Current market trends
The backdrop to UK market activity remains dominated by the geo-political landscape, as the effects of the Brexit and Trump votes play out. But on a day to day basis, we have seen no noticeable effect on deal flow in Q4 2016 and Q1 2017: both the PE and VC markets remain buoyant with plenty of activity across a range of sectors.
It is fair to say that there is less certainty moving into Q2 2017 and beyond once the UK government gives formal notice of its intention to leave the EU and the two year exit negotiations begin. But the pressure to do deals will remain: according to recent figures released by Preqin, private equity firms are sitting on record levels of dry powder ($822 billion globally by the end of December 2016, up from $755 billion a year earlier).
Deal terms reflect that there is a healthy amount of competition for the best investments. Specifically we have seen:
- a trend towards reducing the liability of sellers and management, for example, management liability caps have been reducing; de minimis and basket thresholds (the levels which trigger a warranty claim) have been rising and limitation periods for both warranties and tax deeds have been shortening. On exits, we have also occasionally seen private equity houses take a proportion of the liability for specific, identified items, which may or may not be covered by indemnities;
- a trend towards rebalancing risk away from sellers and management, for example, warranty and indemnity (W&I) insurance is widespread, locked box deals are prevalent and there has been an increase in the general disclosure of data rooms;
- challenging negotiations around leaver provisions, drag rights and step-in/control issues, for example, an “intermediate leaver” provision with a vesting schedule is becoming more normal for sweet equity so that bad leaver provisions are only for voluntary resignation or summary dismissal.
Key deals in 2016
Osborne Clarke UK advised on over 50 VC and growth capital deals with over £550 million invested and over 30 private equity deals with a combined deal value of over £2 billion. Illustrative examples of the deals upon which we have advised last year include:
- NewVoiceMedia on its $30 million Series F round of funding led by Salesforce Ventures, BGF Ventures and existing shareholders Technology Crossover Ventures, Bessemer Venture Partner, Highland Europe and Eden Ventures
- Union Square Ventures on the $100 million Series E round of investment in SoundCloud led by Twitter Ventures
- Dovetail Games on an investment by Alcuin Capital Partners
- Founders Factory on investments by L’Oreal, Aviva, Guardian Media Group and easyjet
- Management on the $1 billion (£760 million) sale by Terra Firma of the Odeon & UCI Cinemas Group to AMC Theatres
- Management of ByBox Holdings on a £37.5 million investment by LDC
- LDC and management on sale of Ministry of Cake to Mademoiselle Desserts
- LDC on management buyout of ADEY
- Growth Capital Partners on an investment of £23.3m into the John Henry Group
- Management on the sale of Ascendos Rail Services Limited to Beacon Rail Services Limited backed by Pamplona Capital Partners IV, LP, the US based investor with €3.0 billion of committed capital under management
- RJD Partners on three transactions: the secondary buyout of Morecambe Leisure 1 Limited funded by Palatine Private Equity, the management buyout of Babington Business Limited, the sale of portfolio company ISG Technology