Shot across the bows for UK financial services’ AML practices

BY Fraser Tennant

In a shot across the bows for the UK financial services (FS) sector, a new survey has revealed that over half of FS professionals are only “somewhat confident” in their firm’s anti-money laundering (AML) practices.

In its ‘FAML Financial Services Survey’ report, which surveyed 200 FS professionals across the UK, First AML reveals that 52 percent of respondents identified an instance of money laundering in the last year, with 23 percent identifying more than one.

Respondents also selected external risks, such as the crisis in Ukraine, people trafficking, the increased focus on customer transparency and ethical customer onboarding, as well as the increased risk of fines, as key reasons why money laundering is rising up their company’s agenda.

However, although AML is moving up the agenda, many FS companies are still facing process and compliance challenges, with the top two AML weaknesses identified as document collection for individuals and companies, including passports and share registers at 27 percent,  and training staff on the latest anti-money laundering requirements at 29 percent. 

Despite this, even though many financial services organisations are facing challenges with AML processes, and the majority have found an instance of money laundering over the past year, almost a quarter (23 percent) are considering cutting AML compliance budgets in light of the expected recession. 

“Robust document collection processes and being up to date with the latest AML regulations are essential for compliance in this area,” said Simon Luke, UK country manager at First AML. “So it is shocking that AML budgets are being cut. Without the right processes in place, companies are not only at risk of fines, but also of letting dirty money pass through their organisations.” 

In terms of business priorities, respondents selected maximising returns for investors as the top priority, followed by environmental, social and governance (ESG) and improving their bottom line. 

The survey also revealed that the growth of unethical business practices is the key reason that financial services professionals care about AML compliance. This was followed by abhorrent crimes, such as drug trafficking, arms dealing and terrorism funding. 

Report: The majority of financial services professionals are only ‘somewhat confident’ in their anti-money laundering procedure

Roper Technologies to acquire Frontline Education

BY Fraser Tennant

In a move to reposition itself as a software firm, US diversified industrial company Roper Technologies, Inc. has acquired school administration software provider Frontline Education from private equity firm Thoma Bravo in an all-cash transaction valued at $3.7bn.

The sale follows a five-year partnership between Thoma Bravo and Frontline during which Thoma Bravo leveraged its specialised operating model and deep sector expertise to enable Frontline to drive profitable growth and expand its market leadership in the K-12 education sector.

Moreover, since its acquisition of Frontline in 2017, Thoma Bravo has completed six highly strategic acquisitions, significantly grown its revenue, expanded its market leading product portfolio from 16 to 30 products and increased headcount by over 70 percent – all while bringing increased value to school districts across the US.

“Thoma Bravo’s investment in Frontline is another clear example of our deep expertise across education, software and strategic M&A to accelerate growth and drive positive impacts – in this case promoting highly efficient and effective K-12 district operations,” said Brian Jaffee, a partner at Thoma Bravo. “We have enjoyed our close partnership with Mark and the Frontline management team and are excited to watch the business continue to thrive with a great new partner in Roper.”

The transaction is expected to close in the fourth quarter of 2022, subject to regulatory approvals and customary closing conditions.

“Frontline has a proven track record of strong organic and inorganic growth, excellent cash conversion and an outstanding management team that will thrive as part of Roper,” said Neil Hunn, president and chief executive of Roper Technologies. “This acquisition demonstrates our disciplined capital deployment strategy that focuses on identifying high-quality, market-leading technology businesses.”

Frontline’s management team will continue to lead the business from its Malvern, Pennsylvania headquarters. The company’s name, brands and office locations will not change as a result of the transaction.

“We are deeply appreciative of Thoma Bravo’s partnership over the last five years, which have allowed us to deliver an expanded portfolio of mission-critical solutions,” concluded Mark Gruzin, chief executive of Frontline Education. “Roper’s acquisition of Frontline Education represents the next phase of our journey.”

News: Roper eyes U.S. teacher shortage in $3.7 billion deal for Frontline Education

Micro Focus sold for $6bn

BY Richard Summerfield

Canadian software company OpenText has agreed to acquire UK tech firm Micro Focus in a deal worth around $6bn. The all-cash acquisition, once completed, will make OpenText one of the world’s largest software and cloud businesses.

Under the terms of the acquisition, the total enterprise value of the deal is around $6bn or £5.1bn, with an equity value of around $2.1bn (£1.8bn). The companies calculated that the per-share price offered, some 532 pence, represents a 98.3 percent premium to the closing price of Micro Focus before the deal was announced.

Micro Focus has experienced financial difficulties in recent years, with declining revenue every year since 2018. Further, its stock price has dropped over 44 percent this year and more than 89 percent for the prior five years. Regardless of these difficulties, Micro Focus remains one of the world’s largest software companies and serves thousands of organisations globally, including many of the largest companies in the Fortune Global 500 and had approximately $2.7bn pro forma trailing 12 months revenue for the period ended 30 April 2022, according to a statement announcing the deal.

“We are pleased to announce our firm intention to acquire Micro Focus, and I look forward to welcoming Micro Focus customers, partners and employees to OpenText,” said Mark J. Barrenechea, chief executive and chief technology officer at OpenText. “Upon completion of the acquisition, OpenText will be one of the world’s largest software and cloud businesses with a tremendous marquee customer base, global scale and comprehensive go-to-market. Customers of OpenText and Micro Focus will benefit from a partner that can even more effectively help them accelerate their digital transformation efforts by unlocking the full value of their information assets and core systems.”

