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M&A beachcombers: no escape from longer due diligence

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imprima

 

2011 has been an interesting year for the M&A market in London.  Activities have been (understandably) subdued by the economic climate, while in September new rules were introduced by the UK Takeover Panel to make the M&A process more transparent. imprima
From our overview of the M&A marketplace we also observed that the due diligence process seemed to be taking longer, with more cross-border parties involved than ever before.  We noted more parties working on deals remotely, particularly on tablets, notebooks and smart phones.
In order to understand these trends in more detail, we undertook an online survey with our clients to uncover their views on the Takeover Panel rules, general due diligence, and how likely M&A specialists are to be working on deals remotely – even on holiday.
Remote working
Mobile devices have made it much easier to work on deals while out of the office – 89% of respondents said that they use a mobile to work on a transaction.  The most popular devices are Blackberrys (73.3%), iPhones (22.2%) and iPads (17.8%).
The percentage of deals involving multiple countries is now relatively high, with 12% of respondents reporting that 100% of deals that they had worked on in the past three years were international.  Only 5% said that 100% of deals involved only one country, while the highest proportion (29%) said that up to half of their transactions involved cross-border work.
The increased time and complexity involved in conducting M&A due diligence has led to nearly three quarters (72%) of deal makers working on a transaction while on their most recent holiday.
Due diligence challenges
According to the research, the majority (62.2%) of respondents said that the due diligence process had become more complex over the past three years.  A small minority (6.7%) said that the due diligence process had become less complex, with the remainder saying that they had not noticed a difference.  Greater complexities are likely to have been introduced by a number of factors, not least the increased risk aversion demonstrated by many companies.
There were similar responses to the question of whether the due diligence process has become longer or shorter over the past three years.  Well over half (57.8%) of respondents said that they spend significantly more time on due diligence, compared with just 6.7% who said that they took significantly less time. Just over a third 35.6% said that they hadn’t noticed any difference.
Stressed out
Given that respondents believe M&A deals are becoming more complex and time-consuming, it’s not surprising that the biggest cause of stress is lack of time.  More than a third (36.7%) named this as the biggest source of stress when working on a deal.  Only 4.4% of respondents said that spending too much time travelling was the biggest cause of stress, reflecting the fact that so many people can now work on deals remotely from tablets or smart phones.  The second biggest source of stress was highlighted as ‘other parties not delivering information on time’ (26.1%), followed by ‘poor or inaccurate documentation’ (21.7%) and ‘pressure from other parties’ (14.4%).
Impact of the Takeover Panel’s new rules
While 39.8% of respondents said that the new rules will achieve the Takeover Panel’s objective of improving the effectiveness and transparency of M&A activities in the UK, just over a quarter (25.5%) believe that they will actually have a detrimental effect on potential M&A activity.  Only 15.3% think the new rules will not make any difference to the way in which M&A activities are managed.  While it’s early days for the new regime, the rules are due to be reviewed and possibly extended to a wider group of listed companies in early 2012.
Almost half of respondents (43.3%) said that they thought the new Takeover Panel rules would make M&A activities more time-consuming, while 40.2% believe that they will make them more expensive.  Even worse, 16.5% of people said that they believed the new rules would help to drive M&A activities away from the UK to other financial centres.  So while most people thought that the rules would improve transparency, there are some fears that they will actually increase the cost of carrying out M&A activities or even lead to lost business.
The jury appears to still be out over whether the new Takeover Panel rules will be easy to enforce, with responses roughly split three ways.  As the regime becomes the norm for those involved in UK M&A activity, we will begin to see cases where the Takeover Panel takes action against those who fail to follow the rules.
One of the key points of the new Takeover Panel rules is that the identity of companies bidding for a target business should be made public, mainly in the interests of the target company and its shareholders.  However, the majority of M&A specialists (59.1%) believe that target companies should not be required to reveal potential bidders and should have the choice to keep them confidential.  One concern could be that the new regime makes it more difficult for prospective bidders to carry out due diligence procedures within the time limit of 28 days – after which they must make a formal bid or step back.
Conclusion
Our clients are clearly concerned about the extra time and expense involved in complying with the new regulations and most would like the choice to keep details under wraps.  While it appears that some potential targets may be able to win dispensation from the panel over the requirement to name bidders, in most cases we have to move with the times and adapt to the new rules.
Those companies that become more efficient in their M&A activities will be able to take advantage of this new regulatory landscape.  For bidding firms, these changes will place ever greater emphasis on the need to conduct due diligence as swiftly and efficiently as possible.
These new rules put the final nail in the coffin of old fashioned, paper-based due diligence in favour of virtual data rooms, which speed up the due diligence process by enabling review teams to work online, at any time, from anywhere in the world.

