June 2016 Newsletter



Jueves, 02 Febrero 2017 00:00

2016 M&A Review

Global Activity Level (from 1 January up to 7 November 2016)

Global M&A fell by 17% and the total deal value reached 2.7 trillion $ against 3.3 trillion during the same period in 2015. It should be taken into account that 2015 was an exceptionally great year in M&A and that the activity picked up significantly in September and October of 2016 (both months recording deal values higher than the same period in 2015).

Deal value in North America fell by 23% year on year and US domestic M&A decreased by 33%. Asia Pacific total M&A went down by 19% and in Europe by 6%. Although there were significant discrepancies between the markets, for example in UK it fell by 54% while it rose by 20% in Germany.

Cross-border deals represented 28% of total M&A value leaded by Chinese buyers with outbound investments totaling 187.5 billion $ ( 180% year on year). Targeted regions were Europe (81.7 billion $), North America (52.6 billion $) and Latin America (16.1 billion $).

The hot sectors are Technology and Industrial & Chemicals. The business services sector attracted technology-focused transactions that were not limited to the TMT sector. Mega deals included Time Warner/AT&T and Monsanto/ Bayer. The consumer, retail and leisure sector witnessed the biggest fall in deal value, with its share of total deal activity falling from 16% in 2015 to 9% in the year to date.

A focus on Media, Information, Marketing, Software and Tech-enabled Services Sector (up to Dec 2016)

In 2016, the deal value of M&A transactions increased to almost 220 billion $ (a 44% increase from 2015) driven by mega deals such as the acquisition of LinkedIn by Microsoft that was valued at 29 billion $.

The 10 most active strategic acquirers accounted for 162 transactions in 2016 and 7.5% of all announced transactions for the year. These leading companies use M&A as a growth tool to continue innovating and transforming their business models to stay ahead of the rapidly increasing use of technology and enhance product and service offerings.

2016 saw a large number of mega deals (above 1 billion $). Strategic deals accounted for 14 out of the top 20 transactions in this sector.


Jueves, 02 Febrero 2017 00:00

How will Chinese outbound M&A look in 2017

Chinese outbound M&A registered a record in 2016 with 372 deals worth 206.6 billion $ and a 20% increase in deal volume.

Chinese buyers are playing an important role in Asia Pacific M&A activity. In fact, 7 out of the 10 largest cross-regional acquisitions out of that region in the first four months of 2016 were announced by Chinese buyers. Chinese companies are looking to North America (a 558% rise) and Europe (a 223% rise) when considering M&A as the slowdown in domestic growth echoes across Asia and China’s economy rebalances from an export-driven manufacturing economy to one driven by technology, industrial know-how and consumption by the rising middle class.

The key drivers:

  • Shift toward technology, industrial know how and consumption: the strategic priorities of Chinese buyers is reflecting this shift in economy, by acquiring North American and European companies to enhance technological capabilities and move the nation´s industrial sector upstream, to gain high-value brands aimed at the maturing consumer in China and to build scale and distribution on strategically important markets and geographies. They want to become market leaders globally.
  • Mature economy and slower organic growth: China´s exploding GDP growth of 10.6% recorded as recently as 2010 cannot be maintained anymore. They are predicting a growth rate of 6% as the country´s economy rebalances toward consumption and services, so the Chinese companies have turned to domestic and outbound M&A to boost slowing organic growth.
  • Scarcity of attractive domestic assets: as small to medium-sized companies consolidate in China, the number of domestic targets decreases. Also, many prefer public market transactions or have high-value expectations, given local valuation benchmarks, which is encouraging Chinese buyers to look abroad for targets.
  • Supportive financing environment: the People´s Bank of China (PBOC) has taken monetary easing measures to attack China´s slowing economy, such as reducing the minimum required reserve ratio for domestic banks and reducing the benchmark interest rate. Chinese buyers are offered numerous financing sources including foreign banks, domestic commercial banks, A-share placements, co-investment from domestic PE and support from regional governments and policy banks.

However, there are challenges that Chinese buyers are facing in order to make it to the finishing line of post signing such as the regulatory hurdles and market policy restrictions from regulators both in domestic and foreign markets. In any case, in 2016, 35.6 billion $ worth of Chinese companies´ bids failed compared to 2 billion $ in 2015. In the West, foreign regulators have increasingly scrutinized Chinese M&A efforts, often reasoning through antitrust and national security concerns. At home, Chinese are also facing threshold when moving large amounts of capital offshore, especially for financial interests that are non-strategic in nature (a cap on investments such as real estate, hotels, entertainment and sports).

