M&A. Energy and power fuels staggering growth. Global interview panel covering key economies led by Alan Klein

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1 Volume 2 Issue 6 M&A Global interview panel covering key economies led by Alan Klein Energy and power fuels staggering growth Activity levels Keynote deals Shareholder activism 2016 forecast Europe The Americas Asia-Pacific Africa

2 Publisher: Gideon Roberton Senior business development manager: Adam Sargent Product marketing manager: Sophie Pallier Head of production: Adam Myers Editorial coordinator: Eve Ryle-Hodges Subeditor: Tessa Brummitt Designer: Nathan Clark Cover: Songglod/iStock/Thinkstock No photocopying. CLA and other agency licensing systems do not apply. For an authorised copy contact Adam Sargent, tel: This publication is intended to provide general information on law and policy. The information and opinions which it contains are not intended to provide legal advice, and should not be treated as a substitute for specific advice concerning particular situations (where appropriate, from local advisers). Published by Law Business Research Ltd 87 Lancaster Road London, W11 1QQ, UK Tel: Law Business Research Fax: Law Business Research Ltd ISSN: Strategic Research Sponsor of the ABA Section of International Law Printed and distributed by Encompass Print Solutions Tel: Welcome to GTDT: Market Intelligence. This is the second annual issue focusing on global M&A markets. Getting the Deal Through invites leading practitioners to reflect on evolving legal and regulatory landscapes. Through engaging and analytical interviews, featuring a uniform set of questions to aid in jurisdictional comparison, Market Intelligence offers readers a highly accessible take on the crucial issues of the day and an opportunity to discover more about the people behind the most interesting cases and deals. Market Intelligence is available in print and online at In this issue Getting the Deal Through London November 2015 Global Trends...2 Africa A Regional Overview...4 Argentina...12 Brazil...20 Canada...26 China...33 Czech Republic...39 Dominican Republic...45 Finland...50 France...57 Germany...64 India...71 Japan...79 Netherlands...84 Norway...89 Russia...97 South Africa Spain Switzerland United Kingdom United States...125

3 Ulf-Henrik Kull M&A IN FINLAND Ulf-Henrik Kull s experience covers over 20 years in complex cross-border transactions, including both public and private mergers and acquisitions, with a special focus on private equity. He is recognised as one of the leading experts in corporate, mergers and acquisitions and private equity transactions in Finland and is regularly involved in some of the largest cross-border transactions in the Nordic region. Two of the biggest deals recently headed by Ulf-Henrik were the combination of Terex Corporation and Konecranes and the 6.6 billion divestment of Fortum Corporation s (listed on the NASDAQ OMX Helsinki) electricity distribution business in Sweden. Ilkka Perheentupa represents fund and industrial clients in M&A and venture capital transactions. He has spent the majority of his 16-year career in corporate capital markets and private equity practice in New York and London. Ilkka recently represented SSAB in the sale of their steel service centres in Sweden and Finland to Tata Steel as well as Elenia Group, a leading Finnish distribution system operator, and its main shareholders in the issuance of over 1 billion in secured bonds and senior notes. He has also represented Next Games, a leading Finnish mobile gaming company, in its venture capital financing rounds, recent acquisitions of leading gaming studios and licensing arrangements, including the industry milestone licensing by AMC regarding The Walking Dead franchise. 50

