Interview with Thierry Bosly - Partner and Head (White & Case)

Thierry Bosly is Partner and Head of the White & Case Belgium and Luxembourg practices. Bosly also serves as Head of the Firm’s Private Equity section for the EMEA region. In this interview, Mr Bosly discusses private equity in EMEA during the pandemic.

Posted Tuesday, December 22nd 2020
Interview with Thierry Bosly - Partner and Head (White & Case)

Ten years ago, the private equity industry was wrestling with the fallout from the global financial crisis. A decade later, however, the industry has shown resilience in the face of the coronavirus pandemic. The first days of the lockdown were severe, though, with more than 85% of ongoing transactions that were at a stage before signing being put on hold overnight or close to it. On the other hand, transactions which were at a stage between signing and closing remained active and were completed notwithstanding the pandemic. Practitioners had to demonstrate flexibility and adapt to the new sanitary measures with closing sessions taking place in fully remote mode. The closing of the build-up acquisition of French company Sparflex by Cobepa’s portfolio Italian company Enodev in February 2020 is a perfect example of how law firms coped with lockdown. Indeed, a lot of deals required innovative solutions in terms of technology or even in terms of legal know-how. Private equity dealmaking has started to show signs of recovery in Q3, with European dealmakers closing on 972 transactions worth €100.8 billion in Q3. However, it should be noted that deal volume is down 6% from Q3 in 2019. Following the partial unwinding of the lockdown at the end of Q2, various eye-popping deals were released at the end of that period, such as the acquisition by EQT Infrastructure of French Colisée, a leading European operator of nursing home facilities and home care services agencies in France, Belgium, Spain and Italy, from IK Investment Partners. At the start of autumn, with new restrictions about to be implemented everywhere in Europe, one can wonder what the prospects for the private equity industry are.



There are many reasons for optimism given fundraising efforts were strong in Q3, with the private equity industry raising increased capital compared to the previous two quarters in 2020. In total, 69 funds held a final close worth a combined €68.5 billion, which, if the current pace continues, would mean that PE fundraising could surpass €90 billion in 2020. Despite the difficulties caused by the coronavirus pandemic, LPs have continued to commit capital, with an increased tendency to commit said capital to their long-standing and most trusted managers. For example, CVC Capital Partners closed on €21.3 billion for CVC Capital Partners Fund VII, which is the largest European buyout fund to date.


Weaknesses – GDP contracting

The UK was one of the countries hit hardest by the COVID-19 pandemic, with GDP contracting by a record 19.8% in Q2 of 2020 – a much faster rate than countries like the US. In contrast to the struggles in the UK market in Q2, deal volume in the UK & Ireland jumped by 25% from Q2 to Q3. Looking forward, it is hard to predict if this trend will continue. The removal of the government’s furlough scheme and the introduction of the three-tier lockdown plan (with the potential of another national lockdown) means that dealmaker confidence is perhaps not as high as deal volume suggests. Likewise, the Benelux region has been similarly affected. GDP in Belgium contracted by 11.8% in Q2 2020, whilst Luxembourg’s GDP is still contracting, with contractions of 1.7% in Q2 and 7.2% in Q3 2020.. In France and the Benelux region, deal flow is far below levels of recent years in the region. Up to 31 May 2020, France and Benelux recorded only 417 transactions valued at €36.2 billion, statistics show. Deal value for the whole year is expected to come in below previous years’ figures. This would mark the first year since 2017 that deal value would fall below €100 billion in the region. European exit activity against the global trend Exit activity remained steady from Q2 to Q3 in Europe. There were 181 liquidity events worth €58.1 billion which closed during the quarter. This represented small quarter-on-quarter increases of 6.9% and 1.9% respectively. This marks a contrast to the global outlook, which saw a surprise comeback in Q3. There were US$136.9 billion in exit deals announced globally in the first half of the year, and Q3’s exit value easily surpassed this figure. Four out of the top five PE-related transactions announced in Q3 were exits. Further, the increase in exit deal value is even more significant when compared to the sharp decrease in activity experienced in H1. This contrast can perhaps be explained by the fact that a number of the largest exits of the quarter were atypical. The largest PE transaction of the year was the planned sale of UK semiconductor firm ARM to NVIDIA for US$38.5 billion. The deal – if approved – would see Japanese telco SoftBank and SoftBank Investment Advisers, its corporate PE firm, exit. The fifth-largest PE exit of the quarter, the US$8.4 billion sale of Bombardier Transportation to Alstom, is another transaction that will see the exit of a corporate and a financial sponsor, Bombardier and Caisse de Depot et Placement du Quebec (CDPQ).


