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UK still top for US-EU inbound M&A activity, says new report

Despite Brexit, the UK is still the top destination for US-EU inbound M&A activity, representing nearly 40 per cent of EU deals since 2009 – and activity could pick up with greater Brexit certainty.

The report, which gathers the collective thoughts of Akin Gump lawyers and senior dealmakers at global companies to see how Brexit, global trade disputes and this year’s US elections are shaping the deal landscape, also finds that even though M&A now involves additional layers of geopolitical and regulatory complexity brought on by global trade tensions and political turbulence, deals are getting done.

with Republicans and Democrats offering starkly divergent platforms on a number of key policy issues, the report says the results of the 2020 US elections are certain to influence M&A activity in 2020 and beyond.

Following a decisive UK election outcome, the report suggests that deal activity could pick up. “There is an M&A backlog, as some deals went on hold before the election,” says Akin Gump corporate partner Gavin Weir. “This bodes well for activity in 2020 as buyers and sellers return to the market.”

Sebastian Rice, partner in charge of Akin Gump’s London office, adds: “There is recognition that the [deal] process is more complex, but if you address issues early, deals will close.”

Looking at deal activity in the United States, Jeff Kochian, co-head of Akin Gump’s corporate practice, says: “The US M&A market has been very strong for the last several years. In spite of global trade and political volatility, the strong US economy and bullish equity markets have been particularly helpful to strategic buyers. Private equity has also been very active, doing more, albeit somewhat smaller deals.”

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The City must stop complaining and start talking about the opportunities of Brexit

Too much of the discussion around Brexit’s impact on the City has treated it as something of an inconvenience that must be “managed”. This is perhaps understandable — business rarely likes change, certainly not on this scale. But it’s time that we start talking about the opportunities Brexit will present to the City.

The conversation largely remains dominated by politicians, with some in the UK government championing “permanent equivalence”, while figures from the EU’s Michel Barnier to Sir Jon Cunliffe, deputy governor of the Bank of England, warn that significant divergence is both likely and necessary.

Such divergence is typically framed negatively, with the focus being on the possibility of the City losing unfettered access to the EU’s Single Market. However, I see two potential ways in which London’s financial institutions might not just survive but thrive from the opportunity presented once the transition period ends in December.

First, if the regulatory regime diverges even slightly from that of the EU by placing less onerous requirements on financial organisations, it can have a positive knock-on effect on UK banks’ performance and competitiveness


As we have seen in the US, a more flexible approach to regulation has been a contributing factor to the stronger recovery and greater profitability of the American banking industry over the past decade.

City advocacy groups are already eyeing a new regulatory framework beyond the Markets in Financial Instruments Directive (Mifid II) — the EU directive that instituted an extensive set of new obligations on banks, fund managers, brokers, exchanges, and underlying investors.

Overseen solely by the UK government, such a framework would inevitably better reflect the priorities of UK firms: maintaining financial stability and investor protections, without inhibiting the City’s global competitiveness.

The second and much less talked about opportunity is something over which financial institutions have far more direct influence. Long-established firms are in a constant struggle to keep pace with the technical requirements of regulatory change. Often, to meet tight deadlines, changes are shoe-horned into existing architectures at the expense of technical progress and evolution. This was the experience for many European banks around Mifid II’s adoption.

That represented a huge missed opportunity. The ultimate goals of new regulations are not necessarily detrimental to banks’ commercial interests. In fact, as with Mifid II, they are often directly aligned. For example, the requirement to comprehensively categorise and record all customer interactions, if done properly, can be an accelerator for better customer relationship management and risk control.

Technological advancement is already driving the reconfiguration of banks’ tech systems. The City should embrace divergence not simply as a new box-ticking requirement, but as an opportunity to expand outside of constraints and give London’s financial services the technological edge over its international competitors.

While we may be a long way from knowing where the chips will fall, and a clean break may remain the less likely outcome, firms must stop undervaluing the possibility and start considering the opportunities for the financial services industry.


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Office set to close up to half its 100 UK stores

Shoe retailer Office is planning to close up to half of UK stores at it reckons with the decline of business on the high street.

The South African-owned company is working up plans to close dozens of its 100 stores as their leases expire during the next few years, according to a report by Sky News.

Office is said to have decided against using a company voluntary agreement (CVA) to implement the closures.

