Cyber security: recession proof?

BY Richard Summerfield

Amid ongoing economic and geopolitical challenges, the cyber security sector remains strong, according to a new report from ICON Corporate Finance.

Thus far, the sector is proving recession-proof and remains a growth area, defying current troubling macroeconomic headwinds. As such, the cyber security sector is leading the way for M&A and fundraising activity in 2022, with deal activity for Q1-Q3 up 60 percent compared to 2020 for M&A and up 22 percent for fundraising.

The report notes that going forward, enterprises must recognise that they must continue investing in cyber defences regardless to protect against an increasingly sophisticated threat landscape, and because of significant geopolitical and economic uncertainty. This, in turn, is acting as a catalyst for M&A and fundraising deal activity.

According to ICON, the first three quarters of 2022 saw 353 cyber security M&A deals, with a total value of $125bn. As a result, the sector is on track to surpass pre-coronavirus (COVID-19) levels. With vendor platform consolidation, largely backed by private equity, being a chief driver behind the sustained deal activity.

Fundraising activity also remained in line with long-term trends, with $15.4bn of venture capital money invested in the sector globally across 572 deals in the first three quarters of the year.

“Enterprises recognise that they must continue hardening their security defences to keep above water in the arms race between good and bad,” said Florian Depner, director of ICON Corporate Finance. “Cybersecurity is mission-critical and companies have no choice but to keep investing given the uplift in malicious activity, and state-backed attacks.

“We also anticipate that Private Equity will continue injecting much-needed growth fuel into later-stage scale-up companies; a trend demonstrated by the BlackRock-backed $250m (£221.7m) investment in Swiss-based storage management and personal backup services provider Acronis.

“These factors, combined with Private Equity backing buy-and-build strategies and vendor platform consolidation, and the fact that the three-year cyber security index for public sector stocks rose 61.5%, while NASDAQ rose just 35.5%, makes cybersecurity players undeniably desirable.”

Going forward, ICON predicts that consolidation will continue at pace as trade and PE acquirers are ready to capitalise on market opportunities.

Report: Cybersecurity Sector Update – Q3 2022

Latam the latest airline to file for bankruptcy protection

BY Richard Summerfield

Latam Airlines Group SA, Latin America’s largest air carrier, has filed for Chapter 11 bankruptcy protection in New York after the COVID-19 pandemic grounded flights across the region.

“Latam entered the COVID-19 pandemic as a healthy and profitable airline group, yet exceptional circumstances have led to a collapse in global demand and has not only brought aviation to a virtual standstill, but it has also changed the industry for the foreseeable future,” said Roberto Alvo, chief executive of Latam.

He continued: “We have implemented a series of difficult measures to mitigate the impact of this unprecedented industry disruption, but ultimately this path represents the best option to lay the right foundation for the future of our airline group. We are looking ahead to a post-COVID-19 future and are focused on transforming our group to adapt to a new and evolving way of flying, with the health and safety of our passengers and employees being paramount.”

The airline will continue to fly while it is in bankruptcy protection. Its affiliates in Argentina, Brazil and Paraguay were not included in the Chapter 11 filing, though affiliates in Chile, Peru, Colombia, Ecuador and the US were.

To help fund its continued operations throughout the bankruptcy period, the company has secured funding from a number of its major shareholders, including the Cueto and Amaro families and Qatar Airways. In total, the company has secured around $900m in debtor-in-possession (DIP) financing.

However, the company has given no indication whether its largest shareholder, Delta Air Lines, which holds 20 percent of the company, will help. The airline noted in its statement: “To the extent permitted by law, the group would welcome other shareholders interested in participating in this process to provide additional financing.” The airline also noted that it had about $1.3bn in cash on hand.

Latam has struggled since the outbreak of the COVID-19 pandemic. In mid-March, it cut 90 percent of its flights and by April was down to just five routes. Earlier this month, Latam confirmed that it would lay off 3 percent of its workforce, some 1400 employees.

Of course, the company is not the only airline to suffer. Fellow South American airline Avianca has already filed for Chapter 11 bankruptcy, while Virgin Australia entered voluntary administration last month.

News: Latam Air Files Chapter 11 Bankruptcy, Stymied by Lockdowns

Global insurance M&A hits four-year high

BY Richard Summerfield

The level of global insurance industry M&A has increased considerably in recent years, according to Clyde & Co’s ‘Insurance Growth Report 2019’.

There were 222 completed insurance M&A deals worldwide in the first half of 2019, up from 196 in the second half of 2018, a 13.2 percent increase – the highest increase in the volume of transactions since the first half of 2015. The figure also represents the fourth consecutive six-month period of M&A growth. Mega-deals have continued to be a factor in dealmaking in the insurance space, with 11 deals in H1 2019 valued at over $1bn. There were 18 in the whole of 2018.

“Despite recent signs of market hardening, delivering a positive result for shareholders remains challenging and M&A is an attractive strategy to deliver growth for re/insurance businesses around the world,” said Ivor Edwards, a partner and European head of the corporate insurance group at Clyde & Co.

