Two thirds of UK PE firms embrace ESG, claims new report

BY Fraser Tennant

Almost two thirds of UK private equity (PE) firms now embrace environmental, social and governance (ESG) principles as part of their investments, according to research published this week by BDO LLP.

Increasingly, says BDO, PE firms have to prove that their policies at least match what can be demanding ESG criteria set out by limited partners (LPs), some of whom have been at the forefront of ESG investment for several years.

However, with many PE firms failing to make their full ESG policy publicly available, some risk falling behind, and more work is needed to bring those firms into line with expectations of a broader group of stakeholders.

According to the BDO research: (i) 57 percent of PE firms clearly set out the changes they have implemented to make their investments more ESG-focused; (ii) 49 percent of PE firms are signatories of the United Nations Principles for Responsible Investment (UNPRI), the world’s most-recognised set of ESG principles; (iii) 48 percent of PE firms report in detail on the ESG impact of their investments; and (iv) 25 percent of PE firms have a dedicated individual or team responsible for embedding ESG into the investment process.

“A manager’s ESG approach is becoming an important consideration for LPs looking to deploy capital into PE,” said Jamie Austin, a partner at BDO. “PE firms have made a lot of progress in a short space of time in developing ESG principles and using them to guide their investments. But there is still a way to go and some firms may look increasingly isolated by making no reference whatsoever to ESG.”

Furthermore, the BDO research reveals that investors are looking for PE firms to strengthen the presence of ESG criteria in due diligence processes, with ESG credentials needing to be a fundamental focus of these risk assessments, if firms are to gain the support of investors. 

Mr Austin concluded: “We suspect the next stage is that investors will not just want a commitment to ESG – they will also want tangible proof of how the PE fund has actually delivered on that commitment. The idea that private assets mean little or no public disclosure on important issues like ESG is increasingly being challenged.”

News: Two thirds of private equity houses now take ESG into account, but more progress remains to be made

First Citizens and CIT agree $2.2bn merger

BY Richard Summerfield

First Citizens BancShares and CIT Group have announced an agreement to merge in a deal worth $2.2bn.

The deal is being billed as a merger of equals, though First Citizens would be the surviving company and its investors would own 61 percent of its outstanding shares. First Citizens will pay $2.2bn in stock for CIT, with CIT shareholders receiving 0.062 shares of First Citizens’ stock for each share they own. The deal is expected to close in the first half of 2021.

Frank Holding, Jr, chairman and chief executive of First Citizens, will retain the same roles at the combined company. Ellen R. Alemany, chairwoman and chief executive of CIT, will assume the role of vice chairwoman and play a key role in the merger integration. In addition, she will serve on the board of directors of the combined company.

The deal will create the 19th-largest bank holding company in the US, with roughly $110bn of assets and a nationwide network of branches.

“This is a transformational partnership for First Citizens and CIT designed to create long-term value for all of our constituents including our stockholders, our customers, our associates and our communities,” said Mr Holding, Jr.  “We have long admired CIT’s market-leading commercial business, including their strong market position across multiple asset classes. Under Ellen’s leadership, CIT has made tremendous progress in reducing its cost of funds, enhancing risk management processes and retaining key talent.”

He continued: “First Citizens has a long history of delivering strong returns to our stockholders, gathering low-cost deposits and driving strong earnings, which are all supported by an exceptional credit culture, strong capital and excellent risk management. Together, First Citizens and CIT will be able to leverage both companies’ unique attributes to create the 19th largest bank in the country, well-positioned to compete across the United States.”

“Frank and I have long respected each other’s companies and believe this transaction will accelerate our strategic goals by bringing together the expertise of both banks to create scale, strength and value,” said Ms Alemany. “I’m proud of the work we have done to transform CIT in recent years to a leading, national commercial bank. This transaction will build on those efforts and more fully unlock the potential in our core franchises. In addition, the strength that is created as a larger US bank will enable greater opportunities for our team, our customers and our communities.”

News: Regional lender First Citizens to buy CIT in $2.2 billion deal

Twilio clinches data deal

BY Richard Summerfield

Cloud computing firm Twilio Inc has agreed to acquire customer data company Segment Inc for around $3.2bn in stock, after a boom in demand for online communications tools during the COVID-19 pandemic.

The all-stock deal, specifically “in Twilio Class A common stock, on a fully diluted and cash free, debt free basis” is expected to close in Q4 2020. Upon completion, Segment will become a division of Twilio, the companies said in a statement.

The deal will accelerate Twilio’s efforts to build the leading global customer engagement platform and offers a combined total addressable market of $79bn.

“Data silos destroy great customer experiences,” said Jeff Lawson, co-founder and chief executive of Twilio. “Segment lets developers and companies break down those silos and build a complete picture of their customer. Combined with Twilio’s Customer Engagement Platform, we can create more personalized, timely and impactful engagement across customer service, marketing, analytics, product and sales. We are thrilled to welcome Segment to the Twilio team.”

