Thierry Bosly is Head of BeLux Practice and partner specializing in M&A at White & Case Brussels. He detailed the changes happening in the investment landscape and gave his view on the current state of the market.
What have been the main changes to take place in M&A in recent years?
Thierry Bosly. In the M&A market, at both a local and global level, there have been some contradictory developments. On the one hand, there is a significant amount of dry powder out here still to be allocated (more, in fact, than there has ever been before), coupled with very low interest rates and other favorable conditions such as the US contemplating issuing 100-year bonds. So, there is an excess of capital to be allocated and an absence of remuneration on bank deposits, which, when combined, are factors that favor increased M&A activity.
On the other hand, one cannot simply ignore the current state of the world, with its geopolitical strife and significant trade war, between the US and China notably, tensions between the US and Mexico, instability in the Middle East, Brexit , the rise of populism in Europe… these elements paint a grim picture. I am cautiously optimistic when it comes to M&A activity, there are positive signs, but also areas of uncertainty and if there is one thing that spooks the business world, it’s uncertainty.
Nevertheless, the market is quite active at the moment, but worries are piling up, especially for those involved in strategic investment. This pressure is less in evidence among private equity investors. As always there are exceptions to the rule, and one that stands out is the biotech sector, which is going through a remarkable boom at the moment. M&A in this sector is very active and I do not foresee that say that changing anytime soon. The reason for the exceptional growth we are witnessing in this sector is due to the explosion of investment in medical research, specifically medtech and the rising importance of artificial intelligence. In this respect, there is one story that illustrates where we are at with biotech. It is that of a young American who, upon arriving home very tired, went up to his room to go to bed and, in that instant, suffered a heart attack. The Apple Watch he was wearing detected the problem and sent a message to the emergency services, who sent an ambulance round to the young man’s house, saving his life.
Apple, which is essentially a manufacturer of computers and phones, has announced that it is to spend over 50% of its R&D investments in the health sector. This sector is seeing explosive growth, with all the attendant investment opportunities one would expect, and we are very active in this domain.
What is the positioning of your Luxembourg Desk?
For the last 18 months we have had a Luxembourg Desk based in Brussels, which has proved to be enormously successful, confirming the importance of the Grand Duchy in the structuring of cross-border M&A transactions. This is linked to Brexit, of course, but also thanks to the political and legislative stability of Luxembourg and the quality of the service provided by members of the legal profession there, as well as an environment conducive to economic investment and the development of industrial and financial activities.
We also have a new local partner in charge of the Luxembourg practice, Habiba Boughaba, former group general counsel at IQ-EQ, who leads a team of eight lawyers.
What is the current state of the private equity sector in your view?
In this context of quite low interest rates, coupled with quite high stock market volatility, the private equity sector constitutes a viable alternative for those who wish to diversify their investment portfolio. It’s a type of investment that is on the verge of occupying a more important role when it comes to ensuring the growth of a company, far more important than was previously the case when private equity invested only in capital.
Today the sector is in the process of increasing its range of investment activities, and we are seeing more and more of those involved in private equity investing in hedging instruments, which is allowing companies to be less dependent on traditional bank loans at a time when banks are having a much tougher time agreeing to loans, often due to regulatory reasons. The private equity sector has not been slow to take advantage of this situation and has become integral to the financing of modern businesses. It is a situation that I don’t see changing anytime soon. PE-led growth will continue to thrive.
By nature very discrete, family offices are the principal partner of entrepreneurs and high net worth individuals. What trends to you see in this area?
Ever since the arrival of the family office in the private equity sector, we have witnessed a high level of professionalism of these vehicles, which have helped diversify the wealth of founding families. Historically, the family office limited its role in private equity to investing in private equity funds. However, in recent years, family offices have requested that they be co-investors, and it is standard practice today for the LPs to make co-investments. Increasingly, however, family offices are striking out on their own and carrying out investments completely independent of any private equity fund – in this case the family office sources the transaction and becomes a direct investor. This, obviously, has been a paradigm shift for the investment industry and seen family offices become direct rivals of private equity funds.
Typically, a traditional investment fund has a lifetime of three to five years, maximum ten, with the objective being to have a clear exit timeframe. The family office views investment very differently. Family offices are first and foremost wealth managers, temporary holders of wealth that does not belong to them and that must be safeguarded for generations to come. The type of very long-term investments that family offices engage in have consequences for the market, the first, obviously, being the value of any given investment and its desired outcome. Family offices are very interested in interventions linked to management and staff motivation. This type of investment is conceived of and proceeds in a way that is entirely different from those of a private equity find.
And in the same way, if there is a shareholder’s agreement in place on an investment, the investor and the minority shareholder foresee an exit after 10+ years, or sometimes there is no timeframe for an exit at all. This is clearly a radically different approach from that of a private equity fund and therefore the arrival of the family office in the M&A sector is absolutely a disruptive development.