Latest Reports



May 26, 2020 | All | Global | Active

COVID-19 / Impact on Pending Leveraged Buyouts : Broken Deals, Sponsor Optionality and Target Remedies

More than half of recently terminated M&A deals due to COVID-19 have involved private equity acquirers. This is not a coincidence, in our view. During times of economic stress, private equity firms (“sponsors”) find themselves increasingly strained to secure financing and take advantage of their abilities to negotiate merger agreements in their favour. To protect themselves, sponsors prioritise capping their maximum liability upon termination due to a willfull breach while limiting their takeover targets’ recourses. This generally leads to sponsors having the option to lapse deals under multiple circumstances. While it may seem as though targets have ample remedies in the form of specific performance rights, reverse termination fees and recovery for damages, penalties are rarely sufficient to dissuade sponsors from attempting to walk away from a leveraged buyout. In this report, we explore the ways in which private equity acquirers frequently lapse transactions: mutually agreeing to terminate, invoking a MAC, invoking “other” conditions, citing a target breach of covenant, and simply repudiating agreements. Our focus is on global public-to-private LBOs and the sturdiness of merger agreements when sponsors try to walk. We assess five pending major LBOs to anticipate how sponsors may react, drawing from precedents during the current COVID-19 pandemic and the credit crisis in 2007 and 2008.

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April 24, 2020 | All | Europe | Active

COVID-19 / Impact on Pending European Public M&A : Conditionality, Covenants, Precedents and ‘Outs’

Although the extreme downward market movements in mid-March, which led to a sudden widening in risk arbitrage spreads, are arguably behind us, COVID-19’s risks to pending M&A persist. No meaningful deals have been announced in weeks and spreads remain uncharacteristically wide. Our focus in this report is Europe, and we examine the sturdiness of Material Adverse Effects (MACs) and conditions in European public M&A and to consider whether COVID-19 could entice and test the ability of an acquirer to walk away. Across 10 multi-billion-euro deals, we describe MACs as conditions to closing and framed as covenants. We also show how acquirers have historically tried to get out of European deals, most often citing target breaches and invoking other specific conditions. Our analysis includes over 20 case studies of precedent and pending deals and rulings.

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March 30, 2020 | All | North America | Active

COVID-19 / Impact on Pending US Public M&A : Carve-Outs, Financing, Solvency, Fees, Specific Performance

Beyond the devastating impact on people’s health and on healthcare services, the COVID-19 pandemic also has significant implications for the global economy and, consequently, on M&A. In this report, we discuss the sturdiness of a Material Adverse Effect (“MAC”) in US public M&A, and whether a public health issue like COVID-19 is a legitimate reason to invoke the clause, thus presenting an opportunity for acquirers to walk away. Taking this beyond MACs, we lay out selected language within definitive merger agreements of 14 pending US deals, including conditionality, termination clauses and remedies. Specifically, these comprise details on MAC carve-outs, financing cooperation and solvency covenants, reverse break fees and specific performance effects. We also present case studies of a dozen precedent US deals whereby acquirers tried, succeeded and/or failed to lapse a deal citing breaches from many angles and primarily by invoking a MAC or causing financing commitments to fail.

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February 17, 2020 | Telecom | Asia | Ended

LINE / Softbank & NAVER : Antitrust and Data, Squeeze-Outs and Appraisal Rights

The recent boom in Japanese deal-making is drawing the attention of global risk arbitrage investors. In terms of size, volume and liquidity, excluding FCA / PSA, the Japanese public M&A universe is currently overtaking that of the Europe. While risk arbitrage spreads in Japan are tight, a function of deal certainty and interest rates, activity is exciting. In this report, we explore a common trend - minority squeeze-outs - whereby a controlling shareholder seeks to take private its Japanese publicly traded subsidiary via a two-step transaction. From speaking to lawyers and academics, we assess the investment feasibility of Japanese back-end trades for minorities, akin to German domination agreements and squeeze-outs, and decipher whether dissident funds can profit from exercising appraisal rights in Japanese courts. Our focus is the LINE / Softbank & NAVER transaction but similar considerations and strategies apply to the pending buyouts of Hitachi Chemical, Hitachi Hi-Tech, Keihin, Mitsubishi Tanabe, NuFlare, Parco and Showa, among others. We take a step further with LINE and analyse vertical antitrust risks due to data accumulation and consider external factors that may lead to minority shareholders receiving an increased offer.

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January 14, 2020 | Real Estate | Europe | Ended

TLG / Aroundtown : Back-Ends in All-Stock, No Minimum Acceptance, Real Estate Deals

Despite some recent deal tender failures in Germany in 2019 - from Scout24 to Osram to Metro - event driven funds still actively seek opportunities in German back-end situations, led by the speculation for future domination agreements. The takeover of TLG by Aroundtown is different from others whereby it is a real estate deal, with all-stock consideration and is not subject to a minimum acceptance requirement. Thus, while there is no risk to the tender outcome or antitrust (German FCO approval has been achieved), notable considerations are whether Aroundtown will pursue a post-deal control measure, such as a domination agreement or squeeze-out, and how a standalone TLG will perform immediately after the transaction closes. In this report, we assess TLG back-end considerations after analysing relevant precedent German takeover offers (real estate, stock component and “no minimum acceptance” deals), specifically dissecting the transactions’ ultimate acceptance levels, in-deal control commentary, timing and control measure actions, and the immediate and medium-term share price performances of untendered target shares.

