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

Responding to the risk revolution

BY Richard Summerfield               

Due to a challenging economic and trade outlook, companies are finding it increasingly difficult to invest sufficiently in preparing for risk and protecting the continuity of their operations, according to Aon’s 2019 Global Risk Management Survey. Aon surveyed thousands of risk managers across 60 countries and 33 industries to identify the key risks and challenges their organisations are facing.

Economic slowdown is highlighted as the chief risk facing companies today. Others include the possible impact of Brexit, higher US interest rates, slowing growth in Europe, China, Japan and many emerging markets, the highly charged geopolitical climate, and diminishing prospects for further economic expansion in the US.

The escalating China-US trade war is also a cause for concern, with the International Monetary Fund (IMF) cutting its economic growth forecasts for both countries in October. According to the IMF, growth in the US will slow from 2.9 percent to 2.5 percent in 2019, and China’s GDP would drop to 6.2 percent.

“Companies of all sizes are struggling to prioritise their risk management efforts amid so much change and uncertainty,” said Rory Moloney, chief executive of global risk consulting at Aon. “What was once a tried-and-true strategy for risk mitigation – using the past to predict the future – is now a challenge and coupled with a more competitive global economy, it is causing an all-time low level of risk readiness. As a result, risk management plans need to take a different approach than they have in the past.”

Damage to a brand’s reputation, business interruption and cyber attacks have also emerged as key concerns for many organisations. Though cyber attacks have only featured in Aon’s top 10 risks since 2015, they have quickly grown to be perceived as one of the most pressing issues of the day. Indeed, for North American respondents, cyber attacks are now the number one risk.

The elevation of new risks has become a common theme in the recent years. The speed of technological change, aggressive regulatory actions, product recalls, an active cycle of devastating natural disasters and corporate scandals are disrupting supply chains and business operations.

As a result of these rapid and paradigm-shifting changes to the risk management landscape, risk managers are reporting their lowest level of risk readiness in 12 years, since many of the top risks are uninsurable.

Risk managers must evolve with the times if they are to protect their organisations. “The use of data and predictive analytics that can generate actionable insights, will help businesses protect their bottom lines while adapting to accelerated change and economic fluctuations,” said Mr Moloney.

Report: 2019 Global Risk Management Survey

Oil and gas giant Weatherford to restructure through Chapter 11

BY Fraser Tennant

Another victim of the industry’s continuing downcycle, multinational oil and natural gas company Weatherford International plc has filed for Chapter 11 bankruptcy protection amid mounting debt. 

Through a prepackaged Chapter 11 process, the company expects to implement a comprehensive financial restructuring agreement to significantly reduce its long-term debt and related interest costs, provide access to additional financing and establish a more sustainable capital structure.

In addition to its Chapter 11 filing, as a company domiciled in Ireland, Weatherford has also filed Irish examinership proceedings. Furthermore, as part of the bankruptcy and restructuring process, Weatherford intends to continue engaging in discussions with, and begin soliciting votes from, its creditors in connection with a proposed plan of reorganisation prior to filing.

"During the past year, we have been executing a company-wide transformation to fundamentally improve the way we operate our business and to strengthen Weatherford for the long run," said Mark A. McCollum, president and chief executive of Weatherford. "Despite the challenging market dynamics our industry continues to face, we believe that our transformation strategy, which is designed to improve our execution capabilities, lower our cost structure and create efficiency to allow us to better price our products and services, will position Weatherford for long-term success.”

Weatherford expects to continue to operate its businesses and facilities during the Chapter 11 and restructuring process, without disruption to its customers, vendors, partners or employees.

“However, we still face a high level of debt that affects our ability to make investments in our Company and implement further elements of our transformation plan,” continued Mr McCollum. “We expect that the new capital structure will allow us to continue to capitalise on our momentum and build a truly integrated service company with sustainable profitability and long-term growth potential."

One of the world’s largest oilfield service companies, Weatherford operates in over 80 countries and has a network of approximately 650 locations, including manufacturing, service, research and development and training facilities and employs approximately 26,000 people.

Mr McCollum concluded: “Our customers, partners, employees and vendors should not experience any changes in the way we do business, and we expect their experience will improve after the restructuring is complete.”

News: Oilfield services firm Weatherford to file for Chapter 11 bankruptcy

PE investment in Europe hits record €80.6bn, reveals new report

by Fraser Tennant

Private equity (PE) investment in European companies reached a new record of €80.6bn in 2018 – a 7 percent year-on-year increase – according to a new report by Invest Europe.