4 Photo:scanrail/iStock/Thinkstock Deal flow has remained stable despite a number of macroeconomic challenges facing the Finnish economy. GTDT: What trends are you seeing in overall activity levels for mergers and acquisitions in your country during the last year or so? Ulf-Henrik Kull & Ilkka Perheentupa: Finland and the Nordic countries generally provide a very stable and predictable regulatory and cultural environment for M&A activity. For foreign operators it is noteworthy that the Nordic custom and process for private M&A deals is broadly similar to, for example, the UK or the US with relevant transaction documentation being (almost without exception) in English. In an attempt to boost growth and productivity and to make the Finnish labour laws and market more dynamic, the newly appointed centre-right government is proposing some fundamental changes to the existing regime. The new government is also expected to propose changes in the tax code and to limit the generous social benefits. These changes are expected to raise considerable union level objections and, together with the handling of the overwhelming flow of refugees from the Middle East to the European Union (including the Nordic region), are likely to dominate domestic discussion during the year ahead. M&A activity levels in Finland have not yet returned to pre-crisis levels. During the years immediately following the start of the downturn, we saw significant volatility in deal volumes. However, the last two to three years have provided quite a stable and significant flow of M&A deals in Finland, with a somewhat shifting mix in terms of public and private deals and the key sectors. Deal flow has remained stable despite a number of macroeconomic challenges facing the Finnish economy, ranging from deteriorating productivity, high labour costs and weak competitiveness of export-intense industries to the disproportionate influence of labour unions and stretched public sector finances. During the past year or so, we have seen a wave of unusually large industrial transactions, both public and private, and fewer sponsor-driven buy-side deals. The notable large industrial transactions include the recently announced all-stock merger between Terex Corporation and NASDAQ OMX Helsinki listed Konecranes Plc to form a leading global lifting and material handling solutions provider, and Nokia Corporation s 16 billion public share exchange acquisition of the French telecommunications solutions provider Alcatel-Lucent. In addition to large-scale industrial transactions, specific sectors have remained particularly active. During the last year, these include energy and infrastructure and real estate. Mobile gaming and related services are also emerging as an increasingly active sector in Finland and the Nordic region with the continued inflow of significant foreign venture capital investment. The Nordic banks have weathered through the downturn relatively unscathed and access to bank financing has not been a significant bottleneck for M&A. Despite higher expectations, the Nordic high-yield bond market has been slow to expand GTDT: Market Intelligence M&A 51

5 It remains to be seen to what extent the recent market turbulence in Asia will have a chilling effect on IPO exits. to Finland and bank financing continues to be the prevalent form of acquisition and operative financing. It remains to be seen to what extent the recent market turbulence in Asia will have a chilling effect on IPO exits. In line with the trend that has been prevalent in the Swedish market and supported by the still healthy stock market valuations, we have seen some successful sponsor-led IPO exits, including Investcorp s listing of Asiakastieto, a business and credit information services provider, and Sentica s listing of Pihlajalinna, a private health and social care provider, both on the main list of the Nasdaq OMX (Helsinki). The smaller-cap First North list of the Nasdaq OMX (Helsinki) also remains reasonably active. GTDT: Which sectors have been particularly active or stagnant? What are the underlying reasons for these activity levels? What size are typical transactions? U-HK & IP: Sectors that have been particularly active are energy and infrastructure, health care, real estate and certain sub-sectors of the entertainment sectors (specifically mobile gaming). The valuations of specific regulated infrastructure assets have reached unprecedented levels a trend that is likely to spur further activity. These assets in a stable triple-a rated (S&P has lowered its rating to AA+) jurisdiction have proved highly attractive to international pension and infrastructure funds as they look for stable returns and geographic diversification in their portfolios. Representative recent transactions include Fortum Corporation s 6.6 billion and 2.55 billion sales of its electricity network assets in Sweden and Finland, respectively, in each case to a consortium led by Borealis (co-lead with First State in Finland). These were preceded by Vattenfall AB s 1.54 billion sale of its Finnish electricity network assets to a consortium led by GS Infrastructure Partners and 3i Infrastructure Partners. During the last year or so, there has also been other activity on the infrastructure side, including the recent sale by Gasum Oyj of its Finnish local gas distribution system to SL Capital Partners, an investment fund, and the sale by Neste Oil Corporation of its industrial (site-specific) electricity network at the Kilpilahti site to InfraVia Capital Partners, an infrastructure fund. All of the leading Finnish private health, elderly and social care providers are held by private equity, with KKR and Triton owning Mehiläinen, IK owning Attendo, CapMan owning Esperi, Adelis Equity owning MedGroup and EQT having acquired Terveystalo from Bridgepoint. Investment in these sectors is driven by attractive demographics, as well as public budgetary pressures and the pending reorganisation of the public health-care sectors that some believe creates new opportunities for increased outsourcing. The market is expecting that at least some of these sponsors will seek to exit their investments in the short to medium-term. Further consolidation is also continuing in the health, dental and social care services, with the larger operators competing for add-ons of still independent clinics. A more recent phenomenon is the similar consolidation trend in the veterinary services market, with the rapid growth of pan- Nordic operators like Evidensia, held by EQT and Intera Partners. The real estate market picked up in 2014 and has remained active for the first half of 2015, despite Finland s modest macroeconomic indicators compared to other EU countries. The lack of good investment properties and low yield levels in Europe s main market areas continue to drive investors to seek higher yields and spread risk in Scandinavia and Finland. Swedish and German investors have been particularly active this year. In terms of entertainment, the mobile gaming sector continues to attract investment. In the wake of mega success of the likes of Supercell, there are hundreds of promising new gaming companies that have attracted top talent, including game studios such as Next Games, Small Giant Games, Ministry of Games, Dazzle Rocks and Traplight. Many of these companies are successfully raising capi tal from some of the leading venture capital funds in Asia, the US and Europe. Finland is known for its high concentration of expertise in mobile game development. We are also seeing an increasing amount of M&A in the gaming sector with smaller 52