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November 21, 2019 | Industrials | Europe | Active

Fiat Chrysler Automobiles / Peugeot : Pre-Deal Hurdles, Rationale and Deal Structure

In what may shortly become the largest public European merger of 2019, by far, the union of Fiat Chrysler Automobiles (“FCA”) and Peugeot (“PSA”) will create the third largest automaker in the world. With the car industry under pressure due to subdued demand and a shift to electric and self-driving cars, joining forces makes sense as the best path to survival. The companies’ advisors and management teams are working to get a definitive deal announced in the coming weeks and will be hoping that their efforts will not be hampered by a recent litigation roadblock erected by General Motors (GM US). Pre-deal hurdles to arriving at a firm deal in the automotive space are vast and most recently caused FCA to withdraw from its negotiations with Renault (RNO FP). For FCA / PSA, expectations are no different and, in this report, we analyse anticipated pre-event risks: unions, politicians, litigation, major shareholders, antitrust and valuation.

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October 31, 2019 | Media | North America | Ended

The Stars Group / Flutter Entertainment : Global Antitrust and Notable Deal-Related Risks

The TSG / Flutter merger will create the world’s largest online sports betting and gaming operator, and follows a trend of consolidation in the gambling industry, particularly among UK public companies. The cross-border deal was agreed upon due to the companies’ needs to diversify geographies, meaningful accretion, strong synergies and lucrative cross-selling opportunities. To achieve these benefits, the parties must overcome complex antitrust hurdles, in addition to regulatory control and foreign investment approvals. In this report, we focus on the risks to deal completion, which are predominantly competition-related in the UK and Australia - the world’s two largest online gaming markets. We look at how required divestitures weigh against the primary rationale for the deal – cross-selling in the US – and explore the feasibility of additional deal-related risks, such as an unsolicited bid for Flutter and UK-specific regulatory, public interest and political considerations.

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September 27, 2019 | All | Europe | Ended

European LBOs / Axel Springer, Cobham, Inmarsat, Merlin and Osram : Trends, Structures, Candidates

While European private equity activity falls shy of levels seen during the previous M&A boom, deals are increasing, and investors must monitor companies and transactions for opportunities. Within the region, risk arbitrageurs need to look no further than Axel Springer, Cobham, Inmarsat, Merlin and Osram Licht to understand that while a mega leveraged buyouts deal still alludes Europe, public-to-private LBOs are prevalent and announcements are unlikely to slow down. Brexit and economic malaise in Europe deter some investors, but this spells opportunity for private equity firms who have an appetite for undervalued stocks. Led by record levels of dry powder at buyout firms, private equity deal-making has been fuelled by strong historical investment returns, still-cheap borrowing costs and the attractiveness of privately-held companies, whose multiples are exceeding the public average. It is thus logical to anticipate more European buyouts, and in this report, we consider the most likely candidates. We dissect the five major public-to-private European LBOs in the marketplace and construct a list of 20 publicly-traded companies which we believe will be the next public equity takeover targets.

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August 22, 2019 | Health Care | Europe | Ended

Allergan / AbbVie : Antitrust Complications and Considerations

On 25-Jun-19, AbbVie agreed to acquire Allergan for $63bn, a 45% premium to the target’s undisturbed share price. Since the deal was announced, AbbVie shares have fallen 14%, and while understanding AbbVie’s need to diversify from 2023 patent-threatened Humira, its shareholders have questioned the need for the company to control the leading anti-wrinkle injection manufacturer whose stock price has declined 50% since 2017, partly due to the patent loss of its second best-selling product. The risk arbitrage gross spread has widened to low double digits and, although the size of the deal prevents arbs from controlling the spread, many investors have questioned why strong pessimism remains. We have spoken to multiple doctors and specialists, and in this report, we explore key antitrust risks which are causing uncertainty: in-depth scrutiny from a recently inconsistent FTC; later-stage or marketed drugs, such as Skyrizi, being required for divestiture; wider Spark-like product definitions uncovering unexpected overlaps; and AbbVie’s defined outs to walk away from the deal.

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July 26, 2019 | Telecom | Europe | Ended

Inmarsat / Apax, Warburg Pincus, CPPIB, OTPP : UK National Security, Ligado and Antitrust Updates

Some dynamics of the Inmarsat takeover have changed since the deal was originally announced on 25-Mar-19, but the general likelihood of outcomes for securityholders remains. On 22-Jul-19, shortly after the Competition and Markets Authority (CMA) launched a merger enquiry on antitrust in the UK, the Secretary of State for Digital, Culture, Media & Sport (SoS) issued a public interest intervention notice (PIIN) on national security grounds. This move is not uncommon yet was unexpected given Apax is a former owner of Inmarsat and, just five days prior to the SoS intervention notice, Apax stated that the UK government had accepted voluntary undertakings following “constructive” discussions with all consortium members. Trading in Inmarsat has been relatively muted since 22-Jul-19, indicating that investors still believe the CMA and the SoS will waive the deal through. In this report, we assess what Apax has offered relative to other national security-scrutinised deals, the public interest process, timing, and the most likely SoS decision. We also revisit key investment considerations involving the Ligado argument, antitrust approvals, the convertible bond and our latest break price estimates.

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