Compliance professionals foresee increasing risk of bribery and corruption

BY Fraser Tennant

More than 50 percent of compliance professionals are expecting to be faced with an increasing risk of bribery and corruption over the coming year, according to a new report by the corporate investigations and risk consulting firm Kroll and Compliance Week.

The 2015 Anti-Bribery and Corruption Benchmarking Report – ‘How do companies navigate bribery and corruption?’ – is based on a survey of senior-level compliance professionals, 72 percent of whom say they expect to see the risk of bribery and corruption increase due to business expansion into new and unfamiliar markets.

Furthermore, despite 65 percent of compliance professionals stating that their businesses are likely to increase the number of their third-party relationships in future, 48 percent conceded that they never train third parties on anti-bribery and corruption matters – an “alarmingly high” figure, says the report, given the number of enforcement actions taken by regulators that involve third parties.

Recognising the issue with third parties, Kevin Braine, managing director with Kroll’s Compliance practice in EMEA, said: “While there has been phenomenal progress in the extent to which anti-bribery and anti-corruption issues have now made it on the training agenda for most large organisations, that’s still not really the case when it comes to training third parties.” 

Militating against this, only 8 percent of compliance professionals admit to not performing due diligence to hire or retain a third party, with the majority of companies employing risk-based factors to determine how much diligence they actually perform. On this point, the report reveals that 58 percent of compliance professionals rate their due diligence procedures as either “effective” or “very effective".

Further key findings in the report include: (i) more than 50 percent anticipate the bribery and corruption risks to their company will increase; (ii) 66 percent automate their anti-corruption program in some way; (iii) most automated tasks are limited to training; only 26 percent automate the vetting of third parties; and (iv) a majority (52 percent) are not confident in their financial controls to catch potential books-and-records violations of the Foreign Corrupt Practices Act (FCPA).

“Due diligence is really one of the keys to any type of compliance program, whether related to human trafficking, conflict minerals, anti-bribery and corruption, or anti-money laundering,” said Lonnie Keene, managing director with Kroll. “It is one of those elements that cuts across all of those obligations.”

Report: The 2015 Anti-Bribery and Corruption Benchmarking Report – How do companies navigate bribery and corruption?

CVS and Omnicare in $12bn deal

BY Richard Summerfield

CVS Health Corporation has agreed to acquire Omnicare Inc for a total enterprise value of approximately $12.7bn, including $2.3bn in existing debt. The deal will see CVS pay around $10.4bn, or around $98 per share, in cash. The agreed price represented a 4 percent premium over the company’s closing price on 20 May, the day before the deal was announced.

The two companies expect the deal to be completed near the end of 2015, subject to approval by the holders of Omnicare's common stock, as well as other customary closing conditions, including applicable regulatory approvals.

Omnicare has a burgeoning reputation in the pharmaceutical sector and is a rising firm in the business of prescription fulfilment for diseases including cancer and multiple sclerosis. The firm is also the largest provider of prescription medication to nursing, assisted living and other healthcare facilities in the US.

"The acquisition of Omnicare significantly expands our business, providing CVS Health access into a new pharmacy dispensing channel," said CVS Health's president and chief executive Larry Merlo, in a statement announcing the deal. "It also creates new opportunities for us to extend our high-quality, innovative pharmacy programs to a broader population of seniors and chronic care patients as they transition across the care continuum. We have been impressed by the Omnicare team and what they have created for the patients they serve."

CVS intends to complete the transaction by utilising $13bn of fully committed unsecured bridge financing which has been secured from Barclays Bank. The company also expects to put in place permanent financing in the form of senior notes and/or term loans prior to the closing of the transaction.

The rapidly ageing US population has made the long term care segment of the healthcare system an extremely attractive proposition. As such, CVS’ play for Omnicare positions the company nicely for the future, as healthcare for the elderly is likely to be a considerable growth area moving forward.

News: CVS to expand pharmacy business with $10.1 billion Omnicare buy

Forex five fined $5.7bn

BY Richard Summerfield

Five of the world’s largest banking groups have been handed fines totalling $5.7bn for their role in manipulating the foreign exchange market.

For the banks - JPMorgan, Barclays, Citigroup, RBS and UBS - the fines continue to stack up as the latest scandal to hit the banking sector once again makes headlines.

According to regulators, forex traders from the banks met in online chatroom groups, named ‘the Cartel’ and another ‘Mafia’, and colluded to set rates that cheated customers while adding to their own profits. "They acted as partners - rather than competitors - in an effort to push the exchange rate in directions favourable to their banks but detrimental to many others," said US Attorney General Loretta Lynch.

The fines, meted out by the US Department of Justice, and separately by the US Federal Reserve, bring total penalties related to rate rigging of the foreign exchange markets to nearly $9bn, according to the Justice Department. Indeed, in November 2014 a number of the same banks agreed to pay $4.25bn to resolve foreign exchange investigations by a raft of regulators.