6 studios being bought out by their bigger rivals. This year we also saw Softbank conclude a further acquisition of shares in Supercell. GTDT: What were the recent keynote deals? What made them so significant? U-HK & IP: Keynote deals include the planned all-stock merger of equals between Terex Corporation and NASDAQ OMX Helsinki listed Konecranes Plc. The combined company, to be called Konecranes Terex Plc, will be a leading global lifting and material handling solutions company with estimated combined 2014 revenues of 7.5 billion. Other significant transactions include Nokia Corporation s 16 billion public share exchange acquisition of Alcatel-Lucent and its announced 2.8 billion divestment of the automotive digital map and location service HERE. After the sale of its mobile device unit and HERE mapping, the Alcatel-Lucent acquisition re-establishes Nokia as a significant global network technology and service provider. The main deal on the infrastructure side was Fortum Corporation s 6.6 billion divestment of its electricity distribution network in Sweden. In addition to its sheer size, this deal illustrates the extraordinary valuation levels of specific regulated infrastructure assets in the Nordic region. GTDT: In your experience, what consideration do shareholders in a target tend to prefer? Are mergers and acquisitions in your country primarily cash or share transactions? Are shareholders generally willing to accept shares issued by a foreign acquirer? U-HK & IP: In private deals, cash is the most common form of consideration. Share consideration is seen as an alternative in public merger and tender offer structures but even then it may be difficult to structure transactions to allow for tax-free share exchanges given that typically, even a limited cash component prevents such favourable tax treatment. Combining cash and shares may also create challenges with respect to the statutory equal treatment of shareholders. The recent Nokia-Alcatel and the Terex-Konecranes transactions are examples of all-share transactions. GTDT: How has the legal and regulatory landscape for mergers and acquisitions changed during the past few years in your country? U-HK & IP: The regulatory environment for M&A has remained quite stable with certain notable changes to tax and industry-specific regulations. Finland has recently imposed restrictions on the deduction of certain interest payments to affiliated entities for tax purposes. This has particular relevance to both new and existing cross-border financing structures (often implemented in an M&A context). The tax authorities are expected to increasingly scrutinise certain types of tax structures, including those that involve shareholder loans between Finnish operating companies and offshore holding structures. The tax authorities are also very focused on transfer pricing and there is some high-profile tax litigation pending in this regard. Finland s corporate tax rate was quite recently lowered to 20 per cent. There are also noteworthy sector-specific regulatory developments. Perhaps the most important is the proposal to broadly restructure the administration and organisation of the Finnish health and social care system. Despite significant delays in the implementation of this restructuring it continues to make its way through the political system and is likely to have profound implications on private health and social care providers. Although Finland continues to be very open to foreign investment, the recent shift in the geopolitical environment and the sanctions against Russia (and counter-sanctions) are having an effect on certain industries, and are likely to increase government scrutiny of foreign investments in specific assets that may be deemed critical for the functioning of society (pursuant to the relevant statutes on the control of foreign acquisitions), including certain core energy and infrastructure assets. We are also seeing an increasing amount of M&A in the gaming sector with smaller studios being bought out by their bigger rivals. GTDT: Market Intelligence M&A 53

