Global FinTech funding totals $8.2bn in Q3 2017, reveals new report

BY Fraser Tennant

Investment in FinTech reached $8.2bn across 274 deals in Q3 2017, with venture capital (VC) funding strong and deals large, according to KPMG’s latest quarterly analysis of global trends.

In ‘Pulse of Fintech Q3 2017’, KPMG reveals that the US led global FinTech investment in Q3 2017, with $5bn deployed across 142 deals (VC funding increased to $3.3bn across 211 deals, up from $3.01bn in Q2). In Europe, FinTech deals accounted for $1.66bn of investment across 73 deals, while Asia saw $1.21bn invested across 41 deals (VC funding was particularly strong in Europe in Q3 at over $700m).

Additional Q3 2017 FinTech highlights include: (i) the median deal size for angel/seed stage deals at the end of Q3 2017 stood at $1.4m, up from $1m in 2016, while the median deal size for early stage rounds was also up to $5.5m from $5.1m in 2016; (ii) the median deal size of late stage deals was even year-over-year at $16m; (iii) while overall corporate VC funding has declined so far this year, the participation rate remains high (corporates have participated in 18 percent of all FinTech VC deals globally, year-to-date); and (iv) FinTech venture-backed exit activity skyrocketed in Q3 2017, almost tripling quarter-over-quarter from $270m to $940m. This reflects the second-best quarter on record for FinTech exits.

Furthermore, the top 10 global deals in Q3 2017 included six US companies. These were Intacct ($850m), CardConnect ($750m), Xactly ($564m), Merchants’ Choice Payments solutions ($470m), Access Point Financial ($350m) and Service Finance Company ($304m). The remaining four were Germany-based Concardis ($806m), UK-based Prodigy Finance ($240m), Canada-based TIO Networks ($238.9m) and China-based Dianrong ($220m).

“The level of corporate participation in FinTech VC investment deals in Europe can largely be attributed to a growing recognition by traditional financial institutions that digital transformation is critical,” said Anna Scally, a partner, head of technology and media and FinTech lead at KPMG. “Build or buy is always an important consideration. Many of these financial institutions have started to heavily invest in FinTech companies as a strategy to give them the direct access to the new technologies they need to compete."

Looking ahead, the KPMG report notes that the FinTech sector is expected to continue to evolve rapidly, with many companies, including both mature FinTechs and large e-commerce players, looking to diversify into adjacent services.

Report: Pulse of Fintech Q3 2017 - Global analysis of investment in fintech

UK SMEs resilient in Q3 2017 with fundraising plentiful

BY Fraser Tennant

Despite prevailing uncertainty in the macro-backdrop, the UK small and medium-sized enterprises (SME) sector is proving to be resilient having seen a strong Q3 2017, according to figures published this week.

In its ‘Growth Capital Update Q3 2017’ report, Kingston Smith reveals that 117 private companies raised £501.3m of growth funding in the third quarter – figures which accelerate the sector’s momentum and suggest 2017 will end up being a record year for growth equity capital fundraising in the UK SME sector.  

The firm also notes that last quarter’s figures bring the year-to-date total to £1.35bn raised by 330 companies, which suggests that 2017 will comfortably exceed 2015’s peak when 394 businesses raised £1.53bn (Kingston Smith’s analysis covers mid-market range transactions in which UK private companies have raised £1m to £15m of growth equity capital).

Underlining the appeal of the UK SMEs, two of the quarter’s top-three backers were international venture capitalists (VCs). The reason for the uptick in interest, according to Kingston Smith, is due to many of the UK’s growing SMEs being at an early stage in their development,  the global reputation that UK businesses have for being potential ‘world-beaters and the opportunities a weakened pound presents to international funders.  

Among the notable deals in Q3 2017 was the £15m investment made by L Catterton, a US private equity firm specialising in consumer brands, to acquire 27.9 percent of the Scottish craft beer brewer Innis & Gunn; Foresight Group’s £2.25m investment into Cinelab London, a postproduction service provider with expertise in film; and the £3.5m investment made by Business Growth Fund, one of the UK’s biggest investors in SMEs, into Filmore & Union, a chain of UK restaurants focusing on healthy eating.

