UK Public M&A Report update (1 Jul-30 September 2017)

Lexis®PSL Corporate and Market Tracker has conducted research to examine the current trends in UK public M&A for the period 1 July 2017 to 30 September 2017.

Background and approach

Lexis®PSL Corporate and Market Tracker has conducted research to examine the current trends in respect of UK public M&A. Data for this report has been sourced from the Market Tracker transaction data analysis tool which allows users to access, analyse and compare the specific features of numerous corporate transactions.

This is an update to our latest Market Tracker Trend Report which reviewed trends in UK public M&A in the first half of 2017. To read this Trend Report, click here.

For the purposes of this update we analysed the period between 1 July 2017 to 30 September 2017 (the Review Period). Whilst comparisons have been made to H1 2017 definitive conclusions can only be made on the completion of second half of 2017. The forthcoming Market Tracker Trend Report covering trends in UK public M&A activity in 2017 will be published in January next year.

We reviewed a total of 19 transactions that were subject to the Takeover Code (the Code): 11 firm offers (5 for Main Market companies, 6 for AIM) and 8 which were at the possible offer stage at 30 September 2017 (3 for AIM and 5 for Main Market companies).

The percentages included in this update have been rounded up or down to whole numbers, as appropriate.

Possible offers (made under Rule 2.4)

Announcement date Deal Market for target's shares
28 September 2017 RedstoneConnect Plc—possible offer by A P Systems Holdings Ltd AIM
16 August 2017 Quantum Pharma plc – possible offer by Clinigen Group plc (firm offer announced) AIM
15 August 2017 Revolution Bars Group plc – possible offer by The Deltic Group Limited Main Market
31 July 2017 Revolution Bars Group plc – possible offer by Stonegate Pub Company Limited (firm offer announced) Main Market
21 July 2017 Paysafe Group plc – possible offer by Funds managed by Blackstone and CVC Capital Partners (firm offer announced) Main Market
11 July 2017 Gordon Dadds Group Limited – possible offer by Work Group plc (firm offer announced) AIM
4 July 2017 Worldpay Group plc – possible offer by JPMorgan Chase Bank (terminated) Main Market
4 July 2017 Worldpay Group plc – possible offer by Vantiv, Inc (firm offer announced) Main Market

8 possible offers began with a Rule 2.4 announcement, of these:

  • 5 (63%) progressed to a firm offer during the Review Period, of which:
    • 4 did so within their initial 'put up or shut up' deadlines (PUSU deadline (possible offer for Quantum Pharma plc by Clinigen Group plc, possible offer for Revolution Bars Group plc by Stonegate Pub Company Limited, possible offer for Paysafe Group plc by Funds managed by Blackstone and CVC Capital Partners, and possible offer for Gordon Dadds Group Limited by Work Group plc), and
    • one so progress after two PUSU extensions has been granted (possible offer for Worldpay Group plc by Vantiv, Inc)),
  • 1 (13%) terminated prior to its initial PUSU deadlines (possible offer for Worldpay Group plc by JPMorgan Chase Bank ), and
  • 2 deals (25%) were ongoing as at 30 September 2017 (possible offer for Revolution Bars Group plc by The Deltic Group Limited and possible offer for RedstoneConnect Plc by A P Systems Holdings Ltd), of which:
    • one (possible offer for Revolution Bars Group plc by The Deltic Group Limited was the subject of a Takeover Panel ruling (Panel Statement 2017/18) that The Deltic Group Limited must by 5.00pm on 10 October 2017 either announce a firm offer or a no intention to offer statement, pursuant to Rule 2.6 and Section 4 of Appendix 7 to the Code (which provides that where an offeror has announced a firm offer to be implemented by way of a scheme of arrangement and it has been announced that a potential competing offeror may make an offer, the Panel will usually require the potential offeror to clarify its position by no later than 5.00pm on the seventh day prior to the date of the shareholder meetings)