7 and globally oriented management teams. The industry is employing an increasing number of highly skilled workers and, although this is not particularly significant in the context of the overall economy, further success stories would provide welcome signal effects to the broader IT and tech communities in Finland. Given the relative size of our economy, it is very common that buyers come from outside Finland. There are numerous recent examples of this, including the announced combination of Terex Corporation and Konecranes, Microsoft s acquisition of Nokia s handset division, the Borealis-led consortium s acquisition of Fortum s network assets in Sweden and Finland (co-led with First State in Finland), and Facebook s acquisition of fitness and activity tracking app Moves. Foreign buyers are a constant phenomenon in the Finnish M&A landscape. In particular, we are currently seeing several foreign infrastructure funds and investors circling the Nordic region looking to invest in regulated energy and infrastructure assets. GTDT: Are shareholder activists part of the corporate scene? How have they influenced M&A? Ilkka Perheentupa GTDT: Describe recent developments in the commercial landscape. Are buyers from outside your country common? U-HK & IP: Many of the traditional Finnish export-driven industries, including pulp and paper, metal, chemicals and engineering are being challenged by the current macroeconomic cycle and a range of adverse trends on the global and domestic fronts (eg, reduction in global demand including from China, high domestic cost base, etc). The sanctions against Russia continue to impact the food and retail sectors and to cause uncertainty among other businesses that have substantial investment in Russia. Some of these challenges are reflected in the increased consolidation and reorganisation activity. Mobile gaming has emerged as a bright spot in the commercial landscape with a steady stream of newly formed studios with dynamic, skilled U-HK & IP: The influence of shareholder activists has been quite limited, so far. There are instances where a hedge fund holds significant positions in a public company and through their board representation such funds have managed to affect material reorganisations (including split-up) of the relevant entities, thus potentially releasing shareholder value. But such instances continue to remain rare. GTDT: Take us through the typical stages of a transaction in your jurisdiction. U-HK & IP: As we have explained, the Nordic custom and process for private M&A deals is broadly similar to the UK or the US, with the relevant transaction documentation structured in a very similar manner and being almost exclusively in English. In terms of process, foreign operators will generally not encounter any adverse surprises in doing deals in Finland or the Nordic region. Although there is, of course, variation from deal to deal, with bankers in some cases having a more active role in serving as initiators or intermediaries, contacts are typically established at senior management level and discussions can go on for quite a while before advisers are brought in. Once the deal gets sufficient traction, NDAs are executed and legal and other advisers are engaged. With few exceptions, due diligence is conducted by using one of the internationally 54

8 What factors make mergers and acquisitions practice in your jurisdiction unique? Finland provides a very stable and predictable legal and cultural environment for successful deal-making, offering significant deal security and traditionally a low risk of post-closing disputes. Transactions are negotiated and documented in a manner that closely reflects UK and US traditions and practices. In terms of what is unique, one thing that is noteworthy is the level of trust and transparency that parties will expect from one another in the context of doing deals in Finland. Finns have a strong tradition of being worthy of their word. This culture is also reflected on the adviser side that is known for high ethical standards and sophistication. The Finnish language is clearly one unique feature of deal-making in Finland given that few people outside of the country speak it. This is mitigated by the fact that, generally without any exceptions, all significant deals are negotiated and documented in English. Another feature of the M&A environment is the fact that the Finnish state continues to hold substantial stakes in many Finnish industries with certain non-strategic assets being administered by Solidium Oy, the investment vehicle of the Finnish state. What three things should a client consider when choosing counsel for a complex transaction in your jurisdiction? First, we believe clients need to make sure that counsel has a reasonably fresh and accurate track record in successfully completing the relevant type of transaction, ideally in the same sector given that certain industries (including health care and energy) can be highly regulated. Second, clients should ensure that their adviser of choice will make the appropriate team available for the transaction, including the requisite senior attention and experience, and that the core members of team are genuinely hungry to get the mandate. Third, clients should not overemphasise the scope of services offered by the large firms. In many cases, a more specialised and highly experienced firm may be the appropriate choice. THE INSIDE TRACK What is the most interesting or unusual matter you have recently worked on, and why? We have been fortunate to have had the opportunity to work on many of the key corporate transactions involving our market. With regard to a particularly interesting matter, we would mention our representation of Terex Corporation in its combination with NASDAQ OMX Helsinki listed Konecranes Plc, which is one of the few mergers of equals between a Finnish and US business to ever be consummated. Other exciting matters include our representation of some truly promising Finnish mobile gaming companies in their recent financing rounds involving leading US, Asian and European technology-focused venture capital funds and other prominent investors. Some of these companies are already expanding through M&A and some are attracting approaches from established film and TV studios that are looking to license their intellectual property for mobile game development. A prime example is the licensing arrangement between our client Next Games and AMC Networks regarding the production of a mobile game based on the hugely popular television franchise, The Walking Dead. The game launched in October It has been fascinating to observe how these newly formed companies with dynamic and internationally oriented management and development teams seek to boldly take their companies global. The fact that many leading investors from around the world are zoning in on a cluster of companies from Finland in this manner is truly unique. With the broad international experience of many of our attorneys, including in the fields of M&A, venture capital, intellectual property and financing, we feel that assisting this group of Finnish companies to go global hits a sweet spot in our service offering. Ulf-Henrik Kull & Ilkka Perheentupa Avance Attorneys Ltd Helsinki GTDT: Market Intelligence M&A 55