An Office spokesperson said the retailer has “no immediate plans to close down stores”.


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Supermarket sales see first overall decline since 2016

Supermarket sales have fallen for the first time in three years as shoppers’ appetite for beer, cider and ice cream fell in comparison with a period last year buoyed by hot weather and the men’s football World Cup.

Shares in Tesco, Sainsbury’s and Morrisons fell after industry data from Kantar showed the market shrank by 0.5% in the 12 weeks to 14 July – the first decline since June 2016.

The report said households had been taking one fewer grocery shopping trip during the period while stores are also being squeezed by a slowdown in price growth.

However, it anticipated that the market would return to growth once the comparatives with last year’s summer period pass.


Fraser McKevitt, head of retail and consumer insight at Kantar, said it was a “challenging 12 weeks” with sales declining or growth slowing at all the major grocers except Ocado.


He added: “Last year people shopped more frequently and closer to home as they topped up the cupboards while enjoying the sunshine and the men’s football World Cup.


“This year households are making one fewer trip, which may not sound like much but is enough to tip the market into decline.


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Wall’s sausages maker Kerry Foods to shut down Staffordshire factory – 900 jobs at risk

WALL’S sausages maker Kerry Foods has unveiled plans to shut down a factory in Staffordshire with 900 jobs at risk of being axed after Tesco changed supplier.


The food manufacturer has earmarked a site in Burton-upon-Trent for closure after the company lost a contract to supply ready-made meals to the supermarket giant. Trades union Unite estimated “90 percent of the work” at the factory came from production for Tesco, who had been working with Kerry Foods for 19 years. The food company failed to secure another contract with the supermarket after Tesco decided to use another supplier in October 2018. Unite will meet with Kerry Foods this Friday to discuss the proposed closure, which would see the factory shut in September.

Kerry Foods said its priority is to “support all employees” as Unite described the plan as “a crushing blow for the regional economy”.

Unite’s regional officer Rick Coyle said: “This is a calamity for Burton as Kerry Foods is the town’s biggest employer.

“It is heartbreaking for the workforce, their families and, more widely, a crushing blow for the regional economy.


Mr Coyle said he had been in touch with brewer Molson Coors, the town’s second largest employer, to discuss employment opportunities for those affected.

He continued: “The problem going forward is that there are not that many well-paid jobs in Burton and the vicinity to replace those that will be lost at the end of August.

“We have been in touch with Molson Coors to explore employment opportunities there.

“Also, we will help arrange a jobs fair at the site and assist our members with their CVs and advice on updating their skills.”

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Bombardier: is Northern Ireland sale linked to Brexit?

Canadian aerospace firm’s sudden decision comes at a sensitive time for UK and Northern Irish politics


The Canadian aerospace firm Bombardier is putting its wing-making operation in Northern Ireland up for sale, sparking concern among trade unions and MPs about the impact on highly-skilled jobs and fuelling fears that uncertainty around Brexit is holding back the economy.

The company plans to sell factories in Northern Ireland and Morocco as part of a strategy to consolidate “all aerospace assets into a single, streamlined and fully integrated business” in North America.

The “decision will be seen by unions and political leaders in the North as a massive blow for the economy and will cast serious doubts over the future security of the 4,000 jobs at Bombardier and thousands more in their extensive supply chain in the North”, says The Irish Times.

A spokesman for the prime minister said the government did not expect jobs to be affected but the trade union Unite said it was seeking stronger assurances from the government and the company.

“Bombardier is Northern Ireland’s largest employer and a focus of intense political interest,” says the Daily Telegraph. Two years ago Theresa May personally intervened when the US threatened 300% trade tariffs on Bombardier’s C-Series airliners, asking President Trump to veto the levies, which had been demanded by US rival Boeing in response to what it claimed were state subsidies given to Bombardier.

The sale “comes at a sensitive time for the UK”, says Financial Times, “which is grappling with the impact Brexit will have on Northern Ireland”.

The company had previously warned of “serious consequences” from a hard Brexit for its operations in Belfast.

“Although Bombardier made no reference to Brexit in its statement, efforts to find a buyer for the plant could be hampered by uncertainty about tariffs and customs arrangements between the UK and the EU,” says The Guardian. “Airbus, which might have been seen as a potential buyer of the site, has voiced grave concern about the impact of Brexit on its investment in the UK.”