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Firm offers

Deal Deal value Deal structure Industry sector (target) Consideration structure Bidder country of incorporation Market for target's shares
Worldpay plc—offer by Vantiv Inc £8 billion Scheme Financial services Cash and shares United States AIM
Paysafe Group plc – offer by Blackstone Management Partners LLC and CVC Capital Partners Limited (P2P transaction) £2.96 billion Scheme (Jersey law) Financial services Cash only England and Wales Main Market
Jimmy Choo plc – offer by Michael Kors Holdings Limited £896 million Scheme Retail & wholesale trade Cash only England and Wales Main Market
Imagination Technologies Group plc – offer by Canyon Bridge Capital Partners, LLC (P2P transaction) £550 million Scheme Computing & IT Cash only England and Wales Main Market
Novae Group plc – offer by AXIS Capital Holdings Limited £477.6 million Scheme Property Cash only Bermuda AIM
Cape plc – offer by Altrad Investment Authority SAS £332.2 million Offer Engineering & manufacturing Cash only France Main Market
Quantum Pharma plc—offer by Clinigen Group plc £150.3 million Scheme Pharmaceuticals & biotechnology Cash and shares England and Wales AIM
Revolution Bars Group plc—offer by Stonegate Pub Company Limited £101.5 million Scheme Travel, hospitality, leisure & tourism Cash only England and Wales Main Market
ASA Resource Group plc – offer by Rich Pro Investments Limited (hostile offer) £35.5 million Offer Mining, metals & extraction Cash only British Virgin Islands AIM
EG Solutions plc – offer by Verint WS Holdings Limited £26.3 million Scheme Computing & IT Cash only England and Wales AIM
Gordon Dadds Group Limited – offer by Work Group plc (reverse takeover) £18.8 million Offer Professional services Shares only England and Wales AIM

Deal structure and value

8 out of 11 deals (73%) of firm offers announced in the Review Period were structured as a scheme of arrangement. Continuing the ongoing trend, schemes of arrangement were the preferred choice of structure for the larger deals: all 5 of the largest deals during the Review Period were structured as schemes (accounting for £13.16 billion in deal value terms).

The aggregate deal value recorded in the 3 month Review Period was just over £13.5 billion (£13,548,200,000), which equates to approximately 70% of the aggregate deal value in H1 2017 (£19.5 billion).

Of the 11 firm offers recorded in the Review Period, 2 (18%) had a deal value of over £1 billion; a slight decrease compared with H1 2017 (6 deals). It remains to be seen whether we will see a period akin to 2015 where 14 deals in excess of £1 billion were recorded (and would require at least 6 deals over £1 billion to be announced in the last quarter of 2017).

There were three mid-sized deals (ie, firm offers that fell within the £200 and £600 million deal value range), compared to 3 such transactions in H1 2017. We may see more mid-sized transactions in Q3 2017, but it appears that mid-size deals have fallen out of favour amongst bidders who seek value in pursuing the smaller or larger businesses.

The average deal value was £1.22 billion, an increase on the average deal value recorded in H1 2017 (£722 million).

The United States’ Vantiv Inc’s £8 billion offer for Worldpay plc represented the largest deal (by deal value) in the Review Period; Work Group plc’s £18.8 million offer for Gordon Dadds Group Limited was the smallest deal.

Continuing the trend from H1 2017, some of the biggest deals were from UK-incorporated companies — UK bidders featured in 3 out 5 of the largest deals during the Review Period. UK bidders were also active in the smaller deals. UK bidders accounted for 7 out of 11 (64%) of bidders. Given the recent currency fluctuations we would expect a greater number of foreign bidders to take advantage of the historically low Sterling value to acquire UK assets. However, the highest value deal in the Review Period was made by a US bidder.

Industry analysis

As in H1 2017, deal activity was spread across several industries. The industries which saw the most activity during the Review Period were Financial Services and Computing & IT, with two targets operating in each of these industries.

Financial Services saw the two largest deals—both over £1 billion—(Worldpay plc by Vantiv Inc and Paysafe Group plc by Blackstone Management Partners LLC and CVC Capital Partners Limited) while Professional Services saw the smallest deal (Gordon Dadds Group Limited by Work Group plc). There was also a notable variance in terms of deal value in the Computing & IT industry offers: one deal was valued at £550 million (Imagination Technologies Group plc by Canyon Bridge Capital Partners, LLC) and the remaining offer (EG Solutions plc by Verint WS Holdings Limited), was valued at £26.3 million.

