private equity

Rise of the mega-deal

With many major companies’ share prices eroded by a turbulent few years, the mega-funds are circling and recent deals suggest activity is increasing. But big isn’t always bad – and the rise in mega-deals may produce opportunities for other, smaller, players too

Words:

Gill Wadsworth

SO MANY OF the UK’s businesses are currently vulnerable to takeover that one former City minister has likened market conditions to a car boot sale.

A look at the number of listed companies on the brink of being taken private, and with so many of them big names available at bargain prices, it’s hard to argue with the comparison.

In the past few months, retail giants Asda and Morrisons have joined the growing list of UK PLCs that have become targets for private equity buyouts.

Morrisons found itself at the centre of an aggressive bidding war between rival private equity companies intent on snapping up a supermarket stalwart that was carrying a depressed share price following years of Brexit negotiations and the pandemic.

The UK is hot right now for private equity mega-funds intent on snapping up other household names similarly affected by Brexit and Covid. Further evidence can be found in the fact that the number of listed companies in the UK has fallen by around 40% compared with 2008, according to a review of listings by Lord Jonathan Hill, the former EU financial services commissioner.

The UK government is now consulting on a series of recommendations put forward by Lord Hill’s UK Listing Review, which could further fuel PE activity.

These include lowering the free float limit to 10%; reducing regulation around prospectus requirements; allowing dual-class share structures; and changing reverse takeover rules to encourage more SPAC listings.

All of these measures are likely to encourage more PE-backed companies to tap the public markets.

BIG ISN’T NECESSARILY BAD

While the prospect of more mega-funds, and their mega-deals, might sound hostile, such behemoths need not necessarily be considered as a wholly bad development.

There are straightforward reasons why mega-funds exist, not least their ability to give more access to a larger number of investors otherwise precluded from the private equity space.

David Crosland, Guernsey Investment Funds Partner at law firm Carey Olsen, points out: “Private equity and other alternative investments have been the preserve of institutional investors, but there is a push among private investors to get into the class.”

Add to this a desire from UK government to make it easier for the UK’s billions of pounds in defined contribution assets to be put into private equity and other illiquids, and there is a huge amount of dry powder waiting to be put to work – much of which looks set to find its way onto the books of the mega-funds.

Crosland says: “Private banks are putting together vehicles to allow investors to invest in private equity. They can’t sell [retail customers] a fund they’ve never heard of. Instead, they go to the big names – Blackstone, Apax – which attracts even more money for the mega-funds.”

Mega-funds are good news for limited partners (LPs), too. Robin de GruchyWilson, Managing Director at Oakbridge Fund Services, says one of the most important benefits of investing in these enormous funds is the reduced number of general partner (GP) relationships needed by LPs.

“For LPs particularly, the main attraction is the reduced number of GP relationships that they have,” he says. “If you are an investor into a number of funds across lots of assets, then it is time-consuming and costly to track everything.”

And for firms able to secure a contract to provide mega-funds with legal services or administration, they are effectively on a golden ticket.

Crosland adds: “If you are a service provider or administrator and you have one of these big guys as your clients, it’s fantastic. Some of the law firms are rising or falling depending on the fortunes of the clients they secured 30 years ago.

“If they were the lead lawyers for Blackstone, for example, they will have built almost their entire business around

The good thing about mega-funds is they are often full of ambitious people who want to run funds themselves

that single client because they have been so successful.”

And success is indisputable, with megafunds able to put their performance where their clout is.

According to private equity data provider Pitchbook, mega-fund internal rates of return (IRR) bounced back more quickly than smaller fund IRRs after Q2 2020.

Importantly, the larger portfolio assets of mega-funds may have been more resilient to the effects of the pandemic and are more likely to be marked-to-market against public company comps, which means these funds shared in the stock markets’ rapid recovery.

Crosland says: “The guys raising lots of money are those with a long track record of producing good returns to investors. The bottom line is that no one will give you their money unless you have been shown to be successful.”

SUCCESS FEEDS SUCCESS

This, of course, creates a virtuous circle where the mega-funds attract more investors because of strong performance. This in turn allows them to access deals outside the reach of those funds with less capital. And so the mega-fund gravy train continues.

All this dominance smacks of a world in which competition is stifled. Indeed, Crosland says, there is always room for more players that can generate opportunities among service providers that have not been lucky enough to get a contract with a mega-fund.

But this multibillion-dollar world is not for everyone. Clearly there are investors looking for smaller deals that the likes of KKR or Blackstone wouldn’t get out of bed for.

Fortunately, says Crosland, there is evidence to suggest that the bright young things employed by the mega-funds harbour enough ambition to spin out their own smaller venture capital and private equity offerings catering to the smaller end of the market.