The Business Secretary, Greg Clark, who has been monitoring the situation closely all week, is said to be optimistic that a buyer can be found.

However, “arriving on the same day as the local elections in Northern Ireland, the announcement comes as a blow for the region’s Democratic Unionist party”, says the FT.

The Guardian says Bombardier’s decision “will add more pressure on Northern Ireland’s politicians to restore the power-sharing executive and assembly at Stormont which collapsed in 2017 amid acrimony between Sinn Fein and the DUP”.

The assembly had discussed a plan to lower corporate tax to attract and retain industries before its collapse says University of Liverpool politics professor Jon Tonge. “The fact there is no fiscal autonomy in place – that’s where some of the blame may fall,” he said.


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Is Thomas Cook about to collapse?

A leading analyst has cast doubt over whether Thomas Cook’s £750m rescue plan, announced at the end of last week, will work.

Citigroup’s James Ainley suggested the package, which would put Chinese conglomerate Fosun in control of the 178-year-old tour operator, could be blocked by its bondholders.

So how has it come to this and should holidaymakers be concerned?

What has happened to Thomas Cook?

The travel company, which employs 21,000 staff around the world and operates more than 560 stores in the UK, has “suffered as customers shifted from the high street to the internet, threatening its ability to service a £1.6bn debt pile”, says the Financial Times. It came close to collapse eight years ago and took on large loans to survive.


“Tough trading conditions have been exacerbated by Brexit uncertainty,” adds the FT.

Last Friday, the embattled company confirmed that it was in “advanced discussions” to secure new funding from its banks and Fosun, which owns the holiday resort chain Club Med. The £750m deal would hand control of its package holiday business to the Shanghai-based investor in return for a cash injection. Meanwhile, banks and bondholders would take a majority stake in its airline and a minority stake in the holiday unit.

The extra cash “is designed to see the company through the winter, when holiday bookings are at their lowest, affording it time to cut costs and raise money by selling its airline division”, explains The Guardian.

Will the deal go ahead?

Citigroup analyst James Ainley, described by The Daily Telegraph as “one of Thomas Cook’s most vocal critics”, has calculated that shares would be worth just 3p if the plan goes ahead.

“The uncertainties are significant and the risk of the process stalling seems high,” said Ainley, who sent shares in the company plunging in May by downgrading its stock to zero pence.

For the package to work, Thomas Cook needs a “strong turnaround plan, about which little detail has yet been given”, he added.

A spokesman for Thomas Cook said: “The board is clear in its view that it is in the best interests of all the group’s stakeholders, including bondholders, to pursue a full re-capitalisation supported by new investment into the business. It is a pragmatic and responsible solution which provides the means to secure the future of Thomas Cook.”

Should holidaymakers be worried?

On Friday, Peter Fankhauser, Thomas Cook’s chief executive, said there would be “no impact from today’s announcement on our holidays or our flights”.

Meanwhile, holidays booked through Thomas Cook are Atol-protected, meaning any customer would be entitled to a full refund or replacement holiday should the tour operator collapse before their scheduled departure time.

The Civil Aviation Authority would also protect package holidays and cover arrangements to return customers if the operator collapsed while they were on holiday.

However, some holidaymakers could be caught out if they have booked on Thomas Cook’s airline, which is separate from the tour operator, and sells flight-only trips, some of which are not Atol-protected.


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Companies press Brexit panic button in further blow to Theresa May

The scale of no-deal panic gripping major companies has been thrown into sharp focus by a series of damage-limitation announcements, as corporate Britain signalled it is running out of patience with Westminster gridlock.

Sir James Dyson, the Brexit-backing billionaire, dealt a further blow to the government by revealing he is shifting his company headquarters to Singapore in a move that drew sharp criticism.

Dyson’s decision to move his HQ out of the UK came on a day in which a series of high-profile names revealed measures to mitigate the impact of a disorderly departure from the EU:

  • P&O announced that its entire fleet of cross-Channel ferries will be re-registered under the Cypriot flag, as the 182-year-old British maritime operator activated its Brexit plans.
  • Sony confirmed it is moving its European headquarters from London to Amsterdam.

The chief executive of luxury carmaker Bentley said the company was stockpiling parts and described Brexit as a “killer” threatening his firm’s profitability.

Retailers Dixons Carphone and Pets at Home announced plans to shore up supplies in the event of chaos at British ports.