In addition, the report states that approximately 65 percent of the funding in Q3 came from  institutions, many of which are international, including L Catterton (US), Creandum (Sweden) and Partech (Transatlantic).

“We are genuinely encouraged to see this dynamic part of the market grow,” said John Cowie, partner and head of growth capital at Kingston Smith. “While we understand the tremendous growth prospects these businesses have, it is very promising to see more international backers invest as a vote of confidence. The figures highlight the strength of this part of the UK economy.”

Report: Growth Capital Update Q3 2017 – UK SMEs set for record year of growth equity capital fundraising

Armstrong Energy files for Chapter 11 reorganisation

BY Richard Summerfield

In yet another blow for a depressed industry, coal mining company Armstrong Energy, Inc. has announced that it, and substantially all of its wholly owned subsidiaries, has filed for reorganisation under Chapter 11 of the US Bankruptcy Code.

The collapse of Armstrong is the first such bankruptcy since president Donald Trump vowed to end the so-called ‘war on coal’, though it is one of many companies to have opted for bankruptcy in light of the emergence of cheap natural gas in the US in recent years.

Armstrong Energy has taken the Chapter 11 route (in the Bankruptcy Court for the Eastern District of Missouri) in order to consummate the transfer of substantially all of its assets to a new entity to be jointly owned by Knight Hawk Holdings, LLC and Armstrong’s secured noteholders. Once the proposed assets have been transferred, Knight Hawk will take control of Armstrong Energy’s ongoing operations.

A producer of low-chlorine, high-sulfur thermal coal from the Illinois Basin, Armstrong Energy operates both surface and underground mines. As of 30 June 2017, the company controlled over 445 million tons of proven and probable coal reserves in Western Kentucky and currently operates five mines. Armstrong also owns and operates three coal processing plants and river dock coal handling and rail loadout facilities, which support its mining operations.

"We remain firmly committed to serving our customers and to being a good employer by maintaining safe, productive operations as we undertake this process," said J. Hord Armstrong, III, executive chairman of Armstrong Energy. "We are confident that this court-supervised process is the best way forward.”

Citing “recurring losses from operations”, the beleaguered company had initially stated in an August filing with the US Securities and Exchange Commission (SEC) that it foresaw a need to reorganise under the protection of a federal bankruptcy court.

Armstrong Energy has filed various motions with the Missouri Bankruptcy Court, including requesting authorisation to continue paying employee wages and providing healthcare and other benefits. The company has also asked for authority to continue existing customer programmes and intends to pay suppliers in full under normal terms for goods and services provided after the filing date of 1 November 2017.

Kirkland & Ellis LLP is serving as legal adviser, MAEVA Group LLC is serving as financial adviser and FTI Consulting, Inc. (FTI) is providing interim management services to Armstrong Energy in connection with the Chapter 11 process.

Armstrong Energy expects its mining operations and customer shipments to continue in the ordinary course throughout the Chapter 11 process.

News: Coal-Mining Armstrong Energy Files for Bankruptcy Protection

Broadcom proposes Qualcomm acquisition in $130bn transaction

BY Fraser Tennant

In what would be the biggest tech deal ever seen, Broadcom Limited has announced a proposal to acquire fellow semiconductor company Qualcomm Incorporated in a deal valued at $130bn.

The acquisition would see Broadcom acquire all of the outstanding shares of Qualcomm for a per share consideration of $70.00 in cash and stock ($60.00 in cash and $10.00 per share in Broadcom shares). Broadcom's proposal represents a 28 percent premium over the closing price of Qualcomm common stock on 2 November 2017.

"Broadcom's proposal is compelling for stockholders and stakeholders in both companies,” said Hock Tan, president and chief executive of Broadcom. “Our proposal provides Qualcomm stockholders with a substantial and immediate premium in cash for their shares, as well as the opportunity to participate in the upside potential of the combined company.”