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Dollar edges lower as investors favor higher-risk currencies

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Dollar edges lower as investors favor higher-risk currencies 1

By Stephen Culp

NEW YORK (Reuters) – The dollar lost ground on Friday as market participants favored currencies associated with risk-on sentiment over the safe-haven greenback.

Risk appetite was stoked by better-than-expected economic data and expectations that U.S. President Joe Biden’s proposed $1.9 trillion coronavirus relief package will come to fruition.

“The dollar’s down against other currencies but not by a whole lot,” said Oliver Pursche, president of Bronson Meadows Capital Management in Fairfield, Connecticut. “I expect the dollar to be where it is now at the end of the year, and the main reason for that is while I see some signs of improvement in the economy, monetary policy is going to stay where it is.”

“I don’t think the dollar is underpriced or overpriced,” Pursche added.

For the week, the dollar slid about 0.2% against a basket of world currencies, the euro was essentially flat, and the yen lost more than 0.5%. But the British pound advanced more than 1.1% against the dollar, its best week since mid-December.

Bitcoin continues soar to record highs. The world’s largest cryptocurrency was last up 6.6% at $54,961.67, hitting $1 trillion in market capitalization.

Its smaller rival, ethereum, was last up 0.7% at $1,953.28.

The digital currencies have gained about 89% and 1,420%, respectively, year to date, leading some analysts to warn of a speculative bubble.

“One concern I’ve always had (about cryptocurrencies) is how susceptible they are to manipulation,” Pursche said. “But they’re going to continue to gain legitimacy.”

“While it’s great that Tesla made an investment in bitcoin, I’m more intrigued by Blackrock and other major investment firms taking a hard look at cryptocurrencies as a viable investment.”

The Australian dollar, which is closely linked to commodity prices and the outlook for global growth, was last up 1.21% at $0.7863, touching its highest since March 2018.

The New Zealand dollar also gained, closing in on a more than two-year high, and the Canadian dollar advanced as well.

Sterling, which often benefits from increased risk appetite, rose to an almost three-year high amid Britain’s aggressive vaccination program. It had last gained 0.27% to $1.40.

The euro showed little reaction to a slowdown in factory activity indicated by purchasing manager index data, rising 0.21% to $1.2116.

The yen, gained ground against the dollar and was last at 105.495, creeping above its 200-day moving average for the first time in three days.

(Reporting by Stephen Culp, additonal reporting by Tommy Wilkes; editing by Jonathan Oatis)

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Shares rise as cyclical stocks provide support; yields climb

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Shares rise as cyclical stocks provide support; yields climb 2

By Saqib Iqbal Ahmed

NEW YORK (Reuters) – A gauge of global equity markets snapped a 3-day losing streak to edge higher on Friday, as the recent selling pressure on high-flying big technology-related stocks eased even as investors showed a preference for economically sensitive cyclical sectors.

Oil prices fell from recent highs as Texas energy companies began preparations to restart oil and gas fields shuttered by freezing weather, while the U.S. Treasury yields extended their recent rise.

The MSCI’s global stock index was up 0.47% at 681.88, after losing ground for three consecutive sessions.

On Wall Street, stocks steadied as cyclical sectors edged higher while tech names made modest advances after concerns about elevated valuations led to some selling in recent sessions.

“What we saw (this week) represents a market that is tired and may not do very much. So we are headed for some sort of a pullback, but I don’t think we’re there just yet,” said Peter Cardillo, chief market economist at Spartan Capital Securities in New York.

“Investors are not really pulling out of the market, but they are becoming more cautious. It already has factored in another good positive earnings season.”

The Dow Jones Industrial Average rose 119.97 points, or 0.38%, to 31,613.31, the S&P 500 gained 12.93 points, or 0.33%, to 3,926.9 and the Nasdaq Composite added 92.58 points, or 0.67%, to 13,957.93.

The S&P 500 technology and communication services sectors, housing high-value growth stocks, were among the smallest gainers in early trading, while financials, industrials, energy and materials rose more than 1%.