Foreign bidders

Of the 11 firm offers, 4 (36%) were made by non-UK bidders. Only 2 of the 5 largest deals by deal value were made by non-UK bidders. However, because of the Vantiv/Worldpay deal, non-UK bidders accounted for 65% of total deal value in the Review Period, which represents a significant increase compared to H1 2017 (where non-UK bidders accounted for 39% of the aggregate deal value). The Vantiv/Worldpay deal itself accounted for almost 60% of deal value during the Review Period.

The continued fall in foreign bidder activity is surprising considering the weakening of the British pound against the US Dollar, Euro, Japanese Yen and other major currencies. This may indicate a 'wait and see' approach of foreign bidders in response to political uncertainties surrounding the mechanics of Brexit. We will continue to monitor foreign bidder activity and will report on this in our Market Tracker UK public M&A trend report for the full year 2017.

Consideration structure

Of the 11 firm offers announced:

  • 2 (18%) involved a combination of consideration types (compared with 22% in H1 2017)
  • 9 (82%) offered one form of consideration only (compared with 78% in H1 2017), and of these 9:
    • 1 (9%) was an all-share offer (compared with 22 in H1 2017)
    • 8 (72%) were all-cash offers (compared with 56% in H1 2017)

In summary 10 of the 11 firm offers had a cash element, either solely or in combination with shares, accounting in total for 91% of firm offers announced in the Review Period.

Cash only consideration was more frequently used by bidders in the Review Period compared to H1 2017, and continues as the most popular consideration structure.

There was a significant decrease in the popularity of all-share offers (one deal in the Review Period), compared to the first half of 2017(6 deals in H1 2017).

During the Review Period, we have not seen any instances of consideration structures other than cash only, shares only, cash and shares or mix and match facilities, unlike in H1 2017, which saw one deal feature cash and loan note alternative consideration and another feature cash and unlisted securities alternative.

The £8 billion offer for Worldpay Group plc by Vantiv Inc included a ‘mix and match facility’, giving Worldpay shareholders the option of varying the proportions of new Vantiv shares and cash receivable in respect of their holding of Worldpay shares. This method of giving Worldpay shareholders a choice of consideration, subject to the elections of other target shareholders, made the offer more attractive in terms of taxation and investment options. Where shareholder elections could not be satisfied in full, they were scaled down on a pro-rata basis.

Usage of mix and match facilities in the Review Period (one deal) is lower that in H1 2017 (3 deals).

Drafting Examples
Mix and match facility
Worldpay Group plc by Vantiv Inc
Worldpay Shareholders (other than certain persons in Restricted Jurisdictions) will be entitled to elect, subject to availability, to vary the proportions in which they receive New Vantiv Shares and cash in respect of their holdings in Worldpay Shares. However, the total number of New Vantiv Shares to be issued and the maximum aggregate amount of cash to be paid under the Merger will not be varied as a result of elections under the Mix and Match Facility.
Satisfaction of elections made by Worldpay Shareholders under the Mix and Match Facility will therefore depend on the extent to which other Worldpay Shareholders make offsetting elections. To the extent that elections cannot be satisfied in full, they will be scaled down on a pro‑rata basis. As a result, Worldpay Shareholders who make an election under the Mix and Match Facility will not necessarily know the exact number of New Vantiv Shares or the amount of cash they will receive until settlement of the consideration due to them under the Merger.
The Mix and Match Facility will not affect the entitlement of any Worldpay Shareholder who does not make an election under the Mix and Match Facility.
Further details in relation to the Mix and Match Facility (including the action to take in order to make a valid election, the deadline for making elections, and the basis on which entitlement to receive cash may be exchanged for an entitlement to additional New Vantiv Shares) for Worldpay Shareholders will be contained in the Scheme Document.

