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M&A deals come roaring back

Many assumed that deal activity would cease for the year, but well-positioned companies are sensing opportunities

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Nearly six months ago it seemed that dealmaking was done for the year as companies pulled back, needing to manage their own businesses during trying times rather than think about acquiring others.

Soon after the onset of the coronavirus pandemic — and the sharp economic contraction and stock market crash it caused — even already announced deals were in jeopardy. Some deals, such as Sycamore Partners’ plan to buy a majority stake in L Brands-owned Victoria’s Secret, fell apart.

As for new deals, would-be acquirers paused, not wanting to take on too much risk. Meanwhile, potential targets, seeing their stock values plunge, rushed to protect themselves from hostile bids by implementing poison pills.

But it wasn’t just the economic climate that made deal activity come to a halt. Shelter-in-place orders, which forced many employees to work-from-home, made deal-making seem logistically impossible. Meetings conducted on Zoom instead of in person seemed unlikely to help deal-making, not to mention the difficulty of conducting due diligence remotely.

 That hesitancy is apparent in the numbers: data from Goldman Sachs showed that M&A activity at the conclusion of the second quarter was down 51% year-over-year.

But while many assumed that deal activity would cease for the year, well-positioned companies began to sense opportunities and act on them.

Colin Ryan, managing director at Goldman Sachs, says of the pickup in M&A activity we’ve seen over the past two months: “While we were seeing plenty of boards and companies focus on their balance sheet, we were also getting a lot of in bounds from companies saying, ‘OK now I’m in a position of strength. Now is my opportunity to make some waves. How soon can I start to enter dialogue from an M&A point of view?’”

Some of that opportunity dissipated when markets swiftly swung back from their March lows, providing fewer discounts for acquirers. But with interest already piqued and buyers realising that interest rates are likely to be lower for longer, companies have proven still been willing to make bids. There were seven deals announced since 1 July greater than $10bn each, according to Dealogic.

Some of those big deals include Teladoc Health agreeing to an $18.5bn merger with Livongo Health and Intercontinental Exchange, the owner of the New York Stock Exchange, buying Ellie Mae for $11bn from Thoma Bravo.

Some of the dynamics of deals have changed while markets remain uncertain. Namely, Ryan has been noticing that stock is increasingly being used to get deals done. The thinking on the companies’ side is: “Rather than having to make a decision to cash out today, why don’t we ride the upside together and pay a more modest premium in a stock deal, but you get to participate in the benefits of the consolidation,” Ryan says.

But these types of tie-ups only work when there’s familiarity on both sides of the transaction. Companies have been hesitant to engage with leadership teams they don’t know since meetings are taking place remotely. On the flip side, because some deals are happening with people who already know each other, the process has become even more efficient despite — or because of — travel restrictions.

“I think what you’re seeing right now is the M&A market is very strong because the people who are doing deals are doing them with people that they know,” Ryan said. “I think it is tougher to find that next deal where you’ve never met the CEO before.”

And deal activity is expected to remain robust for the rest of the year. The IPO market has also proven to be strong, which forces acquirers to consider a bid before companies go public to avoid the hurdles of acquiring publicly traded companies.

The election may also prove to be a catalyst as companies try to get ahead of whatever outcome they sense coming from the election — whether it be changes to taxes or regulation.

Ryan says: “We are certainly seeing owners ask the question, ‘Should I go out and seek liquidity? Even if I might forego a little price on the top end to get deals done in a tax efficient manner now, versus wait a year and find out that I may have gotten a higher headline price but I have to pay more in capital gains.”

One way or another, it’s proven not to be a boring year for M&A.

This article was published by Barron’s.

Source: https://www.penews.com/articles/ma-deals-come-roaring-back-20200826

Private Equity

Alternative Investments/AI: European Investors Believe AI Is A “Compelling Opportunity”

Exchange traded fund (ETF) sponsor WisdomTree commissioned a survey by Coredata Research of professional investors across Europe on thematic investing. The survey found that a vast majority of these investors considered artificial intelligence as the most compelling long-term thematic investment opportunity.

