UK attractiveness falls as Brexit fears begin to bite

BY Richard Summerfield

The UK remains the number one destination for foreign direct investment (FDI) in Europe, according to EY’s latest UK Attractiveness Survey. However, there was a notable decline in sentiment from foreign investors toward the UK as a place to invest in the future, which has allowed Germany and France in particular to gain ground.

The UK’s economy is in a state of transition, according to EY, with Brexit and ongoing technological changes impacting investments across sectors, as well as project types and sizes. In 2017, the UK attracted 6 percent more FDI projects compared with 2016, with the number of projects rising to 1205 from 1138. There was also a 6 percent boost in the number of FDI-related jobs created, to 50,196.

However, the UK’s traditional FDI targeted sectors, financial services and business services, recorded significant declines last years. Projects in the financial services space fell by 26 percent, despite the sector recording growth across Europe – the total number across the EU rose by 13 percent. The business services sector saw a decline of 10 percent as the European market recorded growth.  Last year also saw the UK fall to second place behind Germany in attracting business services projects, as UK projects from this sector fell and Germany’s increased.

EY also noted a “marked increase” in UK outbound investment in 2017, with the trend particularly evident in the financial and business services sectors. The total number of outbound investments was 464, up 35 percent on the previous year’s total of 343; 110 of those investments went to Germany, and 79 to France. Business services outbound projects rose from 117 to 125, up 7 percent.

“It’s quite a pick up,” said Mark Gregory, EY’s chief economist, referring to the outbound investment project figures. “If it hadn’t been for the surge of digital, then the overall numbers would look pretty ugly. Lots of these digital projects are quite small. Our core is flat or shrinking.”

For the first time since EY began reporting on investment attractiveness, London is no longer the most attractive city for FDI in Europe. That honour goes to Paris, thanks to the burgeoning impact of Brexit and the so-called ‘Macron effect’.

Report: UK Attractiveness Survey

$5.57bn deal sees KKR take Envision Healthcare private

BY Fraser Tennant

Continuing its recent, high-profile mergers & acquisitions (M&A) activity within the healthcare sector, private equity (PE) firm KKR is to acquire US medical staff provider Envision Healthcare in a deal valued at $5.57bn.

The acquisition of Envision saw global investment giant KKR see off competition from Carlyle Group, TPG Global and others to seal the deal for $46 per share. The agreement is an all-cash transaction, including the assumption or repayment of debt.

"Envision is a leading provider of physician-led services in a healthcare system in which physician-patient interactions have a pronounced impact on nearly all healthcare decisions,” said Jim Momtazee, head of KKR's healthcare investment team. “Envision has a very strong reputation for delivering high-quality, patient-focused care through its network of 25,000 clinical professionals at thousands of hospitals, surgery centres and alternate sites of care across the country.”

No stranger to Envision Healthcare, KKR already owns Envision American Medical response (AMR), the largest US provider of ambulance services, which it bought for $2.4bn in 2017 and merged with its helicopter ambulance service. Another healthcare sector deal last year saw KKR take WebMD Health Corp private for an estimated $2.8bn.

The agreement for KKR to acquire Envision Healthcare has been unanimously approved by Envision's board of directors and represents the culmination of the board's comprehensive review of strategic alternatives to enhance shareholder value.

Over the last seven months, the Envision Healthcare board, with the assistance of three independent financial advisers and legal counsel, examined a full range of options to generate shareholder value, including capital structure alternatives, potential acquisitions, portfolio optimisation, a potential sale of the whole company, and continued operation as a standalone business.

"After conducting a robust review of the business and competitive landscape, the company's opportunities and challenges, and the strategic and financial alternatives available, the board unanimously believes that this transaction will deliver the most value to Envision's shareholders,” said James D. Shelton, Envision's lead independent director.

The transaction is expected to be completed in the fourth quarter of 2018 and is subject to customary closing conditions and regulatory approvals.

Mr Momtazee concluded: “We are excited to partner with the outstanding team at Envision Healthcare to help build upon the strong foundation in place and accelerate the organisation’s growth going forward."

News: KKR to take Envision private for $5.57 billion in healthcare push

Walmart sells 80 percent of Brazilian operations to Advent

BY Fraser Tennant

A conversion, not an expansion. That is how global private equity (PE) investor Advent International is describing its majority stake investment in Walmart Inc’s operations in Brazil.

Under the terms of the acquisition agreement, Advent will invest in Walmart Brazil to strengthen the business and position it for long-term success – converting store formats instead of opening new ones – with the remaining 20 percent being retained by Walmart Inc. upon completion of the transaction.

A presence in Brazil for the last 22 years, Walmart Brazil currently has 438 stores in 18 states, with 55,000 associates. In 2017, the company’s total sales were more than $25bn.

“We have been in Brazil for over 20 years and are excited about this partnership with one of the country’s leading retailers,” said Patrice Etlin, a managing partner at Advent International in Brazil. “We believe that with our local market knowledge and retail expertise we can position the company to generate significant results and reach new levels of success in Brazil. We plan to invest in the business, work with the Walmart Brazil management team, associates, Walmart and our industry advisors to create a more agile and modern company to accelerate its development and improve the customer experience.”