European shares edged higher on Friday as an upbeat earnings report from Hermes boosted confidence in a broader economic recovery. The pan-European STOXX 600 index was 0.64% higher.

U.S. Treasury yields on the longer end of the curve rose to new one-year highs on Friday as improved risk appetite boosted Wall Street, while the yield on 30-year inflation-protected securities (TIPS) turned positive for the first time since June.

Core bond yields have pushed higher globally, led by the so-called reflation trade, where investors wager on a pick-up in growth and inflation. Growing momentum for coronavirus vaccine programs and hopes of massive fiscal spending under U.S. President Joe Biden have spurred reflation trades.

The benchmark 10-year yield was last up 5.1 basis points at 1.338%, its highest level since Feb. 26, 2020.

Oil prices retreated from recent highs for a second day on Friday as Texas energy companies began preparations to restart oil and gas fields shuttered by freezing weather.

Unusually cold weather in Texas and the Plains states curtailed up to 4 million barrels per day (bpd) of crude oil production and 21 billion cubic feet of natural gas, analysts estimated.

Brent crude futures were down 28 cents, or 0.44%, at $63.65 a barrel, while U.S. West Texas Intermediate (WTI) crude futures fell 66 cents, or 1.09%, to $59.86.

Copper jumped to its highest in more than nine years on Friday and towards a third straight weekly gain as tight supplies and bullish sentiment towards base metals continued after the Chinese New Year.

Spot gold XAU= was down 0.58% at $1,785.71 an ounce.

The dollar lost ground on Friday, extending Thursday’s decline as improved risk appetite sapped demand for the safe-haven currency and drew buyers to riskier, higher-yielding currencies. The dollar index was off 0.295%.

Bitcoin hit yet another record high on Friday, hitting a market capitalization of $1 trillion, blithely shrugging off analyst warnings that it is an “economic side show” and a poor hedge against a fall in stock prices.

(Reporting by Saqib Iqbal Ahmed; Editing by Nick Zieminski)

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Oil falls after surging past $65 on Texas freeze

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Oil falls after surging past $65 on Texas freeze 3

By Stephanie Kelly

NEW YORK (Reuters) – Oil prices fell on Thursday despite a sharp drop in U.S. crude inventories, as market participants took profits following days of buying spurred by a cold snap in the largest U.S. energy-producing state.

Brent crude fell 41 cents, or 0.6%, to settle at $63.93 a barrel. During the session it rose as high as $65.52, its highest since January 2020.

U.S. West Texas Intermediate (WTI) crude futures fell 62 cents, or 1%, to settle at $60.52 a barrel, after earlier reaching $62.26, the highest since January 2020.

Brent had gained for four straight sessions before Thursday, while WTI had risen for three.

“The market probably got a little bit ahead of itself,” said Phil Flynn, a senior analyst at Price Futures Group in Chicago. “But make no mistake, this selloff in oil doesn’t solve the problems. The problems are going to persist.”

Though some Texas households had power restored on Thursday, the state entered its sixth day of a cold freeze. It has grappled with refining outages and oil and gas shut-ins that rippled beyond its border into Mexico.

The weather has shut in about one-fifth of the nation’s refining capacity and closed oil and natural gas production across the state.

“The temporary outage will help to accelerate U.S. oil inventories down towards the five-year average quicker than expected,” SEB chief commodities analyst Bjarne Schieldrop said.

Prices dropped despite a decrease in U.S. oil inventories. Crude stockpiles fell by 7.3 million barrels in the week to Feb. 12, the Energy Information Administration said on Thursday, compared with analysts’ expectations for an decrease of 2.4 million barrels.

Crude exports rose to 3.9 million barrels per day, the highest since March, EIA said.

“The big nugget was the big jump in exports of crude oil,” said John Kilduff, partner at Again Capital in New York. “We’ll have to see what happens with that next week weather in Texas, but I have been looking for a pickup there for a while.”

Oil’s rally in recent months has also been supported by a tightening of global supplies, due largely to production cuts from the Organization of the Petroleum Exporting Countries (OPEC) and allied producers in the OPEC+ grouping, which includes Russia.

OPEC+ sources told Reuters the group’s producers are likely to ease curbs on supply after April given the recovery in prices.

(Additional reporting by Yuka Obayashi in Tokyo; editing by Emelia Sithole-Matarise, Steve Orlofsky, David Gregorio and Jonathan Oatis)

 

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