P&O, which began life as the Peninsular and Oriental Steam Navigation company in 1837, said all six of its cross-Channel ferries will be re-registered from the UK registry in Cyprus to keep EU tax benefits. The ferries include, the Spirit of Britain, the Pride of Kent and the Pride of Canterbury.

Sony confirmed it was merging its London-based European unit with a new entity based in Amsterdam that would become the new continental HQ. Sony said: “In this way we can continue our business as usual without disruption once the UK leaves the EU.”

The boss of Pets at Home, the nation’s biggest pet supplier, said his company had started stockpiling essentials – including cat food – as “we don’t want families to run out of food for their pets” after Brexit day on 29 March.

Sir James Dyson failed to appear at a media event at which his company announced the relocation of its corporate base from Wiltshire to Singapore. Dyson, who was a leading supporter of the leave campaign who urged ministers to walk away without a deal saying “they’ll come to us”, did not explain why he is taking the HQ of the firm he founded in 1991 out of the UK.

The chief executive of Dyson, Jim Rowan, said the move from Wiltshire to Singapore had “nothing to do with Brexit” but was about “future-proofing” the business. The move of Dyson’s legal entity from the UK to Singapore “will happen over the coming months”, meaning it could take place before Brexit.

The decision to leave the UK was made by Sir James together with “the executive team”, Dyson said. Sir James, who owns 100% of the company, has built up a £9.5bn personal fortune making him the 12th richest person in Britain according to the Sunday Times rich list.

A spokeswoman for the 71-year-old billionaire said he would “continue to divide his time between Singapore and the UK as the business requires it”.

His company employs 4,500 people in the UK out of a global workforce of 12,000. It said the HQ move would not affect British jobs

Rowan said moving to Singapore was part of “the evolution” of the company. When asked whether Dyson could still be referred to as one of Britain’s best success stories, he said the firm should now be referred to as a “global technology company”. When he was prime minister David Cameron hailed Dyson as a “great British success story”.

Sir James is not the first pro-Brexit billionaire to pull back from the UK since the referendum. Sir Jim Ratcliffe, the UK’s richest person with a £21bn fortune, was reported last year to be planning to leave Britain for Monaco.

Carolyn Fairbairn, director-general of the CBI, said the litany of business announcements should send politicians a clear and simple message. “A March no-deal must be ruled out immediately,” she said. “This is the only way to halt irreversible damage and restore business confidence.”

Theresa May told business lobby groups on Tuesday that she was refusing to rule out a no deal as she tries to persuade reluctant MPs to back her Brexit plan by arguing that the only way to avoid crashing out of the EU is to sign up to her proposals. That amounted to a rebuke to the chancellor, Philip Hammond, who suggested last week that a no-deal Brexit would be taken off the table in another conference call with 330 corporate executives.


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Brexit: Theresa May’s deal is voted down in historic Commons defeat

Prime Minister Theresa May’s Brexit deal has been rejected by 230 votes – the largest defeat for a sitting government in history.

MPs voted by 432 votes to 202 to reject the deal, which sets out the terms of Britain’s exit from the EU on 29 March.

Labour leader Jeremy Corbyn has now tabled a vote of no confidence in the government, which could trigger a general election.

The confidence vote is expected to be held at about 1900 GMT on Wednesday.

The defeat is a huge blow for Mrs May, who has spent more than two years hammering out a deal with the EU.

The plan was aimed at bringing about an orderly departure from the EU on 29 March, and setting up a 21-month transition period to negotiate a free trade deal.

The vote was originally due to take place in December, but Mrs May delayed it to try and win the support of more MPs.

The UK is still on course to leave on 29 March but the defeat throws the manner of that departure – and the timing of it – into further doubt.


MPs who want either a further referendum, a softer version of the Brexit proposed by Mrs May, to stop Brexit altogether or to leave without a deal, will ramp up their efforts to get what they want, as a weakened PM offered to listen to their arguments.


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The key trends that will shape European PE and VC in 2019

Growth trajectory

While Europe has traditionally been very good at creating new companies, it hasn’t been as apt at growing them, according to Draper Esprit CEO Simon Cook. He thinks this will change. “One trend we have been tracking closely is the proportion of companies which raise early-stage money and which then go on to raise growth money,” he said. “We think this is key to building a sustainable entrepreneurship in Europe. In the US, almost 85% of all businesses that raise seed go on to raise growth capital ($5 million to $75 million). In Europe, it has previously been much less. We expect the gap between the US and Europe to close this year, and to see far more growth deals in Europe.”