Europe has seen a rush of completed deals that had been put on hold due to Brexit preparations, the report notes. Europe saw the biggest increase in M&A activity – up 39.7 percent – with 88 completed deals in H1 2019 compared to 64 in H2 2018. France led Europe in terms of insurance M&A activity and was the second most active country worldwide, just behind the US. The UK and Spain were next in the list.

Away from Europe, dealmakers have been buoyed by a combination of strong economic growth, notably in the US, and positive growth prospects for the insurance sector. In the Asia-Pacific region, 38 insurance M&A deals were recorded during H1 2019, marking the fourth straight period of rising deal volume to the highest level since 2015. Japan led the region in terms of deals made, followed by Australia and India.

Though the US remains the world’s most active nation in terms of M&A volume, it saw its third consecutive drop in H1 2019, with 66 deals completed. Geopolitical and financial uncertainty relating to potential trade wars involving the US may have rattled investors and could make dealmakers more cautious in the second half of 2019.

Report: Insurance Growth Report 2019

Global energy investment stabilises, says new report

BY Fraser Tennant

Global energy investment stabilised in 2018 following three consecutive years of decline – spending on oil, gas and coal supply revived, while energy efficiency and renewables investment stalled – according to a new International Energy Agency (IEA) report.

In its ‘World Energy Investment 2019’ report, the IEA notes that energy investment totalled more than $1.8 trillion in 2018, a level similar to 2017. Furthermore, for the third year in a row, the power sector attracted more investment than the oil and gas industry.

The biggest jump in overall energy investment was in the US, where it was boosted by higher spending in upstream supply, particularly shale, but also electricity networks. The increase narrowed the gap between the US and China, which remained the world’s largest investment destination.

“Energy investments now face unprecedented uncertainties, with shifts in markets, policies and technologies,” said Dr Fatih Birol, executive director at IEA. “But the bottom line is that the world is not investing enough in traditional elements of supply to maintain today’s consumption patterns, nor is it investing enough in cleaner energy technologies to change course. Whichever way you look, we are storing up risks for the future.”

Among major jurisdictions, India had the second largest jump in energy investment in 2018 after the US. At the other end of the scale, the poorest regions of the world, such as sub-Saharan Africa, face persistent financing risks. Such regions only received around 15 percent of investment in 2018 according to the IEA, even though they account for 40 percent of the global population.

The IEA report also found that public spending on energy research, development and demonstration (RD&D) falls far short of what is needed. And while public energy RD&D spending rose modestly in 2018, led by the US and China, its share of gross domestic product remained flat and most countries are not spending more of their economic output on energy research.

“Current investment trends show the need for bolder decisions required to make the energy system more sustainable,” concludes Dr Birol. “Government leadership is critical to reduce risks for investors in the emerging sectors that urgently need more capital to get the world on the right track.”

Report: World Energy Investment 2019

Bouncing back

BY Richard Summerfield

M&A activity across a number of regions is expected to bounce back in the third quarter of 2019, according to the Q3 2019 issue of the Intralinks Deal Flow Predictor report.

The report forecasts the number of M&A announcements by tracking early-stage M&A activity, defined as new sell-side M&A transactions that are in preparation or have begun their due diligence stage. On average, early-stage deals are six months away from public announcement.

Undoubtedly, the year got off to a disappointing start. The worldwide number of announced M&A deals fell by 17 percent year-over-year in Q1 2019, according to Intralinks — the biggest such decline since 2002 and the sixth largest decline in any quarter for the past 30 years.

However, the outlook for Q3 appears to be much brighter. In North America, for example, M&A deals announced in Q1 2019 fell by 29 percent year-over-year. Yet looking forward, Intralinks’ predictive model anticipates that the number of announced M&A deals is expected to increase by around 3 percent year-on-year over the next six months. Europe, the Middle East and Africa are expected to see growth of around 1 percent. The strongest growth contributions are expected in the real estate, healthcare and technology, media and telecoms (TMT) sectors. France, Germany, Italy and Spain are expected to see the largest increase in M&A announcements.

The Asia-Pacific (APAC) region is forecast to see growth of around 4 percent. Within APAC, all regions except Southeast Asia and South Korea are demonstrating growth in their volumes of early-stage M&A activity. Looking forward, North Asia (China, Hong Kong), India, Japan and Australasia are expected to make the strongest contributions to APAC’s growth.

In Latin America, however, announced M&A deals are expected to fall by around 6 percent year-on-year. Any growth there is anticipated to occur in the materials, energy and power and TMT sectors. Brazil, Chile, Mexico and Peru, the largest economies in the Latin American region, are predicted to show year-on-year increases in M&A announcements.

The strongest growth in worldwide deal announcements is expected to come from the real estate, energy & power and financials sectors.

Report: Intralinks Deal Flow Predictor for Q3 2019