Investor appetite for PE in North America and Europe likely to plateau, says new report

BY Fraser Tennant

Investor appetite for private equity (PE) across Europe and North America is showing signs of reaching a plateau, according to a new report by Rede Partners.

In its ‘1H 2019 Rede Liquidity Index (RLI)’ – an industry benchmark assessing investor sentiment toward the PE asset class – Rede reveals that the overall RLI score has fallen below 60 – standing at 59 for 1H 2019 (a baseline score of 50 represents no change in sentiment, above 50 indicates an expectation to increase and beneath indicates less expectation to deploy less).   

The jurisdiction which saw the greatest decline in overall RLI score was North America, which dropped 13 points to 50, meaning North American limited partners (LPs) are expecting to hold their commitments to PE steady rather than growing them.

In contrast, Europe has remained more stable. Six months ago there was a clear fall in sentiment among LPs in the UK and across Europe – a likely reaction to Brexit – as LPs began to adjust their investment programmes in the face of uncertainty. That said, sentiment has now stabilised, with a RLI score of 64 suggesting modest growth during 2019.

“The divergence in attitudes toward PE  between North American and European-based investors can perhaps be attributed to a more heightened awareness of cycle by the Americans, tied to their more bearish outlook on distributions,” said Scott Church, a partner and co-founder at Rede Partners. “With the decline of North American sentiment being driven by endowments and foundations, it is reasonable to suggest that other LPs may be expected to follow over time.”

In addition, the report – which features the views of 166 global institutional LPs – shows that despite an overall downward trend in PE sentiment co-investments remain an area of significant growth, with 96 percent of LPs stating their intention to maintain or expand co-investment activity.

“Although sentiment may be slightly muted compared to six months ago, PE unquestionably remains an attractive and resilient option for investors,” said Adam Turtle, partner and co-founder at Rede Partners. “Looking ahead, as PE continues to evolve, the overall long term outlook for PE as an asset class remains positive.”

Report: 1H 2019 Rede Liquidity Index (RLI)

Brexit impacting investment in three in five UK manufacturers, reveals new report

BY Fraser Tennant

As we head toward what purports to be the endgame for the Brexit process, three in five UK manufacturers blame the imminent departure from the European Union (EU) for a slump in investment in their business, according to a new report by KPMG.

‘How to gain a competitive edge in UK manufacturing’, KPMG’s survey of 300 firms across a cross section of regions and manufacturing sectors, reveals 62 percent of UK manufacturers have delayed or paused investment as a result of Brexit. Automotive firms reported the hardest impact, with 78 percent indicating a slowdown in investment.

The report’s key findings include: (i) 90 percent of UK manufacturers report obstacles in realising their digitalisation strategies; (ii) talent and infrastructure are the top drivers for internal manufacturers to invest in the UK; (iii) 67 percent of manufacturers view technology disruption as a threat to their business model; and (iv) the availability of talent is viewed as the main obstacle to realising the benefits of industry digitalisation.

“Recent headlines have shown just how much the automotive sector in particular is feeling the pinch and this was echoed by our findings,” said Stephen Cooper, head of industrial manufacturing at KPMG UK. “Factors such as macroeconomic trade wars, regulation, technology and the fast pace at which the world is moving means that manufacturers must be more competitive and agile if they want to remain viable and thrive. Disruption is everywhere, but if viewed as an opportunity and navigated strategically, it can help businesses retain the edge the UK needs to have on its international peers.”

The KPMG report also found that over half of UK manufacturers (54 percent) are planning to relocate some elements of their operations abroad during the next three years.

“With squeezed margins, productivity challenges and a tumultuous geopolitical environment, it is little wonder that manufacturers are unsettled,” suggests Mr Cooper. “However, it is rarely ever one way traffic, so while some may be looking at other destinations, the UK has many redeeming qualities for manufacturers, so they must ensure that any moves being planned are for strategic reasons.”

That said, the report also found that almost half of UK manufacturers (44 percent) believe that the UK’s quality of infrastructure, talent and skills are drivers for international firms choosing to invest.

“The UK’s attractiveness to international firms should not be downplayed,” adds Mr Cooper. “For it to be sustainable in this environment, however, more can be done, such as further government support to strengthen infrastructure and international connections and a focused effort on strategic growth, productivity, skills and innovation.”

As Brexit, in whatever form, presumably approaches, UK manufacturing leaders are in no doubt as to what they must do to invest in their long-term future and stay competitive at a global level.

Report: How to gain a competitive edge in UK manufacturing

Fidelity to pay $35bn for Worldpay

BY Richard Summerfield

US FinTech Fidelity National Information Services Inc (FIS) has agreed to acquire payment processor Worldpay for about $35bn.

The deal will see Worldpay shareholders receive 0.9287 FIS shares and $11.00 in cash for each share of Worldpay held - a premium of about 14 percent based on the last day of trading before the deal was announced. Upon closing of the transaction, FIS shareholders will own approximately 53 percent and Worldpay shareholders will own approximately 47 percent of the combined company.

The deal values Worldpay at around $43bn, inclusive of debt. FIS and Worldpay combined will have annual revenues of about $12bn and adjusted core earnings of around $5bn.

The merger is the biggest deal announced in the electronic payments industry to date. It comes as more consumers utilise digital payments, rather than cash. Worldpay, the companies noted in a press release, processes over 40 billion transactions annually, supporting more than 300 payment types across more than 120 currencies.