Bid financing

Of the 10 firm offers that involved a cash element (accounting for 91% of all firm offers in the Review Period), 3 were funded by existing cash reserves only, 4 were financed by debt facilities only, one was financed by a combination of debt finance and consideration shares and one was financed by a combination of debt finance and equity subscription to bidco/PE funds. See table below for details of financing:

Financing of 10 firm offers involving a cash element (whole or part)

Existing cash reserves
  • Novae Group plc by AXIS Capital Holdings Limited
  • ASA Resource Group plc by Rich Pro Investments Limited
  • EG Solutions plc by Verint WS Holdings Limited
Debt finance
  • Jimmy Choo plc by Michael Kors Holdings Limited
  • Imagination Technologies Group plc by Canyon Bridge Capital Partners, LLC
  • Cape plc by Altrad Investment Authority SAS
  • Revolution Bars Group plc by Stonegate Pub Company Limited
Debt finance and consideration shares
  • Worldpay Group plc by Vantiv, Inc
Debt finance and equity subscription to bidco / PE funds
  •  Paysafe Group plc by Blackstone Management Partners LLC and CVC Capital Partners Limited

The use of existing cash reserves (3 deals or 27%) is broadly proportionally in line with the first half of 2017 (H1 2017: 8 deals or 29%), however there was an increase in the use of debt facilities only in the Review Period (4 deals or 36%) compared with H1 2017 (3 deals or 11%).

In the offer for Novae Group plc by AXIS Capital Holdings Limited, we have noted the bid financing as ‘existing cash reserves’, however, the firm offer announcement, and other documents state that ‘the consideration will be funded from AXIS’s existing cash resources or, if market conditions are favourable, from new borrowings’.

It is not surprising that bidders are opting to finance deals either with existing cash resources or with debt in light of the historically low interest rates. This is a slight reversal on what we saw in H1 2017 where bidders were more likely to rely on existing cash reserves rather than debt as they may have had doubts as to whether interest rates will continue to be kept low. With UK inflation rising 2.9% in August (Consumer Prices Index) the Bank of England has been under pressure to begin raising interest rates and may do so in November 2017.

Public to private activity

Of the 11 firm offers in the Review Period, 2 (18%) involved a private equity backed bidder (compared to 5 such transactions in H1 2017) each featuring UK bidders and cash only consideration (Paysafe Group plc by Blackstone Management Partners LLC and CVC Capital Partners Limited and Imagination Technologies Group plc by Canyon Bridge Capital Partners, LLC).

These 2 P2P transactions were among the top 5 largest deals announced in the Review Period which continues the trend from H1 2017. Aggregate deal value was £3.51 billion which is more than double the aggregate deal value of P2P transactions announced in H1 2017. The average value of P2P transactions in the Review Period was £1.755 billion, which represents over a fivefold increase on the average P2P deal value in H1 2017 (£325.96 million).

The continued surge in higher value P2P deals suggests that after a period where PE bidders may have been putting deals on hold until the conclusion of the Brexit vote (H1 2016) and triggering of Article 50 (in March this year), PE bidders, from H2 2016 onwards have continued to invest in the UK public M&A market. However, it remains to be seen if this translates into a long term improvement in P2P activity, particularly as fresh uncertainties arise as to what form Brexit will take and whether access to the single market will be maintained.

Regulatory & political

Sky plc by Twenty-First Century Fox, Inc.

Twenty-First Century Fox, Inc.'s £11.7 billion offer for Sky plc announced in December 2016 has been subject to regulatory hurdles and political intervention.

16 March 2017 - Secretary of State for Culture, Media and Sport, Karen Bradley MP intervenes in the acquisition on media public interest grounds of media plurality and commitment to broadcasting standards by issuing a European Intervention Notice (EIN). The EIN triggered the requirement for Ofcom to report on the effects of the proposed transaction on the public interest grounds and the CMA on jurisdictional matters, namely whether arrangements are in progress or in contemplation which, if carried into effect, will result in the creation of a European relevant merger situation.

21 April 2017 - Culture Secretary announces that, in light of the General Election on 8 June 2017, the deadline for submission of the public interest report by the CMA and Ofcom into the proposed acquisition has been extended from 16 May 2017 until 20 June 2017.

20 June 2017 — Culture Secretary confirms receipt of Ofcom and CMA reports on proposed merger.

29 June 2017 — Culture Secretary announces she is minded to refer the proposed takeover to the CMA for an in-depth investigation (Phase 2 investigation) on the grounds of media plurality after Ofcom warned of potential for Rupert Murdoch to influence the overall news agenda and invites views on the question of commitment to broadcasting standards (which in light of Ofcom’s report) she is minded not to refer for a Phase 2 investigation.