9 Foreign buyers are a constant phenomenon in the Finnish M&A landscape. known virtual data room providers. One distinguishing feature of the Finnish M&A landscape is that it is established market practice for all information included in the data room (that is fairly disclosed a concept defined in the relevant purchase agreement rather than just the specific details set forth in a disclosure memorandum) to constitute disclosure material for purposes of qualifying the seller s representations and warranties. This is something that foreign (non-nordic) parties are not used to and increases the importance of a high-quality data room process. We have represented the sellers in most of the significant sell-side transactions in Finland during the last three years. What we have found to be quite helpful in facilitating the sale process is for the sell-side to prepare a legal guidance memorandum (rather than a traditional vendor diligence report) to provide buyer candidates with an overview of the target business and key issues from the legal perspective, and a guide to the materials provided in the data room. This has become quite an established feature in recent exit processes. In terms of other developments, we are seeing increasing use of M&A insurance, particularly in cases involving private equity funds. The product can be useful as a competitive tool for bidders in contested auctions as it allows them to present a clean exit to the seller (given that the buyer will be looking to insurance in case of any post-closing loss). Sellers may also instruct buyer candidates to make a pre-arranged insurance solution a staple part of their bid package. We have also made use of M&A insurance in industrial joint ventures where the parties contributing assets to the joint venture have different financial ability or willingness to back up possible claims. In these situations, where both parties obtain M&A insurance, it has proved an effective tool in placing the parties on a more equal footing and paving the way for more harmonious future cooperation. Although insurance companies may perceive the heightened risk of a conflict of interest where both parties of a transaction obtain M&A insurance, this dual insurance solution has been available on the market (even from a single insurance provider). GTDT: Are there any legal or commercial changes anticipated in the near future that will materially affect practice or activity in your country? U-HK & IP: We are not expecting significant legal or commercial changes in the near future. As already discussed, the main changes relate to pending industry-specific regulation and reorganisation that will have a significant effect on the commercial dynamic of the relevant industries, including, most importantly, the health and social care industry. As noted above, in an attempt to boost growth and productivity and to make the Finnish labour laws and market more dynamic, the new centreright government is proposing some fundamental changes to the existing regime. The new government is also expected to propose changes to the tax code and overall social benefits. These proposals, together with the handling of the overwhelming flow of refugees from the Middle East to the EU (including the Nordic region), are likely to dominate domestic discussion during the year ahead. GTDT: What does the future hold? What activity levels do you expect for the next year? Which sectors will be the most active? U-HK & IP: For the time being, we expect activity levels to remain quite high. It will be interesting to see whether there will be any more large industrial transactions like the ones that we have seen this year. Sectors that we expect to continue to be busy are energy and infrastructure and real estate, where there is a solid pipeline of planned transactions. We are also expecting some of the leading private health-care companies to come to the M&A or IPO markets as the period of investment from their private equity owners comes to an end. We also expect to see further consolidation and reorganisation of the Finnish industrial base. Many private equity sponsors have also raised new funds and have significant dry power to pursue attractive targets as they appear on the horizon (with most activity expected in the small to medium-cap market). To ease public sector finances, the new Finnish government is expected to continue to look for opportunities to divest some of its nonstrategic holdings. Certain new sectors will also continue to grow rapidly, including the mobile gaming sector. 56

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