According to the association’s ‘2018 European Private Equity Activity Report’, PE  funds invested in over 7800 companies last year – also a new record – with 86 percent of the total made up by small and medium-sized enterprises (SMEs).

The report also reveals that investment increased across all segments of PE, including larger buyouts, mid-market investments and growth capital, with venture capital backing for European companies hitting an all-time high of €8.2bn.

“Record investment levels show that private equity and venture capital can identify attractive companies with the capacity to grow whatever the broader political and economic climate,” said Michael Collins, chief executive of Invest Europe. “Europe is packed with high-potential and innovative businesses, and private equity is increasingly seen as a supportive partner for companies looking to expand.”

In addition, fundraising remained strong in 2018, with €97.3bn committed to European PE – the highest total since the financial crisis. Investors from outside Europe contributed 46 percent of total fundraising. Pension funds remained the largest investor group, accounting for almost one-third of total fundraising.

In terms of European venture capital fundraising, a new high of €11.4bn was reached, up 11 percent from 2017. Private investor interest increased with family offices and private individuals accounting for 20 percent of capital raised, which was closely followed by funds of funds and other asset managers on 19 percent. The proportion contributed by government agencies fell to 18 percent, the lowest share in a decade.

“European venture capital has truly come of age thanks to a combination of strong returns, a growing band of billion-euro-plus tech and life sciences start-ups, and a string of high-profile exits, including the listing of music streaming service Spotify and the sale of mobile payments platform iZettle,” said Nenad Marovac, chair of Invest Europe. “There are eager strategic buyers and open markets around the world for Europe’s top-quality start-ups. The result is increasing appetite among global institutional investors who see European venture as the way to invest in some of the world’s most dynamic and entrepreneurial companies.”

The report covers PE activity on over 1400 firms, directly verified by the fund managers via the European Data Cooperative (EDC). The EDC holds data from over 3300 European PE firms on 9000 funds, 75,000 portfolio companies and 255,000 transactions since 2007.

Report: 2018 European Private Equity Activity Report

Occidental has the edge in potential Anadarko merger

BY Richard Summerfield

A merger between Anadarko Petroleum Corporation and Occidental Petroleum Corporation is inching closer as Anadarko announced that Occidental’s revised $38bn offer for the company constitutes a “superior proposal” to the company’s previously announced deal with Chevron Corporation.

Under the terms of the revised Occidental proposal, the company would acquire Anadarko for $76 per share, comprised of $59 in cash and 0.2934 of a share of Occidental common stock per share of Anadarko common stock. The revised Occidental offer represents a premium of approximately 23.3 percent to the $61.62 per share value of Chevron’s pending offer.

Occidental’s offer would also remove a requirement for any deal to receive the approval of Occidental’s shareholders. The cash element of Occidental’s bid has increased $18.8bn, a move which allows the company to avoid a vote by its shareholders on the deal. Some of the Occidental’s investors are opposed to the decision to bypass a shareholder vote of approval, however.

Chevron’s previously agreed merger, which was worth $33bn, is now in jeopardy. The company has until 10 May to revamp its own offer, or walk away from the deal. Chevron’s merger agreement with Anadarko is structured as 75 percent stock and 25 percent cash. Chevron has previously noted that it is not likely to engage in a bidding war for Anadarko, however. If Anadarko terminates the Chevron merger agreement, which it indicated it will do in a statement released on Monday, in order to enter into a definitive agreement with Occidental, Anadarko will pay Chevron a $1bn termination fee.

The decision is a victory for Occidental chief executive Vicki Hollub, who pressed Anadarko’s board to reject the Chevron agreement and pulled in support from billionaire Warren Buffett for the deal. Mr Buffett’s Berkshire Hathaway has pledged to invest $10bn into the deal.

“We firmly believe that Occidental is uniquely positioned to drive significant value and growth from Anadarko’s highly complementary asset portfolio,” said Ms Hollub. “This combination will create a global energy leader with the scale and geographic diversification to drive compelling returns to the shareholders of both companies. The financial support of Berkshire Hathaway as well as the agreement we announced with Total allows us to delever our balance sheet while focusing our integration efforts on the assets that will provide the most value for us.”

The battle for control of Anadarko has gone on for some time. In April, the company rebuffed an offer from Occidental and chose to favour Chevron’s lower bid.

News: Anadarko backs Occidental's revised bid, pressuring Chevron to respond