The outlook for 2017 definitely seems uncertain as regulatory and policy roadblocks will likely cause delays in the deal process and affect the likeliness of successful deal execution, in particular for large deals in strategic industries. In turn, overseas sellers will likely demand higher break-up fees as insurance (the percentage is already around 10-15% compared to a low single- digit in earlier deals), as well as larger premiums and upfront payments, and the deal value may be skewed by overall funding costs as Chinese banks will increasingly find it hard to finance large overseas deals.

Due to this, smaller weaker Chinese companies might find it harder to conduct M&A deals overseas. However, through their recent experience in expanding and operating within a competitive global landscape, Chinese companies have proven to be flexible and will surely learn to navigate the ever-changing political and financial scene to complete larger and more strategic overseas M&A transactions.

Jueves, 02 Febrero 2017 00:00

Millennials: We Believe in Life After Work

I was asked by Dr. Romances to write about how do millennials view the job market nowadays, what are their career objectives, what drives them in life etc. At first, I was caught by a wave of confusion as I tend to believe (like everyone) that my thoughts and opinions are unique and cannot be considered representative of a whole generation, but surprisingly, after doing some reflections and reading some of the many articles written on this subject, I realized that we actually do have a common moto which I like to call Life After Work.

Millennials, also known as Generation Y or Net Generation, are the demographic cohort that directly follows Generation X (the generation that followed the Baby Boomers). Technically, it´s the generation that reached adulthood around the turn of the 21rst century, but most importantly, it´s the generation that grew up in an electronic-filled and increasingly online and socially-networked world, a generation that was raised under the mantra ¨follow your dreams¨.

Statistics regarding millennials have shown that:

  • 50% of millennials consider themselves politically unaffiliated
  • 30% consider themselves religiously unaffiliated
  • They have the highest average number of Facebook friends (compared to other generations)
  • 55% have posted a selfie or more to social media sites
  • They spend a median of 50 texts a day
  • 20% have at least one immigrant parent

My generation is less concerned with the traditional metrics of success, the ones our parents were threatened by such as savings and home ownership, instead, we want our lives to be defined by meaning, innovation, creativity and a sense of community and shared values. For us, our personal values and interests come ahead of organizational goals, therefore, the most successful businesses to attract millennials nowadays are the ones that offer a good work/life balance, companies that are involved in improving society and that offer a degree of flexibility (such as remote working possibilities). This is a fearless generation that embraces changes and that can adapt quickly, which explains the rise of people working as freelancers, the emergence of start-ups and the decrease in the average job tenure for employees.

With this in mind, I believe that organizations need to respond faster to this generation´s desire to align work with purpose. They need to welcome instability and experimentation and help the new workforce to achieve what it actually wants: a way to create meaning and not just money.

Jueves, 02 Febrero 2017 00:00

Why plan?

I am getting older and experience has showed me that the Principle of Murphy is real. Murphy was an American engineer who, with his team, while performing tests to launch rockets on rails, enunciated that principle in the middle of last century. They saw that either because the operators did not follow the instructions or the processes were giving series of events very unlikely with final disastrous consequence. Therefore, he stated that anything that can go wrong, will go wrong. And this happens because actions do not occur isolated but we repeat them and we end up remembering the negative events and, even more likely, if they are tragic.

Honestly, how many times have you made a sales simulation with a 40% drop or unexpected legal problems have collapsed a company? The last crisis gives grounds for this claim (it all started with mortgage defaults in Vegas in early 2007 and a concatenation of lack of decisions or taking wrong ones) as well as the experience of companies such as Volkswagen invite us to take the matter into account.

We are in a world full of changes, full of daily surprises and we are stuck trying to control everything, planning to the maximum every possible detail. In addition, Excel sheets and PowerPoint presentations comfort this feeling of control that powerful computer programs validate later.

But the millennials and the latest teachings of business schools are no longer for that comfort: let's plan for the shortest possible time and foresee different scenarios of the future very openly, including surprises. Let's drive with the low lights, putting the high ones just when we can, but also using the GPS to know where we will finally end up.

The budgets? To be done bottom up ... How long? Realistic quarterly review ... What should be monitored at one year? It depends: customer satisfaction, employee turnover rates ... And in the long run? ... how to be happy: working, having something of your own ... And with this approach everything is quieter and, curiously, more effective (the results are better achieved) and efficient (the yield is greater at the end).

