of initial contributions as well as ongoing support that each shareholder will provide to the JV.
• Has a workable governance model been agreed? Decision gridlock is an inherent pitfall of JVs, especially those that are structured with 50-50 ownership or shared control. There are many tactics to mitigate this risk – all of which require going beyond the legal boilerplate to develop a governance blueprint and agree in advance how the shareholders intend to govern the venture.

How long do JVs last, and are there ways to ensure a long-lived partnership?

The average span of JVs is about 8 to 9 years. JVs need to evolve to thrive and survive. Ventures are often scoped as fairly narrow-purpose entities – initially conceived to operate in well-defined product markets, with specific technologies. But the world is a dynamic place. For many JVs, there is a need to consider fundamental changes in strategy, scope or structure after three to five years, driven by technology disruption, emergence of new competitors, or the achievement of initial objectives.

The ability to evolve a venture’s strategy – and dynamically adapt to changes on the landscape – is clearly correlated with financial and strategic outcome performance: roughly 80% of JVs that have materially evolved their strategy and scope meet or exceed the performance expectations of their parent companies, whereas those JVs that have remained essentially unchanged have only a 33% success rate.

How should venture partners approach exit or termination? Should a ‘pre-nuptial’ be put in place?

Yes, a ‘pre-nup’ is essential. Few JVs last more than 15 years – so having an exit clause is definitely a good idea, though the discussions can be sensitive. Recognising that an eventual termination is the inevitable outcome of most ventures, most JV agreements do include exit provisions in some form. But these provisions often take the shape of boilerplate legal language, with symmetric buy-sell agreements. This is fine if both shareholders are equally able to acquire and operate the venture. More often, one of the shareholders is a ‘natural owner’, and a more tailored approach to exit clauses would provide more protection.

Contact details:
Email: David.Ernst@waterstreetpartners.net
Website: www.waterstreetpartners.net

Bitcoin is becoming a pretty normal currency in transactions worldwide, and it hasn’t failed to infiltrate paychecks either. So, if a salary is paid in part or in full in bitcoin, how is the income taxed? And how is tax applied to transactions anyway? Fiona Cincotta, Senior Market Analyst at City Index, clarifies the matter for Finance Monthly.

Bitcoin is a virtual currency, that can be generated by mining or bought using cash, credit card or a paypal account. Bitcoin began in 2009. At the start, one of the advantages of bitcoin was the fact that is wasn’t regulated and could be used in transactions to avoid tax obligations. However, tax authorities caught on and since then tax authorities across the globe have been trying to introduce and advance regulation on the bitcoin.

Whilst the cryptocurrencies exist on a global network, tax regulations in general differ for each country around the world. However, broadly speaking most tax authorities are on the same page when it comes to the treatment of the bitcoin.

As a general rule, buying a bitcoin anywhere in the world is not a taxable operation in itself. However, taxes are likely to occur when you sell that bitcoin, or possibly spend the bitcoin, and make a profit in the process.

How much you would be taxed on the transaction would then depend on several factors:

• The amount of gains;
• How long you were holding the currency for;
• If the country in question has capital gains tax.

Again, generally speaking, most countries do not consider virtual currencies to be “currencies” from a tax point of view. Instead they are treated as a property or capital asset. This means that any gains are taxed as capital gains in the year that they are realised.

As with property, capital gains tax is liable on profits, meanwhile should an investor realise a loss from a bitcoin transaction, the investor would be able to deduct any losses and therefore reduce the tax bill.

Realization happens when the bitcoin is exchanged for any other type of other property. This could be cash, services or products. Essentially almost any transaction which involves the bitcoin is in fact a realisation event and therefore gains are taxable. The following transactions could be taxable events:

• Selling a personally mined bitcoin to a third party;
• Selling bitcoins bought from someone to a third party;
• Using personally mined bitcoins to buy goods or services;
• Using bitcoins bought from someone to buy goods or services.

Scenarios which involve mining of bitcoin followed by either selling or exchanging for goods or services afterwards, will mean that the value received for the bitcoin is taxed as personal or business income, after subtracting any expenses incurred from mining eg cost electricity.

Meanwhile the other two examples, taker the bitcoin as an investment asset. Gain are taxed regardless whether the bitcoin was exchanged for money or goods or services. To cement this point let’s consider the following example. Should you own bitcoins that have increased in value, it is impossible to use them with realising a gain. Using the bitcoin to purchase a service or good, for example, is considered to be two transactions. One, selling out or realising the gain on the bitcoin and the second, being the purchase of the service or product. Few tax authorities would allow such a blatant loophole, as to not tax the transaction and ascension of wealth.

However, the implication of this is that every transaction involving the bitcoin is taxable. This in itself raises questions over the effectiveness of bitcoin as a medium of exchange, if the user has to calculate the tax liability after every transaction. So, the possibility now exists that over taxation of crypto currencies, could lead to their death.

As mentioned at the beginning tax implications can vary from jurisdiction to jurisdiction. The IRS in the US has a fairly standard approach to bitcoin taxation. The UK’s HMRC takes a more personalised approach and has has specifically said that it considers tax on bitcoins on a case by case basis. Whilst such a personalised approach is fine now, should the bitcoin increase in popularity HMRC may find its resources strained.

Domino's Pizza recently announced that certain of its subsidiaries intend to complete a recapitalization transaction, which will include the refinancing of a portion of their outstanding securitization debt with a new series of securitized debt.

• The Company's last recapitalization occurred in October 2015 (the "2015 Recapitalization"), with the issuance of a $1.425 billion securitized financing facility consisting of $1.3 billion of fixed rate notes and $125 million of variable funding notes (the "2015 VFN Notes") that replaced the 2012 VFN Notes (defined below).
• The Company's prior recapitalization before the 2015 Recapitalization occurred in March 2012 with the issuance of a $1.675 billion securitized financing facility consisting of $1.575 billion of fixed rate notes (the "2012 Notes") and $100 million of variable funding notes (the "2012 VFN Notes").  At the end of the first fiscal quarter of 2017, there was approximately $910 million in outstanding principal amount of the 2012 Notes.
• The Company's subsidiaries intend to issue approximately $1.8 billion of new securitized notes (the "2017 Notes") and to use the proceeds to prepay and retire the outstanding 2012 Notes at par, to pay transaction fees and for general corporate purposes.
• The Company also expects to enter into a new $175 million variable funding note facility, which will replace the 2015 VFN Notes facility.

The consummation of the offering is subject to market and other conditions and is anticipated to close in the third quarter of 2017. However, there can be no assurance that we will be able to successfully complete the refinancing transaction on the terms described or at all.

(Source: Domino's Pizza, Inc.)