“The good thing about the mega-funds is they are often full of entrepreneurial and ambitious people, so they are constantly spinning out individuals who want to [run funds] for themselves,” he says.

“So, the big firms have teams starting their own thing and launching their own funds, which is good for the wider market.”

Mega-funds are not a new feature of the private equity world, but they are getting bigger all the time and their market dominance is growing, too.

So far, the opportunities outweigh the negatives – but regulators need to keep a close eye on developments to ensure no-one is operating in the shadows cast by colossal fund juggernauts. n

Mega-funds defined

A mega-fund is a private equity fund worth more than $5bn. It is not uncommon to see deals reach $20bn – and they are increasing all the time. A venture capital mega-fund is one worth more than $1bn.

A handful of relatively wellknown firms dominate the megafund space, including Blackstone, Goldman Sachs, Apollo Global Management, Apax Partners, CVC Capital Partners and KKR.

Mega-funds invest across the entire business spectrum, but certain firms may specialise in particular sectors. For example, CVC favours the technology, financial services, manufacturing, services, distribution, media, retail, industrial and service sectors.

Vaiie strengthens team with new recruits

The specialist Channel Islands provider of digital regulatory technology, and part of the Jersey Post Group, has strengthened its team with four appointments

Pictured l-r: Richard Gaudin, Louise Flynn, Luke Hopton and Adam Brown

A NEW COMMERCIAL Director,

Programme Manager, Operations Manager and Solutions Architect have all recently joined specialist regtech business Vaiie, bringing a credible and diverse wealth of experience that will help excel Vaiie’s digital products and services for its customers.

Lee Bosio, Managing Director of Vaiie, says: “I am very excited to welcome the new team members on board. We pride ourselves on building highperforming teams and look forward to our new appointments helping us to expand our vision and deliver the very best customer experience.”

Richard Gaudin, Commercial Director

Richard Gaudin has been appointed as Commercial Director. In his role, he will be responsible for all the firm’s commercial elements, such as business development, marketing and a particular focus on growth with responsibility for the mergers and acquisitions (M&A) activity.

Vaiie is at a key stage of development and Richard hopes to use his 20 years’ experience in senior commercial roles to drive step-change growth within the company. Richard will be taking Vaiie’s new regulatory technology to market. The portfolio is a sophisticated technology that is designed to solve challenges around regulatory compliance, risk management and client onboarding/ lifecycle management.

Louise Flynn, Operations Manager

Vaiie has recruited Louise Flynn as Operations Manager to help lead on the outputs of its digital studio, and oversee the team responsible for providing support to ensure customer success. With previous experience in operational roles in the legal and finance industry, as well as running her own family business, Louise will work closely with the product and development teams to scope, plan and budget projects, ensuring they are delivered to the highest possible standard.

Luke Hopton, Solutions Architect

Luke Hopton has recently joined the team as Solutions Architect, with responsibility for overseeing the development teams in Jersey, Italy and Malta for all existing client services and future technology solutions.

Luke has more than 10 years’ experience in software development. He has specialised in web and cloud technology, bringing expertise from his career in a variety of organisations in Jersey, the UK and New Zealand.

While bringing a creative and logical problem-solving approach to the role, Luke’s appointment will be central to the liaison between the technical team and senior team. His technical skills will also ensure Vaiie builds leading regtech products that deliver value to customers.

Adam Brown, Programme Manager

Vaiie has also appointed Adam Brown as Programme Manager to oversee its full programme of software development projects, from initial concept to bringing the products to market.

With more than 15 years’ experience in the digital industry, Adam brings to the firm a wealth of knowledge across regulation, fintech, change management, payments, banking, strategy and digital transformation. He will play a key role in stakeholder management at Vaiie, along with being responsible for providing fact-based insights on new and emerging trends, threats, legislation and regulatory developments to identify fresh opportunities and strategic solutions.