And now we are going to refute Murphy's Law because sometimes things have to go wrong unavoidably. There is a physical proof for the fact that the toast is more likely to fall on the side with butter, but it is due to other factors. The main factor is the height of the table, whereby the toast has time to turn around not due to the weight of the butter as erroneous and intuitively assumed, but by the rotation itself to the initial conditions of the fall since there is no height enough to allow more than half a turn. Even Robert Matthews, a researcher at Aston University in Birmingham, received the Nobel Prize in physics in 1996 for a study of a derivative of Murphy's law, that is, by demonstrating the case of the toast based on fundamental constants!

In our planning these constants would be, for example: having a differentiated product and barriers of entry, surrounded by good people and professionals, growth mainly based on own resources, consolidating and controlling ... And this cannot be planned so the expertise of businessmen and managers is essential.

Following the brutal executions by the US police of the two colored men, Alton Sterling and Philando Castle, one wonders what is badly wrong with the law enforcement in this country. At first glance, it is easy to deduce that it revolves around a race problem but…

Looking at the statistics of the number of deaths caused by the enforcement law police in the US so far in 2016:

As of July 2016, the US police have killed 509 people. Of these 484 were men and 25 women. Of the total, 238 were white and 123 black. In 2015, of the nearly more than 900 killed by police 50% were white and 26% were black. Given that in the US 62% of the population is white and 15% are black, one could infer that there is a certain relentlessness with black people but we must bear in mind that much of the violent crimes, often drug-related, occur in neighborhoods or ghettos dominated by people of color who are the cause of 62% of robberies and 57% of murders in the country. That the American police kill proportionally more people of color than whites fall within the reasonable statistics considering the previous factor.

Another interesting statistical fact is that among the whites and Latinos that die from violent causes, there are proportionately more whose deaths are caused by the police than the black population. 12% of whites and Latinos who die a violent cause are by the hands of the police against only 4% of the black population.

Another fact that can show a prejudice by security forces in the US, is that in the category of unarmed men killed by the police, the black men clearly dominate the statistics. In the case of black men, the ratio between men killed and armed and the ones killed by the police but unarmed was 7 to 1 in contrast to a ratio of six to one in the white population.

A couple more statistical data: black and Latino policemen are more likely to fire their gun on black people than white cops. Specifically, black policemen shoot proportionally about 3.3 times more blacks than whites police.

The truth is that US police kill more than in other developed countries. US has a ratio of 3.48 inhabitants killed by the police per each million, in comparison to a ratio of 0.09 in Germany or 0,016 in the UK.

Lunes, 26 Septiembre 2016 00:00

Closa joins the Geneva Capital Group network

Geneva Capital Group (GCG) is a global network of M&A, Corporate Finance and Strategy firms that provide advisory services to companies and entrepreneurs in the areas of corporate finance, auditing, taxes and management consultancy. According to Accountancy Magazine, it is the 6th organization in the world in terms of turnover. The network comprises more than 25,000 experts from independent businesses in more than 120 countries focusing on small and medium-sized enterprises (SMEs). The type of association and internal commitments allow Closa to provide even more customized services, within its strategy embodied since its foundation in 1987, of prioritizing clients.

Lunes, 26 Septiembre 2016 00:00

Incorporation of José Alvarez Riera

José has joined Closa Investment Bankers as a Managing Director in the Madrid office as of September, following the exit of Diego Giménez-Arnau who decided to dedicate his time to his private company.

José has 17 years of experience in M&A and has led more than 70 successful transactions. His expertise is concentrated in middle-market but he has also closed large deals, focusing in Family Business mainly but also Private Equity firms and large Spanish Holdings. In addition of working for 6 years in CLOSA Investment Bankers (2004-2010), he has originated and headed mandates in PricewaterhouseCoopers (PwC), EBN Banco de Negocios, and Arjil Associés Banque. He participated in several multi sectorial transactions in Spain and cross border. He has also worked for 8 years in commercial banking for Grupo Caixabank.

He holds a degree in Law from Madrid Complutense University and a Master of Business Administration from IESE.

Lunes, 26 Septiembre 2016 00:00

2016 first half M&A Statistics

The first half-year of 2016 has been marked by two main events that led to an atmosphere of uncertainty in the market: The Brexit referendum and the US elections with the candidature of Donald Trump of the Republican party. One of the repercussions on the market was the slowdown of the M&A activity in Europe where the first half (H1) of 2016 scored both the lowest number of deals (3110) and deals value ($342.8 Billion) since 2013. The average EBITDA multiple for acquisitions dropped as well from 15.0x in H1 2015 to 12.3x in H1 2016, indicating that sellers had their assets worth less than a year ago.

