In July, global offshore firm Appleby announced the management buyout (MBO) of its fiduciary business for an undisclosed sum, backed by private equity house Bridgepoint. Completion is subject to regulatory and legal approvals, but is expected to wrap up by the end of 2015.
According to group chair Frances Woo, the sale had been considered for some time, so that the fiduciary arm could continue to develop new products while the legal side could invest in new technology and knowledge management going forward.
Appleby is not the first firm to travel this road; there has been a steady trickle of fiduciary business disposals by offshore law firms, particularly to private equity, in the last couple of years. In 2014, Ogier Fiduciary Services’ (OFS) partners completed the MBO of OFS – now branded Elian – from the Ogier Group, backed by Electra Partners for £180m.
But while some are disposing of their fiduciary arms, others are reacquainting themselves with this business line again. In June, in response to client demand for registered corporate and company secretarial services, Cayman-based Walkers launched Walkers Professional Services (WPS) in Cayman, Dubai and Hong Kong, three years after selling off Walkers Management Services (WMS) to Intertrust Group.
Fiduciary businesses generally provide trust, fund and company administration services to corporates, private clients and investment funds, fielding specialists – often across multiple jurisdictions – from disciplines including administration, compliance, accountancy, chartered secretarial and banking. As part of a desire to offer key clients a one-stop shop, law firms began to offer fiduciary services to clients as far back as the 1970s. It was not until the 1980s and 1990s that these service lines developed into fully fledged, discrete areas of business for law firms.
In corporate administration, for example, the service includes providing a company secretary and directors, resident representatives and a registered office, in addition to maintaining records and advising on legislative changes in the jurisdictions that impact on the company’s statutory requirements. In trusts, fiduciary businesses establish trusts and offshore companies, including private trust companies, and administers them. The funds offering includes establishing and incorporating offshore fund structures, and liaising with the regulatory authorities.
The contrasting approaches taken by offshore firms towards fiduciary services show that no single strategy suits all and that nothing is set in stone. But it is a win-win scenario for offshore law firms all round – industry consolidation leading to acquisitions and disposals of fiduciary branches by both legal practices and trust and corporate services providers are providing offshore law firms with lucrative deal work as well.
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Appleby Fiduciary & Administration employed over 250 people worldwide prior to the disposal, while Appleby, the law firm, had around 500 staff last year. At the time of Walkers’ WMS sale, it generated annual sales in excess of $50m. Fiduciary also provides vital instructions from clients as well as a steady flow of revenue.
With larger organisations coming into the fiduciary market, such as Sanne – which began trading on the London Stock Exchange in April following its successful £141.6m flotation – Intertrust, Elian and organisations such as First Names growing quickly through acquisition strategies, the fiduciary market is becoming more consolidated and more difficult to compete in. ‘This has made it more important than ever for the sector’s main players to be in a position to compete powerfully,’ adds Woo.
Dealwatch: offshore funds and private equity deals dominate
In July 2015, Jersey and Guernsey were recommended for priority assessment by the European Securities and Markets Authority (ESMA) with a view to granting them full EU Alternative Investment Fund Managers Directive (AIFMD) passports. Their selection is testament to their international importance as fund domiciles – which together have over £500bn of assets under management – and of their standing as internationally co-operative and transparent jurisdictions.
‘For Jersey to be included in the first wave of “third non-EU countries” to receive this recommendation was clearly a fantastic endorsement of its foresight, regulatory framework and expertise as a funds centre, particularly underlining its position as a specialist centre for alternative funds benefiting European investors,’ says Jersey Finance’s chief executive, Geoff Cook.
Jersey has also enjoyed a period of hedge fund migration, with many of the largest European hedge fund managers such as BlueCrest and Brevan Howard establishing significant offices in Jersey.
‘Jersey’s financial industry has been working with Jersey’s financial regulator for the last five years to improve regulation and education, in order to attract hedge funds and hedge fund managers to Jersey,’ Mourant Ozannes’ partner Joel Hernandez tells Legal Business.
Recent high-profile instructions for the islands include Carey Olsen partner Ben Morgan advising Dutch private equity firm Waterland Private Equity Investments on its sixth fund, which closed in April 2015 following a successful €1.55bn fundraising after just three months in the market.
In the same month, Ogier’s partner Niamh Lalor advised Intermediate Capital Group on its latest fund, ICG Europe Fund VI, which closed on its hard cap of €3bn, raised in just seven months; and in May, Mourant Ozannes’ partner Darren Bacon acted as Guernsey legal adviser to iCON Infrastructure on the successful launch of its third fund, a Guernsey-registered closed-ended investment scheme with €800m in commitments.