“Together, Twilio and Segment have an incredible opportunity to build the customer engagement platform of the future,” said Peter Reinhardt, co-founder and chief executive of Segment. “We created Segment to help businesses set themselves apart in the digital age and deliver rich, connected customer experiences built on high-quality data. By joining forces and applying our customer data platform to Twilio’s engagement cloud, we’ll be able to make the entire customer experience seamless from end-to-end.”

The deal is Twilio’s biggest acquisition since it acquired SendGrid for $2bn in 2018 to add email to its range of communications tools.

Segment, founded in 2012, raised $175m in a Series D round in April 2019 that was led by existing investors Accel & GV. New investors at the time included Meritech Capital, Thrive Capital, Y Combinator Continuity, and e.ventures. That round reportedly valued Segment at $1.5bn.

Twilio went public in June 2016 and has a market capitalisation of more than $45bn.

News: Twilio to buy cloud customer data startup Segment for $3.2 billion

LSEG sells Borsa Italiana to Euronext in $5bn deal

BY Fraser Tennant

In a transaction which creates a leading player in European capital markets infrastructure, London Stock Exchange Group (LSEG) is to sell Borsa Italiana, Italy's only stock market exchange, to pan-European stock exchange Euronext for $5bn in cash.

The combination significantly enhances the scale of Euronext, diversifies its business mix into new asset classes and strengthens its post-trade activities, as well as delivering on its ambition to build the leading pan-European market infrastructure.

“The acquisition of Borsa Italiana marks a significant achievement in our ‘Let’s Grow Together 2022’ strategic plan and a turning point in our history,” said Stéphane Boujnah, chief executive and chairman of the managing board of Euronext “Thanks to this transaction, we will significantly diversify our revenue mix and geographical footprint by welcoming the market infrastructure of Italy, a G7 country and the third largest economy in Europe.”

Euronext is financing the transaction via bridge loan financing and long-term financing to be implemented through a mix of existing available cash, new debt and new equity.

“We have enjoyed a long and successful relationship with LSEG, which has invested in and developed our business over the last 12 years,” said  Raffaele Jerusalmi, chief executive of Borsa Italiana. “We look forward to embarking on the next phase of our history, working in partnership with Euronext to further develop our business and to contribute to the development of European capital markets.”

The sale of Borsa Italiana to Euronext is supported by the board of LSEG who intend to recommend that shareholders vote in favour of the resolution to approve the transaction at a extraordinary general meeting on 20 November 2020.

“We believe the sale of Borsa Italiana will contribute significantly to addressing the EU’s competition concerns,” said David Schwimmer, chief executive of LSEG. “Borsa Italiana has played an important part in LSEG’s history. We are confident that it will continue to develop successfully and contribute to the Italian economy and to European capital markets under Euronext’s ownership.”

The completion of the transaction is expected in the first half of 2021 subject to Euronext’s and LSEG’s shareholder approvals, and regulatory approvals in Italy, the UK, the US, Belgium and France.

Mr Boujnah concluded: “The combination of Euronext and the Borsa Italiana delivers the ambition of building the leading pan-European market infrastructure, connecting local economies to global capital markets.”

News: LSE agrees to sell Borsa Italiana to Euronext for $5 billion

Oil sector supplier Utex Industries files for Chapter 11

BY Fraser Tennant

In yet another bankruptcy related to the impact of coronavirus (COVID-19) on oil producers and the companies that rely on them for business, sealing product manufacturer Utex Industries has filed for Chapter 11.

The filing will be followed by a balance sheet restructuring intended to reduce Utex's funded debt by approximately $700m and provide it with up to $42.5m in new financing. The process is expected to be completed in a matter of weeks.

Utex’s plan is supported by over 81.6 percent and 90.4 percent of its first and second lien lenders, respectively. Utex’s lenders have also agreed to provide Utex with debtor-in-possession (DIP) financing and the consensual use of cash collateral to enable the company to operate its business in the ordinary course.

“After an extensive analysis of strategic and financial options for the Company, and after months of negotiations, we are very pleased to have reached an agreement for a consensual restructuring with our secured lenders and other stakeholders,” said Mike Balas, chief executive of Utex. “We believe that the restructuring contemplated by the Agreement will provide us with the capital structure and liquidity to compete and grow in today's business environment.”

A market-leading manufacturing business headquartered in Houston, Texas, Utex operates manufacturing, distribution and technical sales facilities in the US and abroad and has approximately 500 employees. The company supports a diverse customer base in the oil & gas, industrial, mining, and water end markets.

Throughout the Chapter 11 restructuring process, Utex expects to continue to operate its business without disruption to its vendors, customers, employees or other partners, and, subject to customary approvals, will have access to substantial liquidity to meet its obligations. This includes funding employee wages and benefits, and paying vendors and suppliers for all goods and services.

Mr Balas concluded: “I am grateful to our dedicated employees who have continued to work hard in this challenging business environment, and this restructuring will position us and our partners for success in the years to come.”

News: Utex Industries to Shed $700 Million Debt Through Chapter 11 Bankruptcy