Spanish market

While the year 2015 was labeled as a record year for M&A deals, it looks like year 2016 is shaping to be a record year for breaking deals. The United states is seeking to hunt down companies that are performing deals in order to escape taxes which results in company executives thinking twice before entering into complex deals that could attract government scrutiny.

Although M&A deals have been reduced by 9% year on year in the first seven months of this year, the value itself has picked up in the Spanish market.
The value has increased by 4.24% so far this year compared to the same period of 2015, to reach 66,207.02 million euros, according to the monthly report of TTR. Thus, from January to July 1,106 transactions were recorded compared to 1,215 recorded in the same period last year.

In monthly terms, in July 179 transactions were made for an aggregate amount of 7,176.35 million euros, of which five exceeded the barrier of high market where transactions exceeding $ 500 million are included.

Among the operations carried out by Spanish companies abroad, the highlight so far is towards the United States, Portugal and the UK, where 16, 14 and 11 transactions were carried out respectively. It is worth looking at the amount invested in the UK, where transactions were valued at 20,061.95 million euros due mainly to the constitution of Coca-Cola European Partners.

Also, the figure recorded in Portugal (2470.54 million euros) stands out as a result of the takeover bid of CaixaBank over BPI and the acquisition of Banco Popular of Barclaycard´s business in Spain and in Portugal.

Investments in Spain

The data confirm that the Spanish market is also attractive internationally. Among the countries that have invested through mergers and acquisitions, US, UK and France are the countries that pushed for intervention in Spain with 46, 45 and 44 operations respectively.

Lunes, 26 Septiembre 2016 00:00

IPOs Performance

The above graph shows the profitability of IPOs that have occurred since year 2009. Although the results are not very surprising, we would still expect the distribution of return to be more centralized rather than shifted to the left.

On one side we have the 100 companies that went public and had ended in a total fiasco for their investors, losing 100% of the investment. On the other extreme, we have the 33 companies that have offered a higher return than 300%.

As seen, drawing conclusions is ambiguous.

One thing for sure is that the IPO calendar thrives when investors are looking for growth and prioritize the topline over other metrics. Another view of the statistics shows that in 2009, 89% of IPOs were profitable compared to 34% in 2015, and in the last 20 years, only the years 1999 and 2000 saw less profitable companies at IPOs, as per the graph below.

As we have been witnessing a period where markets are bullish since 2009, the chart infers clearly that bull markets lead to an aggressive IPO investing. In 2015, the market was the closest to the ¨dot-com bubble¨ levels of company profitability since 2000.

Also, the chart shows a certain recalibration after each of the crisis, like the one in 2001 when profitable IPOs jumped to 59% compared to 23% in 2000, similarly that number jumped to 89% after the 2008 crash up from 64%. Both periods showed significant decreases in the number of IPOs and the proceeds gained from them. In the same way, 2013 and 2014 delivered an extremely high volume of IPOs.

¨The market isn´t a bubble which will pop but rather a balloon which will deflate¨.

Are M&A and R&D mutually exclusive in the Pharma industry?

The pharma industry has witnessed a spurge of M&A deal making during the last few years, including numerous mega-mergers, like the $160 Billion transaction announced in 2015- Pfizer/Allergan- the biggest-ever Pharma deal. In parallel, smaller and middle market companies have also joined the trend and consolidated, in particular, attracted towards biotechnology firms. In total, between 2014 and the third quarter of 2015, more than $850 Billion worth of transaction were announced, deal making in the pharma sector reached a record of $395 Billion in 2015 and 31 M&A deals involving biotech companies worth $18.2 Billion combined were completed.

Much of the activity seen is driven by the pursuit to lock down attractive product pipelines and thus beat competition. Also, big pharma companies have used M&A to reduce tax (such as US firms relocating in areas with lower tax rates and saving billions in tax income) and recently, to face the heightened competition from promising biotech firms that have their product on the market or at least in the final stages of development, tackling in this way the challenges that emerge from patent expiration. At the same time, smaller companies do not find themselves as being able to compete against the big pharma companies in order to commercialize their products; it is becoming highly effective for large companies to acquire the smaller ones and market the new drugs through their network and platform.

While M&A has led to immense growth, there are some claiming that it had a negative impact on the R&D, which represents the main objective of such an industry, of researching and developing new drugs. A direct consequence has been the cutting of R&D spending as a mean to achieve cost savings, but also, this has led to reduced healthy competition that is the drive for successful R&D outcome.

Should pharma companies continue to look after the future growth of their investors and meet their goals by choosing M&A as their mean to achieve synergies and efficiencies endanger in the long-term their sustainability as it puts at stake R&D?

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