Broadcom has also stated that its proposal to acquire Qualcomm stands whether the pending acquisition of NXP Semiconductors by Qualcomm (the currently disclosed terms of $110 per share) is completed or terminated. Many commentators believe there is a serious possibility that Qualcomm's NXP acquisition will collapse in the wake of a Qualcomm-Broadcom deal.

Unanimously approved by Broadcom’s board of directors, the combination of Broadcom and Qualcomm will lead to a strong, global company with an impressive portfolio of technologies and products, according to Thomas Krause, Broadcom’s chief financial officer. “Given the complementary nature of our products, we are confident that any regulatory requirements necessary to complete a combination with Qualcomm will be met in a timely manner,” he said. “We look forward to engaging immediately in discussions with Qualcomm so that we can sign a definitive agreement and complete this transaction expeditiously."

Broadcom has stated its expectation that the proposed transaction would be completed within approximately 12 months following the signing of a definitive agreement.

Moelis & Company LLC, Citi, Deutsche Bank, J.P. Morgan, BofA Merrill Lynch and Morgan Stanley are acting as financial advisers to Broadcom. Wachtell, Lipton, Rosen & Katz and Latham & Watkins LLP are acting as legal counsel.

Mr Tan concluded: “Given the common strengths of our businesses and our shared heritage of, and continued focus on, technology innovation, we are confident we can quickly realise the benefits of this complementary transaction for all stakeholders. Importantly, we believe that Qualcomm and Broadcom employees will benefit from substantial opportunities for growth and development as part of a larger company."

News: Broadcom offers $103 billion for Qualcomm, sets up takeover battle

Optimism returns to M&A market with 2018 the year of small and middle-sized deals, says new survey

BY Fraser Tennant

Optimism is returning to the M&A landscape with smaller and middle market deals expected to lead activity in 2018, according to a new survey from Dykema.

The survey – the law firm’s 13th annual M&A outlook – reveals that 39 percent of respondents expect the M&A market to strengthen over the next 12 months, up from 33 percent last year and 37 percent in 2015. Furthermore, 60 percent predict a strong US economy in the year to come – double the result of last year’s survey.

In terms of the US, 55 percent of respondents indicated an expectation that president Trump will be a positive force on both the US economy and M&A market in 2018. Among the factors playing a role in this optimistic sentiment are the expected reduction in corporate tax rates, more favourable business regulations and the Trump administration’s perceived business-friendly positive economic policies.

“With the uncertainty around the presidential election in the rearview, our survey respondents are abandoning the ‘wait and see’ mantra, with an increasing number predicting that deal activity is back on the rise,” said Thomas Vaughn, co-leader of Dykema’s M&A practice. “However, we are still hearing that uncertainty around the Trump administration’s priorities and regulations will have the greatest impact on M&A from a global perspective.”

Additional key findings include: (i) the majority of respondents (70 percent) expect the volume of small deals (under $50m) will increase over the next 12 months, with 53 percent predicting an uptick in deals valued between $50m and $100m; (ii) for the fourth consecutive year, respondents expect technology and healthcare to see the most M&A activity over the coming year; (iii) 59 percent of respondents predict an increase in M&A activity between FinTech startups and established financial services organisations in 2018; and (iv) 68 percent of respondents said they would be involved in an acquisition in the next 12 months, sentiment consistent with 2016’s 70 percent.

Survey respondents also stated their belief that the leading driver of cross-border deals in 2018 will be companies seeking growth via entrance into foreign markets. More companies in Asia are also expected to pursue deals in the US, and outbound M&A activity from the US to Mexico and Canada is expected to increase in the next year, despite ongoing public statements by the Trump administration around the renegotiation of the North American Fair Trade Act (NAFTA).

With a high level of optimism not seen across the M&A landscape for several years, bullish dealmakers are heading back to the negotiating table intent on pursuing strategic transactions.

Report: Mergers & Acquisitions Outlook Survey 2017

©2001-2018 Financier Worldwide Ltd. All rights reserved.