Threats? Europe’s private equity role in the exploding SPAC market

How will the European private equity market interact with a new challenger on the deal front, and how will European stock exchanges be overpowered by the fast-track US IPO path that SPACs offer? These questions are just beginning to be understood as the explosion of SPAC activity in the US moves into Europe and SPACs adjust to fit the expectations of European investors. A SPAC can provide founders with an attractive and cheap path to raising funds in a dislocated market; it can also provide PE as an alternative exit route for investments that may be cheaper, quicker and less risky compared to a traditional IPO. As with most market disruptions, there are many more unknowns than knowns to how SPACs will interact with the PE market in Europe and how European investors will innovate to find a balance in this new space.



The resilience of the TMT sector

The resilience of PE activity in the TMT sector has been driven in part by the need for companies to provide digital solutions to their customers amid the pandemic. As communities around the world adapted to lockdown in 2020, they have increasingly looked to digital solutions to carry out everyday tasks - particularly in the fields of work, health, education and entertainment. This has in turn led to an increase in PE activity targeting the software sector. The industry has been insulated from the worst effects of the crisis due to the continuing attractiveness of technology assets, resulting in cross-sector convergence. The increased demand for digital solutions amid the crisis has resulted in a steep rise in the valuations of tech firms in 2020. This trend could see a further increase in TMT PE activity in the final quarter of the year.


Healthcare remains active

The strategic importance of well-funded healthcare infrastructure has been highlighted as COVID-19 has spread. The S&P 500 Healthcare Index has lost no value in 2020 and is close to 15% above the value in the previous 12 months. This shows the value that investors see in the long-term prospects for the sector and its core importance to economies. The industry is well positioned to continue receiving investment and generating deal flow throughout the rest of 2020 and beyond. This year White & Case advised various private equity clients in their investments in the healthcare and biotech sector, as well as clients from this sector in their expansion projects. As an example of the latter, we are advising Mithra Pharmaceuticals, a Belgium-based public biotech company dedicated to women’s health, on a complex equity-backed financing arrangement with LDA Capital, a global investment group based in Los Angeles. Industrials dominate European P2Ps Private equity-backed takeovers of listed companies in Western Europe have enjoyed several strong years, with deal value rising year on year from 2013 to reach a total of US$38.8 billion in 2019. Volume followed a similar territory, demonstrating annual increases every year from 2017 and coming to a total of 19 in 2019. The most dominant sector in European P2Ps in the first three quarters has been industrials and chemicals (I&C), with six transactions worth US$7 billion. In contrast, there were no deals in the sector in the US. The largest European I&C P2P transaction was the US$3.5 billion takeover bid for Ahlstrom-Munksjo (who White & Case advised), a Finnish fibre-based solutions provider, by a consortium comprising Bain Capital and investment groups owned by Finland’s Ahlstrom and Ehrnrooth families.


Prospects - the European outlook

Although dealmaking remains substantially above the lowest points of the global financial crisis, it is by no means clear or certain that such levels will continue in Europe going forward. Firstly, rising COVID-19 infections and a stronger euro, which has appreciated around 10% against the US dollar since March, will make European assets less appealing for non-euro-denominated buyers. Furthermore, the re-introduction of social distancing measures in many European countries will substantially affect businesses’ cash flow profiles and will increase the gap between valuations and fundamentals. Lastly, the possibility of further national lockdowns, a hard Brexit, and the winding down of fiscal support programmes (e.g., the furlough scheme in the United Kingdom) pose substantial risks to the economic outlook in Europe in the short to medium term. It therefore remains to be seen if the current trends highlighted by this article will continue going into the final quarter of 2020 and beyond. It is clear, though, that PE firms continue to play an important role in European M&A activity in these uncertain times and we should not expect this to change.