“Scale matters in our rapidly changing industry,” stated Gary Norcross, chairman, president and chief executive of FIS. “Upon closing later this year, our two powerhouse organisations will combine forces to offer a customer-driven combination of scale, global presence and the industry’s broadest range of global financial solutions. As a combined organization, we will bring the most modern solutions targeted at the highest growth markets. The long-term value we will create for clients and for shareholders will set the bar in our industry and will create a range of new career opportunities for our employees. I have never been more excited about the future of FIS.”

“At Worldpay, our focus has always been on delivering more value to our clients and partners and making decisions that achieve our growth and performance objectives. Combining with FIS helps us accelerate the achievement of that, now benefitting from new scale and capabilities that will truly differentiate the company globally,” said Charles Drucker, executive chairman and chief executive of Worldpay. “We are proud to become part of one of the financial services industry’s most respected and consistently performing companies, and I am excited about the new opportunities this brings both for the business and our colleagues worldwide.”

The deal is expected to generate an organic revenue growth outlook of 6 to 9 percent through 2021, and $700m of total core earnings savings over the next three years. Furthermore, the companies expect to generate $500m of revenue savings and aim to deliver nearly $4.5bn of free cash flow in three years.

News: U.S. firm FIS buys Worldpay for $35 billion in payments deal bonanza

FireEye report – Aggressive new attackers emerge

BY Richard Summerfield

The cyber security industry evolved significantly in 2018, with aggressive new attackers emerging, according to the FireEye Mandiant ‘M-Trends 2019 Report’.

Encouragingly, however, organisations are getting better at responding to breaches quickly. Over the past eight years, dwell times have decreased significantly – from a median dwell time of 416 days in 2011 to 78 days in 2018.

Thirty-one percent of the breaches investigated by Mandiant last year had dwell times of 30 days or less, up from 28 percent of compromises in 2017. Twelve percent had dwell times greater than 700 days, down from 21 percent in 2017.

The report suggests that the increase in compromises detected in less than 30 days is due to greater use of ransomware and cryptominers over the last 12 months, which are detected faster. FireEye also believes that companies are improving their data visibility through better tooling, which allows for faster response times. In the Americas, the median dwell time fell from 75.5 days in 2017 to 71 days in 2018.

Nation states continue to pose an increasingly dangerous and evolving threat. The report identifies North Korea, Russia, China and Iran, among others, as the most threatening actors which are continually enhancing their capabilities and changing their targets in alignment with their political and economic agendas. The report suggests that significant investments have provided these actors with more sophisticated tactics, tools, and procedures, with some becoming more aggressive, and others better at hiding and staying persistent for longer periods of time.

There are a number of important steps companies must take if they are to resist attacks which are coming in increasingly diverse forms. Attackers are targeting data in the cloud, including cloud providers, telecoms and other service providers; they are re-targeting past victim organisations and are even launching phishing attacks during mergers & acquisitions (M&A) activity.

“By regularly reviewing and updating their incident Response Plans and associated use cases and playbooks, organisations can mitigate the risk of destruction of important evidence, failure to identify major breaches, and extending the duration of breaches,” notes the report. “Organisations should incorporate important concepts such as evidence preservation during remediation activities, context of alerts instead of simple volume metrics, and eradication timing into these documents. This will empower front line analysts to effectively escalate relevant information to decision makers and avoid costly mistakes.”

Report: M-Trends 2019

Fading denim brand Diesel USA files for Chapter 11

BY Fraser Tennant

Blaming falling sales, a fumbled turnaround, expensive leases and inflexible landlords, denim and accessory brand Diesel USA has moved to protect itself from creditors and filed a voluntary petition for relief under Chapter 11 bankruptcy.

Hit hard by the ongoing downturn in the retail sector, the New York-based arm of Italian retail clothing company Diesel S.p.A. has seen annual sales plummet 53 percent, to $104m. In addition, cyber attacks and theft have proved costly to the retailer.

The Chapter 11 petition estimates up to $100m in assets and as much as $50m in debt. Diesel’s parent company the OTB Group is not part of the Chapter 11 filing.

Diesel’s bankruptcy comes at a time when several retailers, such as shoe store Payless, Victoria’s Secret and Gap, have reduced their footprints and closed stores following bankruptcy. However, unlike these retailers, Diesel intends to breathe new life into its US brand.

“The filing is a critical step in enabling Diesel USA to address certain long-term liabilities for a healthier and stronger business in the country, building a dynamic brand presence in line with the evolving US retail environment,” said Diesel in a statement. “This procedure opens the way to a redefinition of the brand’s geographic footprint in the US.”

This redefinition of the brand will include some important milestones for Diesel USA in 2019, including refitting and reviewing most of its retail store network and making sure its retail footprint meets the needs of both existing and new consumers.

Diesel is also looking to strengthen its e-commerce presence and has pledged to redouble its commitment to innovation via a series of key wholesale partnerships designed to give resonance to the retailer’s collections and special products, with tailored buying and distribution activities planned for each.

A premium denim and accessory brand which dominated pop culture in the 1990s and early 2000s, Diesel USA currently has 380 employees and 28 retail stores in the US, as well as relationships with department stores and specialty retailers.

The Diesel statement concluded: “We remain fully committed to the US market, a unique and fundamental window to an important player globally.”

News: Jeans maker Diesel USA files for bankruptcy