A global PE fund with a strong local presence and extensive experience in retail investment both in Brazil and internationally, Advent has been present in Brazil for more than 20 years. Over that time, the firm has invested in 30 Brazilian companies, always with a strategy focused on revenue growth and operational excellence. Previous investments have included several retail companies such as Dufry, Quero-Quero, Allied and Internat.

Walmart’s decision to partner with Advent in Brazil is the result of the retail corporation’s review of its international portfolio. Following completion of the transaction, Walmart expects to record a non-cash, net loss of approximately $4.5bn.

“Walmart is committed to building strong, resilient businesses that continuously adapt to local customers’ needs in a rapidly changing world,” said Enrique Ostale, executive vice president and chief executive of Walmart UK, Latin America and Africa. “We will retain a stake in Walmart Brazil and continue to share our global retail expertise, giving our Brazil business the best opportunity for long-term growth, providing opportunity for associates and low prices for customers.”

The Advent/Walmart transaction is subject to regulatory approval in Brazil.

News: Walmart sells majority of Brazil unit, takes $4.5 billion charge

DS Smith to acquire Europac in $2.2bn deal

BY Richard Summerfield

British packaging firm DS Smith is to acquire European rival Papeles y Cartones de Europa, also known as Europac, for $2.2bn, including debt.

The merger will see FTSE 100-listed DS Smith pay €16.80 per Europac share to acquire the company. On Friday 1 June, the last day of trading before the deal was announced, Europac’s shares closed at €15.58.

DS Smith will finance the acquisition by raising $1.3bn from a new share issue, which is expected to launch in June, following the publication of the company’s full-year results. DS Smith will also benefit from a new debt facility of €740m.

The acquisition will be an “exceptional scale opportunity”, according to DS Smith, which will allow the company to enhance its customer offer in a key packaging growth region, as well as strengthen its global supply chain.

Expected pre-tax synergies of €50m have been identified by the company. According to a statement, in 2017 Europac delivered revenue of €868m and posted earnings before interest, tax, depreciation and amortisation of €158m.

Miles Roberts, group chief executive of DS Smith, said: “The acquisition of Europac is a very exciting development for DS Smith, strengthening our position as a leading global supplier of sustainable packaging solutions.  We have a long-standing relationship with Europac, which is a company we have long admired, given the quality of their assets, employees and customers. This acquisition will enhance our customer offer in Western Europe, a key packaging growth region, and help us meet the rising demand for our high-quality packaging and sustainable products. It will also strengthen our global supply chain and means we can serve our, and Europac’s, customers better.”

José Miguel Isidro Rincón, executive chairman of Europac, said: “Europac is a great company, well structured, strongly positioned with its customers and has a great management team. Iberia is the third largest packaging market in Europe and has great growth potential. In my capacity as shareholder, I believe that the offer submitted by DS Smith, which upon implementation would result in a combination with Europac, would deliver important operating and commercial synergies for both companies.”

As there is little overlap between the operations of the two companies, DS Smith expects the deal to win regulatory approval.

News: DS Smith to buy Europac for $2.2 billion as paper deals accelerate

KKR to acquire BMC Software for $8.3bn

BY Fraser Tennant

In its largest acquisition since the financial crisis, leading global investment firm KKR is to buy BMC Software, a global leader in IT software solutions, in a deal valued at $8.3bn.  

BMC is being acquired from a private investor group led by Bain Capital Private Equity and Golden Gate Capital, and includes GIC, Insight Venture Partners and Elliott Management. The group has owned BMC since 2013.

Since then, BMC has reallocated hundreds of millions of dollars toward higher growth R&D and go-to-market initiatives to address the massive digital disruption that is taking place in industries around the globe. Furthermore, the company has helped companies accelerate their cloud adoption.

"With the support and partnership of our investor group, BMC significantly accelerated its innovation of new technologies and new go-to-market capabilities over the past five years," said Peter Leav, president and chief executive of BMC. "Our growth outlook remains strong as BMC is competitively advantaged to continue to invest and win in the marketplace.”

Acquirer KKR has a long record of supporting technology companies, having invested over $26bn in the TMT sector in the last decade. KKR also has experience with a number of enterprise systems software related investments, including Mitchell, Epicor and Calabrio.

"In an ever-changing IT environment that is only becoming more complex, companies that help simplify and manage this essential infrastructure for their enterprise customers play an increasingly important role," said Herald Chen, KKR member and head of the firm's technology, media & telecom (TMT) industry team and John Park, KKR member. "We are thrilled to partner with the talented BMC team to accelerate growth, including via M&A, building on BMC's deep technology expertise and long-standing customer relationships."

Financing for the transaction is being provided by Credit Suisse, Goldman Sachs Bank USA, Jefferies Finance LLC, Macquarie and Mizuho Bank.

“Customers can expect the BMC team to remain focused on providing innovative solutions and services with our expanding ecosystem of partners to help them succeed across changing enterprise environments,” added Mr Leav. “We are excited to embark on our next chapter with KKR as our partner."

The KKR/BMC transaction is subject to regulatory approvals and other customary closing conditions and is expected to be completed in the third quarter of 2018.

News: KKR to acquire PE-backed IT management business BMC in reported $8.3bn deal