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Alternative Investments/AI: European Investors Believe AI Is A “Compelling Opportunity”

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Professional European investors believe the potential of AI is transformative.

Exchange traded fund (ETF) sponsor WisdomTree commissioned a survey by Coredata Research of professional investors across Europe on thematic investing. The survey found that a vast majority of these investors considered artificial intelligence as the most compelling long-term thematic investment opportunity. (INTERNATIONAL INVESTMENT)

Artificial intelligence and thematic investing

According to the survey, more than 70% of European professional investors consider AI as a highly compelling long-term thematic investment opportunity.

The believe that AI can transform industries, services, labour, and consumption. However, the technology is still only in its formative stages of adoption and application.

Other popular themes

The second most popular theme, about 60%, according to the survey, was Biotech. This is understandable because of the race to develop a coronavirus vaccine and accompanying research.

Cyber security, at 47%, was the third most fancied thematic investing option. It was triggered by the seemingly overnight transition to remote and home working as a result of the virus. Cyber security has suddenly assumed critical importance given the vast numbers of people working from home and outside the usually secure environment provided by the office technology and network.

Professional European investors also favored cloud computing.

Thematic investing earned solid returns during the pandemic

Ravi Azad, head of UK and Nordics, WisdomTree said: “Our research points to the growing popularity of thematic investing, which has benefitted from strong returns during the coronavirus pandemic. While AI, biotech and cyber security present compelling long-term opportunities, cloud computing has had a strong year as organisations have transitioned to the cloud quicker than experts anticipated. Once seen as a fad, thematics are becoming important building blocks in portfolio construction due to their long-term growth potential”.

Related Story:    A Big Fundraise, And An Acquisition, In Cybersecurity                                              

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Source: https://dailyalts.com/european-investors-believe-ai-is-a-compelling-opportunity/

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Private Equity

FinTech: Western Union Acquires 15% Of Saudi Fintech stc pay For $200M

Western Union (NYSE: WU) has taken a 15% stake in stc pay for $200 million, valuing the Saudi fintech at $1.3 billion. Western Union is the world’s largest remittance company, while stc pay is a fully owned subsidiary of Saudi Arabia’s stc Group.

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FinTech: Western Union Acquires 15% Of Saudi Fintech stc pay For $200M

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stc pay becomes the first Saudi unicorn and first fintech unicorn in the Middle East.

Western Union (NYSE: WU) has taken a 15% stake in stc pay for $200 million, valuing the Saudi fintech at $1.3 billion. Western Union is the world’s largest remittance company. stc pay is a 100% subsidiary of Saudi Arabia’s stc Group. (Arab News)

Western Union will initially pay $133.3 million to acquire a 10% stake in the Saudi fintech. It will acquire another 5% for $66.67 million if stc pay obtains a digital banking license.

stc pay

stc pay is the first fintech company in the Kingdom to receive a license from the Saudi Arabian Monetary Authority (SAMA).

It is also the largest digital wallet in the MENA region with more than 4.5 million users.

It has been established in accordance with the objectives of Saudi VISION 2030. Those are to support the growth of the national economy, to enhance financial inclusion, and reduce dependence on cash.

First unicorn in Saudi Arabia and first fintech unicorn in the Middle East

HRH Prince Mohammed bin Khalid Abdullah Al Faisal Chairman of stc Group, said the decision by Western Union to make such a significant Foreign Direct Investment in its fintech subsidiary was highly encouraging.

“For us at stc Group it reflects our position as a digital enabler and an ICT regional champion as we celebrate the creation of the first Saudi unicorn and the first fintech unicorn in the Middle East,” he added.

“stc pay has rapidly developed a leading regional digital payments service over the past two years and has been a highly successful digital partnership for Western Union,” said Hikmet Ersek, CEO and President, Western Union. “Looking forward, we believe stc pay is well-positioned for continued expansion in digital payments.”

Use of funds

stc pay will use funds to boost its capital resources and to fund its plans for long-term expansion.