He continued: “Micro Focus brings meaningful revenue and operating scale to OpenText, with a combined total addressable market (TAM) of $170 billion. With this scale, we believe we have significant growth opportunities and ability to create upper quartile adjusted EBITDA and free cash flows. We expect Micro Focus to be immediately accretive to our adjusted EBITDA. Micro Focus will benefit from the OpenText Business System to create stronger operations and significant cash flows, and Micro Focus customers will benefit from the OpenText Private and Public Clouds.”

OpenText intends to fund the acquisition by raising $4.6bn in new debt, $1.3bn in cash and drawing $600m from its existing revolving credit facility. OpenText said it expects cost savings of $400m after the deal closes.

News: OpenText to Acquire Micro Focus International plc

Carestream Health files for Chapter 11 bankruptcy protection

BY Richard Summerfield

X-ray and medical imaging company Carestream Health has announced that it has voluntarily filed for reorganisation under Chapter 11 of the US Bankruptcy Code in the Bankruptcy Court for the District of Delaware.

The company, founded by Eastman Kodak Co, filed for bankruptcy protection with a lender-backed proposal which would cut its debt by $470m. Under the terms of the proposal, there will be a total debt reduction of $250m more than the company’s previously announced recapitalisation agreement. This process will significantly strengthen Carestream’s balance sheet and position the company for continued success.

“We are commencing the final stage of our recapitalization process, which will significantly enhance our ability to navigate a dynamic market,” said David C. Westgate, chairman, president and chief executive of Carestream. “Since announcing our recapitalization process in April, our lenders have remained overwhelmingly supportive, and we have worked constructively with them to complete the transaction. As our talks evolved, we determined the best course of action was to implement the agreement through an expedited court-supervised process.

“With a clear path to completion, we expect to emerge from this process as a stronger partner to our customers, with significantly reduced debt and new owners who also continue to believe in the future of Carestream. Carestream has strong market opportunities ahead. I am confident in the strength of our core business and our ability to maintain market leadership moving forward,” he added.

According to a statement announcing the filing, Carestream expects to continue operating normally throughout the court-supervised process and remains focused on serving its customers and working with suppliers on normal terms. Carestream expects to move through the Chapter 11 process on an expedited basis and complete the recapitalisation in approximately 35-45 days.

Carestream has secured an $80m debtor-in-possession financing facility from some of its existing lenders to reinforce its liquidity and fund the costs of the Chapter 11 process. Carestream entities outside the US are not part of the Chapter 11 process and will continue operating as normal.

News: Medical imaging company Carestream Health files Chapter 11 bankruptcy

Canadian VC and PE markets return to pre-pandemic levels, reveals new report

BY Fraser Tennant

Canadian venture capital (VC) and private equity (PE) markets returned to pre-pandemic levels in the first half of 2022, with PE investment almost doubling, according to a new report by the Canadian Venture Capital and Private Equity Association (CVCA).

In its ‘H1 2022 VC and PE Canadian Market Overview’, the CVCA reveals that C$1.65bn was invested across 182 deals in the second quarter of 2022, bringing the total for the first half of the year to C$6.2bn invested across 371 deals.

In terms of mega-deals, eight deals worth C$50m-plus closed in Q2 2022, valued at C$799m, bringing the total for the first half of 2022 to C$4bn closed across 25 deals. Moreover, investment in the early stages in Q2 remained strong, with the highest seed stage investment and deal count on record: C$263m across 104 deals.

“VC investment performance is mirroring the 2020 market,” said Kim Furlong, chief executive of the CVCA. “In choppy waters, we need to continue to ensure Canadian companies have access to capital. Programmes like the federal government’s Venture Capital Catalyst Initiative (VCCI) will be essential to help weather unpredictability.”

Sector-wise, information, communications & technology received two-thirds of all investment in the first half of 2022, with C$4.1bn invested across 205 deals. The life sciences sector received 10 percent of investment with C$622m across 55 deals.

As far as PE activity is concerned, deals under C$25m continue to make up the largest percentage of Canadian PE activity, with 87 percent of disclosed deals in the first half of 2022 in this category. Moreover, the average deal size continues to decrease steadily, reaching an all-time low in Q2 of C$11.81m.

“Private markets are normalising to pre-pandemic levels,” added Ms Furlong, chief executive of the CVCA. ​“After an outlier 2021, investors are closely monitoring macroeconomic volatility and public market trends, which are impacting the private capital investment environment. While the landscape is more challenging as we head into the second half of 2022, PE investors continue to actively invest and largely in Canada’s small and medium enterprises (SMEs).”

The industrial and manufacturing sector saw the most PE investment activity in H1 – C$1.36bn over 101 deals – followed by information and communications technology, C$998m over 77 deals, and the life sciences sector, C$87m over 55 deals.

Ms Furlong concluded: “In a lot of ways, 2021 was an abnormal year, particularly when it came to company valuation. What we are seeing now, is the correlation between the decrease in public markets slowly permeating the private markets.”

Report: H1 2022 VC and PE Canadian Market Overview