With corporate lawyers finding their feet once more, Legal Business examines the often overlooked role of offshore firms in major global corporate and capital markets transactions
2014 has been the year where the corporate lawyer has begun to feel valued again. Take Dublin-based drug manufacturer Shire’s proposed £32bn takeover by US giant AbbVie, which is scheduled to close this year and pitches US/UK corporate heavyweights Sullivan & Cromwell and Herbert Smith Freehills opposite Davis Polk & Wardwell and Slaughter and May for Shire. But while those elite international firms make the headlines, the deal is to be implemented via a scheme of arrangement in Jersey, based on advice to Shire from a Mourant Ozannes team led by partner Robert Hickling, with Ogier’s Simon Dinning heading a team for AbbVie.
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According to Dinning, there has been increased use, particularly in Jersey and the British Virgin Islands (BVI), of court-approved schemes of arrangement to achieve corporate objectives. ‘This is often for tax or regulatory reasons; considering the pipeline of work that we have, it is a trend that looks set to continue,’ he says.
Deal levels continue their upward trend. The global M&A and initial public offering (IPO) markets experienced significant volume and dollar growth during the first half of 2014, with year-to-date worldwide M&A activity totalling $2.2trn, up 67% compared to 2013, according to Thomson Reuters.
And with the offshore world dependent on onshore deal activity, it has benefited greatly from the market’s revival. ‘After several years of global uncertainty, offshore M&A appears to be returning to steady growth,’ says James Hill, Mourant Ozannes’ Jersey finance and corporate head.
The IPO pipeline is also strong, following the same trend as the M&A market – there have been 257 global IPOs priced in 2014 to date, a 69.1% increase from last year, as reported by Renaissance Capital’s IPO centre.
As a result, there has been a marked increase in the number of businesses using offshore structures, primarily listing on the US exchanges, but also on other exchanges such as Hong Kong and London’s Alternative Investment Market. Offshore law firms present in the Caribbean, Channel Islands and Asia are, therefore, enjoying impressive transactional deal flows, and offshore corporate and capital markets lawyers are in demand.
Best placed
The Cayman Islands, increasingly important as an M&A jurisdiction, has particularly benefited from the deal resurgence.
Because Cayman structures offer a tax-neutral outcome, an accepted common law corporate governance regime and a robust court system, a developing trend over the last ten years for private equity has been to use Cayman, not just for the fundraising entities, but also for the subsequent joint venture and holding company entities.
The Cayman merger regime is also used for internal group restructurings, take-privates and strategic acquisitions. As a consequence of this exponential use of Cayman entities, there is a Cayman element to many major private equity transactions, says Walkers’ Cayman partner Tim Buckley.
He believes that we are only now seeing the beginning of the impact of the vast fundraisings, acquisitions and divestments that the world’s leading private equity houses have made over the past 18 months. ‘Because of the increasing use of Cayman as the structuring jurisdiction of choice, we expect this part of our business to grow the fastest in the coming years,’ he says.
Cayman companies are particularly popular in both public and private deals in Asia, one trend being the take-private of many Asian-centred businesses, listed through Cayman companies on US exchanges.
Of particular note has been the resurgence of Chinese businesses listing in the US. For example, using a Cayman vehicle, Chinese electronic commerce company JD.com – one of the largest business-to-consumer online retailers in China by transaction volume – raised $1.78bn from its listing on Nasdaq in May, in what was the largest-ever US IPO by a Chinese company.
Maples and Calder’s Hong Kong partner Greg Knowles, alongside Skadden, Arps, Slate, Meagher & Flom Hong Kong partners Julie Gao and Jonathan Stone, advised JD.com. Davis Polk & Wardwell partners James Lin, Li He and John Paton in Hong Kong, Beijing and London respectively, acted for the underwriters, Bank of America Merrill Lynch and UBS Securities.
In April, social media platform Weibo, known as ‘China’s Twitter’, also listed on Nasdaq through a Cayman vehicle, raising approximately $328m. Maples’ Knowles again acted as Cayman legal counsel to Weibo, with Skadden advising as US counsel, and Shearman & Sterling acting for the underwriters. However, both deals are dwarfed by Chinese e-commerce giant Alibaba’s $25bn IPO in September on which Maples also provided Cayman advice.
In addition to Cayman, Bermuda is attracting high-profile matters. The island is at the centre of the alternative risk transfer market, the growth of which has resulted in a greater share of the property catastrophe (CAT) reinsurance market being claimed by third-party capital from traditional reinsurers.
In May, Appleby’s Bermuda partner Alan Bossin advised on the largest CAT bond transaction in history, breaking new ground for the insurance-linked securities (ILS) market and ILS investors.
The $1.5bn issue, through Bermuda special purpose insurer Everglades Re, provides reinsurance coverage for Florida’s state-created property insurer, Citizens Property Insurance Corporation.
‘Many capital market programmes are structured for single events; however, this 2014 programme operates on an annual aggregate basis for three years, protecting the state-created insurer of last resort from multiple, smaller storms,’ says Bossin.