The Saudi fintech also intends to launch more products for its customers.

In July this year, stc pay and Visa (NYSE: V), the world’s leader in digital payments, entered into a strategic partnership. They would launch customer-centric financial services and digital payment solutions to stc pay customers.

Related Story: Saudi Fintech Geidea Launches Beta Testing of End-to-End Solutions for SMEs

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Source: https://dailyalts.com/western-union-acquires-15-of-saudi-fintech-stc-pay/

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Private Equity

European insurers gear up to do deals

A tough period during the pandemic is prompting restructuring and sales, including a number of private equity-backed transactions

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European insurers have weathered the crucible of the coronavirus pandemic and are ready to do some deals.

Last week a Canadian and Danish insurance consortium agreed to buy the UK’s RSA Insurance Group for £7.2bn. And on Friday, 20 November, Zurich Insurance Group said it is in talks to acquire MetLife’s US property and casualty insurance business.

The RSA deal, which pushed up the share prices of some insurance stocks when the proposal was announced on 5 November, portends further mergers and acquisitions, industry participants say.

That is because the pandemic forced insurers of all stripes to take a hard look at their businesses as losses from claims piled up, bringing weaknesses into sharp relief. Some are recognizing the need for scale to cement profitability, while others are pruning units where they can’t make enough money to compete. Bankers say more deals are brewing.

Another factor that could ignite a shopping spree: the regulatory environment. The European Insurance and Occupational Pensions Authority in April urged the industry to temporarily suspend dividends and share buybacks. As a result, cash has accumulated on some companies’ balance sheets, which dilutes return on equity and is feeding the need to seek combinations.

Insurers’ share prices reflect a tough year littered with losses related to Covid-19 and the continuing impact of low interest rates on their investment portfolios.

The Euro Stoxx Insurance Index is down 15% this year, lagging behind the broad Euro Stoxx 600 stock-market index, which is down 6%. Lloyd’s of London, the UK insurance and reinsurance market, said in September it expects to pay out up to £5bn, in coronavirus-related claims this year.

Some insurers reason the larger they are, the better. “The RSA deal shows the importance of having scale to drive profitability for the sector,” said Tryfonas Spyrou, an insurance analyst at Berenberg. Large insurers can operate in multiple markets, negotiate better pricing with suppliers and have access to more data, which allows better pricing of risks, he said.

Consolidation has been happening in the US as well.

Insurance giant Allstate in July agreed to acquire rival National General Holdings for about $4bn in cash, though discussions began before the crisis.

Private equity firm KKR the same month said it would buy retirement and life-insurance company Global Atlantic Financial Group for more than $4.4bn.

Italian insurer Assicurazioni Generali SpA last week said it has up to €2.5bn, to spend on “acquisitions that are fully aligned to our clear strategic priorities.” The insurer in June took a 24% stake in an Italian insurance company backed by Berkshire Hathaway that had been told by Italian regulators to boost its capital.

UK-based insurer Aviva has been trying to sell its operations in France, according to people familiar with the matter. A spokesperson declined to comment on a potential sale and pointed to previous statements by the company that it would focus on its businesses in the UK, Ireland and Canada, and that it was in the early stages of developing its strategy for its continental European business.

Dutch insurer Aegon NV in August said it would review the more than 20 countries in which it operates and concentrate on countries and business lines where it could create the most value.

Belgian insurer Ageas NV in recent months has increased its stake in its joint ventures, and recently said it has €700m to €800m in cash.

Some insurers are operating warily. Giulio Terzariol, German insurer Allianz SE’s chief financial officer, said earlier this month that if buybacks aren’t permitted in 2021, the insurer would look at deploying capital. But he said the company wouldn’t buy “suboptimal assets” for fear of regretting it for the next 10 years.

—Ben Dummett contributed to this article.

Write to Julie Steinberg at julie.steinberg@wsj.com

From The Wall Street Journal

Source: https://www.penews.com/articles/european-insurers-gear-up-to-do-deals-20201123

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