NEW PRODUCTS

The new recruits join the Vaiie team as it drives innovation in the regtech space by launching three exciting products: ● Vaiie Onboard is a rapid, frictionless and fully compliant digital onboarding solution that empowers teams to shorten the onboarding process. It is packed with an intuitive workflow that meets the needs of businesses, customers and regulatory bodies, for an exceptional client engagement experience. ● Vaiie Locate aims to leave no address unverified through its comprehensive global address assurance service that serves to deter fraud. The cutting-edge authentication technology works to provide greater assurance that a person is based where they claim to live and verifies addresses anywhere in the world. Using Jersey Post’s knowledge, infrastructure and network of trusted postal operators, Vaiie Locate is uniquely positioned to deliver the highest level of assurance with its trusted verification techniques. ● Finally, Vaiie Identify sets a new global standard in trusted real-time remote identity verification, allowing companies to verify customers’ identity in seconds with fast, secure and easy-to-use ID authentication, facial recognition and liveness checking. The verification tool offers a robust and frictionless client experience that meets all KYC and

AML obligations and is accessible on any web enabled device. The new product range and appointments highlight how Vaiie is committed to leading the way in achieving technology efficiency and innovation. The growing team will also help more organisations move away from traditional practices and processes and stride towards a digital first future. n

FIND OUT MORE

To find out more about Vaiie, visit www.vaiie.com

HOME BUYERS PUTTING FRESH AIR AND FAMILY AHEAD OF PROXIMITY TO THE OFFICE

After more than 12 months spent living under the constraints of the pandemic, a reassessment of work/life balance is seeing a number of people choose Jersey as their relocation destination of choice, says Geri O’Brien of Savills Jersey.

According to a recent survey of 1,100 Savills buyers and sellers, proximity to family and to a park or open space now sit fi rmly at the top of home movers’ wish lists. By contrast, proximity to a station or place of work has slipped right down the list of top priorities among our buyers and sellers.

This is certainly something we are seeing in Jersey. As well as the benefi ts of being in a central time zone that reaches the US, Europe and Asia within the same business day, our outstanding coastal environment provides the open space and quality of life that so many are seeking. At a local level, this is something that is the number one priority among buyers and sellers registered with our o ce in Jersey.

Over the last two years we have seen a number of hedge fund managers and fi nancial services fi rms establishing a physical presence on the island, many of whom are relocating from London.

While there are income tax benefi ts for residing in Jersey, possible tax changes in the UK – which is the largest European base for the hedge fund sector - are contributing to the growing interest among hedge fund managers to domicile outside the UK. Jersey’s tax model allows investors to work together more e ciently with no double or triple taxation of funds and investments.

Another potential attraction behind the numbers relocating to Jersey is the ‘no change’ solution for access to UK investors. The UK Government has been clear that the special relationship between Jersey and Britain will not be impacted by Brexit. As Jersey has never been part of the EU, we have long-standing bilateral relationships with EU member states and established market access arrangements, which will not be a ected either. To this end, Jersey is uniquely placed and this

Talk to us today

Geri O'Brien Director Savills Jersey 01534 722 227 gobrien@savills.com Debbie Le Brun Associate Savills Jersey 01534 870 074 debbie.lebrun@savills.com Sophie A’Court Associate Savills Jersey 01534 870 140 sophie.acourt@savills.com

sets us apart from other sets us apart from other international fi nance centres. international fi nance centres. The pandemic has also altered The pandemic has also altered our behaviours and attitudes in our behaviours and attitudes in respect of the working week. respect of the working week. With so many people around the With so many people around the world working from home, world working from home, people are now reimagining how people are now reimagining how they can split time between work they can split time between work at home and the o ce in the at home and the o ce in the future. Given the shorter future. Given the shorter commutes on o er in Jersey commutes on o er in Jersey compared to London, as an compared to London, as an example, buyers are realising the example, buyers are realising the benefi ts this presents in benefi ts this presents in spending time with family and spending time with family and also for their own mental and also for their own mental and physical wellbeing. physical wellbeing. Speaking to a client who recently Speaking to a client who recently chose to relocate to Jersey, they chose to relocate to Jersey, they commented on how moving to commented on how moving to the island has provided them the island has provided them with the ability to take their with the ability to take their children to school and then children to school and then seeing them again in the evening, seeing them again in the evening, which is something they which is something they struggled to do when living and struggled to do when living and working in London. working in London. The shift in attitude among The shift in attitude among buyers in the property market buyers in the property market and the desire for space is and the desire for space is certainly benefi tting relocation certainly benefi tting relocation destinations such as Jersey and, destinations such as Jersey and, with London less than an hour with London less than an hour away by plane, it is no surprise away by plane, it is no surprise that there are so many interested that there are so many interested in making the move. However, in making the move. However, keeping buyer and seller keeping buyer and seller expectations on pricing aligned expectations on pricing aligned will be key to maintaining the will be key to maintaining the momentum we’ve seen over the momentum we’ve seen over the last year, through the summer last year, through the summer and beyond – especially whilst and beyond – especially whilst demand for properties far demand for properties far outweighs the available stock. outweighs the available stock. If you’d like to discuss the If you’d like to discuss the property market in Jersey in property market in Jersey in more detail we’d be delighted more detail we’d be delighted to hear from you.to hear from you.

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