Click or swipe to read our partners’ perspectives on:
- Real Estate Finance
- Restructuring
- Mergers and Acquisitions
- French Private Equity
- Internal Investigations
REAL ESTATE FINANCE
Where is Europe’s CMBS market heading in the year ahead? What will drive this?
Conor Downey and Charles Roberts
London
In 2011, Paul Hastings represented Deutsche Bank in its £302M Chiswick Park CMBS, which was widely expected to be the re-emergence of European CMBS. During 2011, issuance in the U.S. reached US$32.7B. Unfortunately for Europe, the Euro crisis emerged at the end of the first half of 2011 and created significant instability in the capital markets. That instability has been a significant factor in the slow revival of CMBS in Europe.
In 2012, while CMBS issuance increased to US$48.4B in the U.S., Europe was much slower in its revival. Four deals issued in Europe during 2012 with total issuance barely above €2B, and Paul Hastings was involved in all but one of those deals.
Two of the deals that issued in late 2012 — Deutsche Bank’s €887M Florentia CMBS and RBS’s £463M Isobel Finance — were well received by the markets and created renewed enthusiasm for issuance. Since that time, there have been announcements of several new CMBS issues that are expected to occur during 2013 and industry participants have predicted issuance to be in the range of €5-10B.
Next, read about Restructuring
RESTRUCTURING
What changes will the year ahead bring to the way that restructuring is handled in your market?
Karl Clowry
London
For many over-leveraged European companies unable to refinance maturing debt, or that undertook limited restructuring in the last five years, cross-border restructuring tools will increasingly provide comprehensive solutions. Many domestic corporate law and insolvency regimes in Europe still do not enable the “cram-down” of dissentient creditors or shareholders. So it is likely the U.K. will see even more schemes of arrangement being used to restructure the balance sheets of non-U.K. borrowers. Where non-English law debt is involved (and such schemes may not be applicable), European corporate debtors will continue to seek out alternative insolvency regimes in other jurisdictions (including in the U.K.) that may lead to a more favorable outcome for the debtor and its “in-the-money” stakeholders.
Tentative first signs exist that a number of European financial institutions are increasing the rate of non-core asset disposals. When undertaken at realistic prices, these will create opportunities for distressed investors to drive creative restructuring proposals to realize future value. There will inevitably be strategies involving more aggressive loan-to-own, pre-packaged insolvencies and financial collateral appropriations (particularly of shares in jurisdictions such as the U.K. and Luxembourg) by credit opportunity funds that have yet to deploy their true investment weight in Europe.
Christopher Wolff
Frankfurt
The new German insolvency code took effect in March 2012 and has already had a big impact on German company restructuring. Debtor-in-possession combined with insolvency plan proceedings (comparable to U.S. Chapter 11) are now used more frequently. It is unlikely this trend will reverse, as it gives both parties much greater flexibility than before. The amendment of the code gives more favorable treatment to existing shareholders in protection phase proceedings (Schutzschirmverfahren) than to junior or mezzanine debt holders, unless the latter bring new money to the table. Also, in out-of-court insolvencies, mezzanine investors’ nuisance value has been reduced. In insolvency plan proceedings they can be wiped out more easily, especially in real estate proceedings where properties’ underlying value (as a consequence of the insolvency of the landlord) is not adversely affected. Focus is now shifting from private equity restructurings due to over-leveraging to the more pressing need for major CMBS vehicles’ restructuring due to debt maturing over the next 12-24 months. This will require refinancing or a debt holders’ agreement to extend maturities and restructure.
Next, read about Mergers and Acquisitions
MERGERS AND ACQUISITIONS
Where are the greatest investment opportunities for inbound M&A in your market?
Ronan O’Sullivan
London
Maintaining its position as the leading European market for M&A, in 2012 the U.K. recorded its highest level of inbound M&A activity since 2008 and attracted more foreign direct investment than any other European jurisdiction. Foreign investment accounted for over 70% of all M&A transactions in the U.K. in 2012 as overseas buyers sought to avail themselves of businesses and assets trading at deflated values, caused principally by the macroeconomic conditions.
Sectors that remain hot include technology, energy, pharmaceuticals, and financial services, which together accounted for half of the deal activity in 2012. We expect opportunities to remain strong in 2013 for cash-rich U.S. and Asian corporates and private equity funds, notwithstanding the sluggish domestic economy.
Dr. Regina Engelstädter
Frankfurt
The German economy survived the European Union crisis largely without effect and recorded steady growth in the last few years. Germany offers excellent investment opportunities, in particular for strategic investors from the U.S. and Asia with a focus on mid-cap transactions in the range from €25M to €500M. The so-called German Mittelstand has demonstrated excellence and market leadership in many areas. In particular, our clients from Asia recognize the potential and know-how of German companies and show high interest in making strategic investments in Germany. Since the German market is underestimated at the moment, we see strong opportunities for investments into German companies, which usually involve cross-border aspects, and a moderate upswing of the inbound M&A market in the second half of 2013.
Next, read about French Private Equity
FRENCH PRIVATE EQUITY
What is the outlook for the French private equity market in 2013? How will the new tax regime affect this?
Olivier Deren, Pascal de Moidrey, and Alexis Terray
Paris
2012 saw a significant drop in private equity transactions (95 transactions for an aggregate value of €6.2B, compared to €15B in 2011) and 2013 is again looking uncertain for the private equity industry in France.
There are several reasons for this: the effect of Basel III on the availability of bank financing, problems encountered by private equity houses in raising new money in the current economic climate in Europe, sellers’ high price expectations, and heavier taxes because of France’s need to curb its deficits.
Faced with this difficult environment, there are several reasons to remain optimistic:
- During the next five years, many French, family-owned companies will face succession issues, and private equity funds may propose adequate solutions.
- Statistics show that companies experiencing an LBO create more jobs and invest more, which is key in the context of the need to boost employment in the ongoing economic crisis that we are experiencing.
- Alternative solutions to bank financing are developing, in particular unirate mezzanine loans and debt funds.
- Private equity fund portfolio companies are trying to create value through leveraged bolt-on transactions (which grew by approximately 11% in 2012), which is breathing life into the market.
Next, read about Internal Investigations
INTERNAL INVESTIGATIONS
Recent legislation and regulation impose new obligations on companies to police themselves. What do you find are the main areas of management concern in these probes?
Bruno Cova and Francesca Petronio
Milan
Compliance failure and legal issues are the main short-term risks for corporations. The main areas of concern are violations of securities, bribery, environmental, and antitrust laws, liabilities deriving from M&A transactions and joint ventures, and any failure to implement adequate internal controls systems that prevent wrongdoing by directors and employees. A major concern, as a consequence of globalization, is also the fragmented legal framework. The problems of multijurisdiction enforcement actions are compounded by the extra-territoriality of certain laws (particularly anti-bribery and antitrust laws). In several countries there are no provisions of law recognizing the ne bis in idem principle as a general rule in an international context. Following several recent cases, corporations currently seem to be more willing to invest in prevention to minimize the risks of heavy sanctions, blacklisting, and reputational damages.