20 September 2017 — The CMA announces that the Culture Secretary has referred the proposed takeover for a Phase 2 investigation on the grounds of media plurality and broadcasting standards.

27 September 2017 — The CMA publishes the administrative timetable for its Phase 2 investigation into the proposed takeover. The next milestone is the publication of the issues statement in October 2017. A letter setting out the working arrangements between Ofcom and the CMA was also been published. The deadline for the Phase 2 decision is 6 March 2018.

Reforms

On 19 September 2017, the Takeover Panel issued a public consultation paper, PCP 2017/2, setting out proposed amendments to the Takeover Code with regard to statements of intention by bidders and related matters. The key proposals include expanding the content requirements for offeror statements of intention with regard to the offeree’s business, employees and pension schemes and bringing forward the requirement for an offeror to make statements of intention at the time of its firm intention announcement. Comments on the consultation should reach the Takeover Panel by 31 October 2017.

Among the key proposals are:

  • prohibiting an offeror from publishing an offer document for 14 days from the announcement of its firm intention to make an offer without the consent of the offeree board—this proposal may have been included following the spate of hostile offers (5 deals, accounting for 19% of all firm offers) announced during H1 2017
  • requiring offerors and offerees to publish reports on post-offer undertakings and intention statements given during the course of an offer
  • in order to address the lack of specificity of certain statements of intention made by offerors under Rule 24.2(a), expanding the content requirements for offeror statements of intention with regard to the offeree’s business, employees and pension schemes— by proposing that Rule 24.2 should be expanded to require the offeror to state its intentions regarding the offeree’s research and development functions, the balance of the skills and functions of the offeree’s employees and management, and the location of the offeree’s headquarters and headquarters functions
  • bringing forward the requirement for an offeror to make statements of intention at the time of its firm intention announcement

The Conservative manifesto published in May 2017 called for reforms of the rules on takeovers and mergers, including a requirement for bidders to be clear about their intentions from the outset of the bid process. In a statement, Business Secretary, Greg Clark, has welcomed the Takeover Panel’s proposals and has also indicated that the government will be publishing proposals in the Autumn that address the national security concerns that can arise from foreign investment (another manifesto commitment).

On 12 July 2017, the Takeover Panel issued a public consultation paper, PCP 2017/1 (closed on 22 September 2017), setting out proposed amendments to the Takeover Code with regard to (among other things) sales by offeree companies of assets in competition with an offer or possible offer falling within the scope of the Takeover Code and the jurisdiction of the Takeover Panel. The Takeover Panel highlighted that two cases in 2016 in which offeree boards in receipt of a unilateral offer decided that better value could be delivered to shareholders through the sale of assets to third parties, returning the proceeds to shareholders and winding up the companies. The Code Committee was concerned that offerees were circumventing the Takeover Code by taking such action, and has proposed amendments to the Takeover Code to address this situation.

Other proposals under PCP 2017/1 are:

  • Rule 2.8 (no intention to bid statement) and Note 2 on Rules 2.8 are amended so that when making a Rule 2.8 statement, a person can specify in the statement the circumstances in which it reserves the right to set aside the statement
  • Rule 20.4 is amended to remove the restrictions on the use of social media for the publication of information about an offeree or offeror (such that the restrictions in Rule 20.4 would apply only to the use of social media for the publication of information relating to the offer) and to permit the publication via social media of videos approved by the Takeover Panel in accordance with Rule 20.3,
  • Note 1 on Rule 19.1 is amended to clarify that financial advisers are responsible for guiding their clients with regard to the publication of information via social media in the same way as for information published by other means
  • the Notes on Dispensations from Rule 9 are amended to reflect an existing practice of the Panel Executive to consider granting a waiver from the obligation to make a mandatory offer that would otherwise arise under Rule 9 as a result of an issue of new securities if independent shareholders holding shares carrying more than 50% of the voting rights of the company capable of being cast on a “whitewash” resolution give certain confirmations in writing

We will continue to monitor developments in this area and will report on these in our forthcoming Market Tracker UK public M&A trend report 2017.

 

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