Channel Islands firms have also enjoyed instructions on a series of acquisitions of financial services companies by the private equity sector. ‘The uptick in such transactions reflects an increased confidence in the offshore service provider sector’s profitability, based on a return of confidence for new structures, new funds and further investment capital,’ says Collas Crill managing partner Jason Romer.
Headline instructions include Mourant Ozannes partner Mark Chambers advising Praxis Holdings on its January 2015 merger with Jersey-based IFM Group, the newly-formed group to be one of the largest independent and owner-managed financial services groups headquartered in the Channel Islands, with more than ¤30bn in assets under administration. Appleby’s corporate practice group head in Jersey, Wendy Benjamin, and Guernsey counsel Kate Storey, acted for IFM Group.
Offshore law firms in the Caribbean also continue to enjoy significant growth across their global funds practice, including debt and distressed debt funds. ‘We continue to have numerous existing clients and prospects exploiting this sector in terms of new and ongoing products globally,’ says Appleby’s Cayman managing partner, Bryan Hunter.
Key instructions for Appleby have included Hunter acting for Stabilis Capital Management in November 2014 on the establishment of a $540m real estate and distressed debt fund. ‘Interest in this new fund was so high, room had to be made for an additional $40m in commitments,’ says Hunter.
According to Walkers partner Philip Paschalides, institutional investors continue to select Cayman as the offshore jurisdiction of choice. ‘This, combined with the strength and expansion of the private equity sector over the last several years, has led to a significant increase in the use of Cayman entities in M&A and general corporate structuring,’ he says.
In particular, de-listings and take-privates have increased activity. One reason is that the cost of regulation associated with being a public company is now greater, or at least perceived to be greater, than ever before. Companies feel that the benefits of a listing may not justify the increased regulatory costs and burden. Other factors include more debt being readily available from financial institutions, which lessens the need for equity financing. Furthermore, certain companies feel they are undervalued by the stock market, particularly companies with Chinese or Asia-located operations, while take-privates are being used as a means by which listed companies may be acquired.
Deal examples include Walkers’ Ramesh Maharaj leading as offshore counsel to target Coastal Energy on its $2.2bn 2014 sale to Compañía Española de Petróleos (CEPSA) and Strategic Resources (Global), the transaction made possible by Cayman’s merger regime, which allows a buyer, with the backing of the board of the target company, to acquire 100% control of a Cayman company in a relatively short timeframe. Conyers Dill & Pearman acted for CEPSA and Strategic Resources, led by Richard Fear and British Virgin Islands office head Robert Briant.
Transactions involving Asian offices included Walkers’ Hong Kong partners Arwel Lewis and Paul Aherne acting as Cayman counsel to The Baring Asia Private Equity Fund V on the 2014 takeover of New York Stock Exchange-listed Chinese online game developer Giant Interactive – the transaction’s total value was around $3bn. Conyers acted as Cayman legal counsel to Giant Investment and Maples and Calder’s Cayman office advised Giant Investment’s special committee.
Added value
Appleby’s combined legal and fiduciary sides had both grown successfully but the firm wanted to find the right way for both businesses to grow further, with the law firm flourishing on a standalone basis.
‘The fiduciary business could not have grown as quickly as it will grow with this level of capital investment, under our own flag, because we would not be able to generate this level of capital as quickly as we can with this private equity injection,’ says group managing partner, Michael O’Connell.
According to Collas Crill partner Joss Morris, the reason behind these disposals generally boils down to the original law firm owners realising the value from these businesses, which have been built up over several years and have become attractive assets, particularly to private equity firms.
‘Historically, fiduciary businesses have posed a barrier to consolidation,’ says Mourant Ozannes global managing partner Jonathan Rigby. As offshore law firms continue to expand across competing jurisdictions and the likelihood of consolidation increases, those firms that have removed this issue may find themselves in a more straightforward merger environment.
Mourant du Feu & Jeune disposed of its own corporate, fiduciary and funds businesses in 2009, ahead of its merger with Ozannes in 2010 to form the current firm. It then established a new corporate services arm in 2013.
Collas Crill senior partner Chris Bound says that fiduciary services arms will always be a critical factor in merger talks, as they were ahead of his firm’s merger with Cayman firm Charles Adams Ritchie & Duckworth (CARD) in January 2015: ‘Where a merger between legal service providers involves not only the legal partnerships themselves but also additional entities, especially separately regulated service providers, this inevitably creates additional dialogue and action points which may complicate matters. The merger between Collas Crill and CARD was a strategic decision for both businesses, managed by a dedicated and professional management team.’
According to Morris, history suggests that once the relevant restrictive covenant periods relating to disposals have expired, most law firms operating in this space will revert to some level of fiduciary business – usually citing client demand – and law firms remain ideally placed to generate the relevant clients and continue to build up these businesses.