Four of the five banks under investigation by the DoJ plead guilty – namely Barclays, RBS, Citigroup and JP Morgan. However UBS was granted immunity for being the first to report the manipulation of the $5 trillion a day forex. A sixth bank - Bank of America - was separately fined $205m by the Fed. Announcing the settlements, Ms Lynch said: “The penalty they will pay is fitting, it’s commensurate with the pervasive harm that was done. It should deter competitors from chasing profits without regard to fairness to law or public welfare."

Barclays has been the hardest hit institution; in total, the bank has been fined $2.4bn – the highest amount any bank has paid for the scandal. US banks JPMorgan Chase and Citigroup will pay $900m and $1.2bn in fines respectively. Citigroup’s fine included a $925m antitrust settlement. The firm called the scandal "an embarrassment to our firm, and stands in stark contrast to Citi's values”. RBS agreed to pay around $660m. UBS agreed to pay more than $500m in fines, some of which was earmarked for Libor crimes and the rest for currency manipulation.

News: Global banks admit guilt in forex probe, fined nearly $6 billion

M&A activity in power and utilities sector hits four-year Q1 high

BY Fraser Tennant

Mergers and acquisitions (M&A) activity within the power and utilities (P&U) sector propelled Q1 deal value and volumes to a four-year high, according to a new EY report.

The first quarter data showcased in EY’s ‘Power transactions and trends 2015’ reveals that total deal value reached US$29.7bn, deal value in Europe (the leading Q1 M&A destination) was US$11.4bn, and the total Q1 deal volume was 101 – all pointers to yet another strong year for M&A in the P&U sector.

The demonstrably burgeoning level of M&A activity seen across the globe is partly due, says EY, to energy reforms and unbundling (ERU) – an emerging trend involving governments opening up their energy sectors to competition. Indeed, ERU has recently been introduced in China and Japan, with both territories initiating reforms designed to break the dominance of state-owned monopolies.   

“We expect to see more deals involving consortiums as utilities and financial investors recognise the opportunities for collaboration," confirms Matt Rennie, EY’s global TAS power & utilities leader. “Conventional P&U companies are expected to focus on new areas of growth such as evolving technologies, energy services and fuel supplies.”

The EY report also states that: (i) during Q1, US utilities turned to consolidation to meet the challenges of a stringent regulatory environment, weak earnings growth and declining returns on equity; (ii) in Europe, utilities continued to sell assets – mostly to financial investors – as they prioritised core business; (iii) Asia-Pacific deal activity was dominated by Chinese utilities, which are looking to consolidate to secure greater market share in the domestic market; and (iv) in Africa, a lack of local funding sources created opportunities for foreign investors to take a prominent role in financing power projects, as governments made moves to ease risks for investors.

“As the year progresses, we expect to see a rise in the number of deals involving consortiums as utilities and financial investors recognise the opportunities for collaboration," continues Mr Rennie. “Given a weak growth outlook in key regions, conventional P&U companies will focus on new areas of growth such as evolving technologies, energy services and fuel supplies.”

Report: Q1 2015 Power transactions and trends

Private equity investments and divestments hit five year high in Europe

BY Fraser Tennant

Private equity investment in European companies during 2014 reached its highest level for five years, according to new figures released this week by the European Private Equity & Venture Capital Association (EVCA).

The figures highlighting the number of companies to have received buyout, growth and venture capital investments last year are showcased in the EVCA’s ‘2014 European Private Equity Activity report’ – widely considered to be the most comprehensive source of private equity fundraising, investment and divestment data for Europe (pertaining to more than 1200 European private equity firms).

The report’s core data shows that in 2014: (i) European private equity investment rose 14 percent to €41.5bn; (ii) over 5500 European companies received private equity investment, 80 percent of which were SMEs; (iii) divestments rose 10 percent to a record €37.8bn, with 2400 companies exiting; and (iv) private equity fundraising reached €44.6bn, the second-highest total in five years.

“Private equity and venture capital play an ever increasing role in Europe’s capital markets," said EVCA chief executive Dörte Höppner. “In 2014, we saw a clear pickup of investment and divestment activity across Europe, supported by robust fundraising. Against the backdrop of extremely high liquidity in financial markets, our numbers are proof of a strong and stable private equity industry which displays no signs of overheating; the industry will continue to play a central role in the European economy.”

The EVCA report also indicates that initial public offerings (IPOs) played a significant role in divestment activity. Exits via public markets more than doubled from 23 to 51 companies, while the amount divested at cost increased by more than 50 percent to €3.3bn. Overall, says the report, the most prominent exit routes by amount were by trade sale and sale to another private equity firm.

“Record divestment activity in 2014 reflects the quality of businesses being created by European private equity," concludes Ms Höppner. “While the rise in IPO activity is welcome and demonstrates investor appetite for new share offerings, we must do more to improve public market access for SMEs. The EVCA has been working with fellow European associations via the IPO Task Force to promote a healthier IPO market that benefits companies and investors alike.”

Further EVCA conclusions include confirmation that European private equity continued to attract significant capital from around the globe in 2014, with institutional investors accounting for 40 percent of the funds raised.

Report: 2014 European Private Equity Activity - Statistics on Fundraising, Investments & Divestments