Conyers Dill & Pearman’s Bermuda office has also been instructed on major matters. Bermuda director Marcello Ausenda, alongside Davis Polk’s New York partner Richard Truesdell Jr, advised Markit on its June Nasdaq IPO, which was ten times oversubscribed at $1.3bn. Skadden’s New York partner David Goldschmidt acted for the underwriters and Gibson, Dunn & Crutcher’s London partner Jonathan Earle advised the selling shareholders.
Conyers’ BVI office has likewise advised on high-profile deals. Led by BVI partner Anton Goldstein alongside Skadden’s London partner Pranav Trivedi and Moscow partner Dmitri Kovalenko, the firm advised the underwriters on the IPO of Lenta, the Russian hypermarket chain. The listing resulted in Lenta becoming the most valuable publicly-listed BVI company, with a market capitalisation of around $4.3bn.
Ogier’s BVI partner Ray Wearmouth gave BVI legal advice to Lenta, while Cleary Gottlieb Steen & Hamilton’s Moscow-based partners Scott Senecal and Yulia Solomakhina, and London partner Raj Panasar provided Russian, UK and US legal advice to the chain.
Registered Jersey and Guernsey vehicles, like in the Shire and AbbVie example mentioned above, continue to be a popular option for those seeking a platform based in a secure and well-regulated jurisdiction with close links to the City of London. In Guernsey, infrastructure and renewable energy have been a particular focus for Mourant Ozannes, areas which rose in popularity during the first months of 2014, with the firm acting on several significant listings and launches on the London market.
Jersey, increasingly, is seen as the gateway to Europe for companies in overseas markets looking to tap into major European investor markets, particularly London. In the second half of 2013, according to recent data compiled by Appleby, the island saw an increase of 7% in company formations; and a 2013 report by Capital Economics showed Jersey acting as a conduit for £500bn of foreign investment into the UK.
‘Stability is the watchword for Jersey. It remains a jurisdiction of choice for corporate entities seeking to list, with the greatest number of FTSE 100 companies registered outside of the UK being registered in Jersey,’ says Geoff Cook, chief executive of industry body Jersey Finance. This success is built on Jersey’s attractive flexible company legislation, complemented by its tax neutrality, political and economic stability, and mature and respected regulatory framework.
Much of Jersey’s recent activity has focused on the real estate sector, reflecting the current strength of the UK real estate market, according to Mourant Ozannes’ Hill. In May, he acted, alongside Jones Day’s London partners David Smith, Giles Elliott and Alistair Grant, for Greystar Real Estate Partners (the largest operator of private rented accommodation in the US) in its acquisition of a £300m student accommodation portfolio in the UK.
Bedell’s London partner Bruce Scott, alongside Nabarro’s former London partner, Stewart Womersley, advised the seller, a joint venture between Oasis Capital Bank and Unite; and Taylor Wessing’s London-based finance partner Richard Williamson, advised as bank’s counsel to MetLife, which received Jersey legal advice from Ogier’s business and trust law partner Katrina Edge.
Ogier has also acted for buyers on major property transactions. Led by Jersey partner Raulin Amy, the firm assisted Intu Properties on Jersey law aspects of the structuring of its £867.8m acquisition of a 50% interest in the UK’s Merry Hill shopping centre, and 100% interest in Derby shopping centre and Sprucefield retail park from Westfield.
Intu was also advised by Macfarlanes’ London-based commercial real estate head Ian Nisse and corporate partner Graham Gibb, alongside Linklaters’ London-based partners William Buckley, Adam Fogarty and Jeremy Stokeld. The legal team for Westfield included Mourant Ozannes’ Jersey partner Gareth Rigby; King & Wood Mallesons SJ Berwin’s London-based partners Michael Goldberg and David Fitzgerald; and Freshfields Bruckhaus Deringer’s London-based partners Colin Hargreaves and Martin Hutchings, and London employment co-head Caroline Stroud.
In demand
Real estate is one area where a recent increase in transactional flow has led onshore firms to seek to build up their teams again after years in the doldrums. But across the board, the thirst for transactional lawyers seems unquenched, as seen by the high levels of lateral hires that have taken place in corporate and private equity in the City during 2014. However, demand for extra talent is at a premium among offshore firms as well.
Because most of the major Channel Islands firms have seen significant increases in corporate, finance and funds instructions in 2014, lawyers in these practice areas are highly sought after, according to Philip Jennings, London and offshore private practice head at global recruitment firm JLegal.
‘Although my clients in the region still generally require top-ten City firm experience, given the value and quality of the work they do, technically capable lawyers with a strong career history outside of the top-30 City firms are also being considered,’ he says.
However, in the Caribbean, although there is still a good deal of high-quality work coming to Bermuda, BVI and Cayman, he believes top-ten City or US law firm experience is generally a prerequisite.
Large numbers of high-value global deals needing specialised offshore legal advice are on the table again. But the battle to gain advantage by attracting top-level talent and the attention of the major players in the largest international finance centres could be over before it even really begins. It’s time for the corporate and capital markets teams at offshore firms to unfurl their feathers and soar again. LB