Since WMS’ sale in 2012, Walkers says it has assessed the corporate services market and listened to its clients to better understand what services they want and how they want them delivered. ‘The overwhelming feedback was that certain of our clients want us to provide these services and that is the genesis of WPS,’ says Pierce.
With an increased regulatory and compliance burden, clients are increasingly relying on quality information being delivered internally or by their providers. Consequently, Walkers designed its systems not only to capture such information, but continually to check it against internal and external databases in order to assist clients in meeting their filing and reporting obligations.
‘We believe that clients are seeing huge benefits with improved filing, regulatory compliance and report generation,’ says partner Tim Buckley, who was integral in WPS’ set-up.
The recent re-entry into the corporate services sector also marked an important development for Walkers’ Asian business, which has well-regarded asset and structured finance teams in Hong Kong and Singapore. ‘The ability to offer corporate, fiduciary and Foreign Account Tax Compliance Act (FATCA) services to Cayman entities in aircraft and structured finance transactions has been well received by the market in Asia,’ Pierce says.
Other offshore firms are strengthening their existing fiduciary branches. The fiduciary arm of pan-Channel Islands firm Bedell Cristin, expanded its international presence through growth in Asia. In September 2015, Bedell Trust acquired a majority stake in Singapore Trust Company (STC), a well-established fiduciary and corporate services business in Singapore.
Harneys Fiduciary (HF) – rebranded from Harneys Services as of October 2015 – head Ross Munro, who splits his time between London and the British Virgin Islands, says that HF views the relationship between its fiduciary services arm and related law firm as a major selling point.
‘Many clients need high-quality legal services to complement corporate and trust services with a provider that can provide advice on issues as diverse as automatic exchange of information, regulatory requests, sanctions and complex transactions,’ he says.
Given the upsurge in demand for its corporate services across various markets, HF has made significant strategic investments in the past two years, including the recruitment of several fiduciary and compliance experts. It has also introduced a range of new products, including Cayman trust services – obtaining a trustee licence earlier this year – and launched offerings designed to serve the international business sector in Barbados and Hong Kong.
Deal flow
In addition to law firms’ disposals of their fiduciary businesses giving rise to corporate work for other offshore firms, there has been an uptick in M&A generally in the fiduciary sector.
The Channel Islands’ M&A trust and fiduciary sector is faring particularly well; it still has a comparatively high proportion of small independently-owned trust companies providing potential for consolidation and growth through M&A.
The acquisition of a small, well-run trust company is also seen as an easier way to break into markets such as the Channel Islands than setting up a greenfield operation – and private equity buyers are looking to consolidate and scale up their interests. Furthermore, having a multi-jurisdictional presence is key to growing market share for larger groups and there are also significant benefits for local businesses when they become part of an international group, says Carey Olsen partner Natasha Kapp.
Ogier partner Matthew Shaxson tells Legal Business that he and his corporate colleagues have seen increasing traffic to Ogier in this sector, including acting for the unnamed acquirer of Barclays’ offshore fiduciary business – which at the time of writing remains subject to regulatory approval – across three jurisdictions in which Ogier provides legal advice. In September 2015, Shaxson also led the advice to Elian on the Jersey aspects of its agreement to buy SFM Europe, a provider of corporate services with more than €1trn of assets under administration.
Shaxson expects further activity in this sector. ‘As one of the few law firms without an investment in the administration market, we will continue to pick up work in this area,’ he says.
Recent high-profile fiduciary sector deals for other Channel Islands firms include Carey Olsen’s Konrad Friedlaender and Kapp advising Ardel Holdings on the February 2015 sale of Ardel Trust Company (Guernsey) to Equiom Group for an undisclosed value. Collas Crill partner Paul Wilkes advised Equiom.
Meanwhile, Collas Crill partner Nicholas Davies also acted for Equiom on the May 2015 purchase of Lloyds Trust Company (Channel Islands) and its subsidiaries from Lloyds Holdings (Jersey), while other significant deals for Carey Olsen include partners Mike Jeffrey and Graham Hall advising JTC Group on the due diligence, regulatory and legal aspects of its acquisition of Kleinwort Benson’s fund administration business in July 2015. Mourant Ozannes partner John Lewis acted for Kleinwort.
The focus is well and truly back on fiduciary services for offshore firms right now. Whether it is acquiring new business to better service clients or disposing of their businesses to release funds, or simply picking up solid instructions from a burgeoning M&A market, it seems that fiduciary services have never really been off the agenda. With greater competitiveness and further consolidation expected, more high-profile transactions are expected. LB
julian.matteucci@legalease.co.uk