Green is a go

Among Europe’s new companies, there’s one sector in particular that Matt Bradley, investment partner at Forward Partners, believes will take off in 2019.

“You’ve probably noticed—in stores, restaurants and conversations—an embrace of all things not meat,” he said. “Vegetarianism, veganism and the curiously defined flexitarianism are on the rise. Whether it’s due to animal welfare concerns, the environment or health and diet-related interest, there’s been a huge shift in public appetites and taste. The trend shows little sign of abating. That means the market size that entrepreneurs can go after is large and increasing rapidly; a great foundation from which to start a business.”

These types of companies have already seen success in 2018 with investments including vegan meal delivery business AllPlants’ £7.5 million funding round from Octopus Ventures. But, Bradley said there’s still plenty of room for innovation:

“In the offline world, I’d expect more and more vertical-focused restaurant concepts to pop up. There’s clearly appetite for more plant-based products for those entrepreneurs willing to take on food formulation and creation. In the online world, all those businesses and business models that we’ve seen prosper relating to food—marketplaces in all parts of the supply chain, on-demand, subscriptions, et cetera—are increasingly attractive. As the market grows more and more, investors are likely to want a piece of the action too.”

Impact’s breakthrough year

It’s not just the food industry that’s going green, according to Sir Ronald Cohen, chairman for the Global Steering Group for Impact Investment. He expects that 2019 will be a “breakthrough year” for impact investing, which he believes will develop into a multitrillion-dollar market.

According to Cohen, impact investing not only more than matches returns generated by more traditional investment strategies, but is also the answer to some of society’s biggest challenges.

“On a global level, I am concerned by the tensions that are building in societies around the world,” he said. “Migration, inequality, the widening gap between the ‘haves’ and the ‘have-nots’ and the resulting erosion of some of our most trusted institutions are all causes for great concern. If we want to maintain a market-based system, we have to face these challenges head-on.

“I believe impact investing can contribute to a solution in a meaningful way, not by fixing issues at the edges, but by putting us on the path to systemic change. Impact investment moves us away from the doctrine of maximizing profit alone to a new paradigm. It brings impact to the center of our consciousness, measures it, and shifts us to optimize risk-return-impact when making business and investment decisions.”

Business as usual

While societal challenges and political events such as Brexit have created a fair amount of uncertainty, Andres Saenz (pictured), EY global private equity leader, expects European activity to remain robust.

“2018’s fundraising market was notable for closings by a number of large European funds and one of the best years on record,” he said. “We expect continued strength in 2019, while recognizing that there are fewer such vehicles currently in the pipeline.”

Saenz anticipates the coming 12 months will keep up the pace after a busy 2018: “We expect continued momentum heading into 2019, given record levels of dry powder and an overall accommodative financing environment. Tech, healthcare and consumer products remain powerful trends and platforms for growth, and we expect continued appetite for deals in these spaces.”

The end of an era

However, not everyone shares an optimistic view for the year ahead. Richard Clarke-Jervoise, partner and head of the Stonehage Fleming Private Capital, claims that private equity has reached the end of its “Golden Age.”

“I think we, like many people, have been preparing for a downturn for a number of years,” he said. “We’ve been very conscious that it has been a good sellers’ market and a tougher buyers’ market. The period from 2012 to 2018 will be remembered as private equity’s ‘Golden Age’ due to exceptionally benign economic conditions, very strong interest from investors and a strong bull market for equities. Private equity managers have taken advantage of various innovations: GP-led restructuring, GP-stake transactions and a growing willingness for LPs to support multiple strategies. However, cracks have started to show in 2018 as it closed on an uncertain note.”

He continued: “The technology space has suffered from falls in public market valuations, IPOs trading below their listing price and the first signs of the impact of trade wars. This has led to a palpable sense of caution from most GPs and we’re getting closer to the top of the market, if we’re not there already. This means that it’s time to be cautious rather than piling on a lot of risk. We’ve tried to be very disciplined in the way we commit money and really focus on managers with a huge amount of experience; they’ve seen a lot of cycles and we think that has a lot of premium in a volatile period.”


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