City lawyers are hoping that last week's £1.3bn Generale de Sante/General Healthcare management buyout will mark the beginning of a stream of large deals packaged in London for Continental targets.
The deal, finalised last week, saw French utility conglomerate Generale d'Eaux sell its French and British healthcare subsidiaries, Generale de Sante and General Healthcare, to management. The deal was driven by London venture capital house CinVen.
“There's going to be a massive amount of business,” said Stephen Mostyn-Williams, who is head of banking and finance at Ashurst Morris Crisp and acted for Bankers Trust, which provided the senior debt.
“There is bound to be a flow of large deals,” added Charles Martin, partner at Macfarlanes, acting for Generale d'Eaux.
According to City lawyers, the deal is part of a trend. On the demand side are Continental companies in the process of being broken up. Recession is squeezing conglomerates, some of which have recently been privatised, forcing many to divest non-core businesses, while family enterprises are being sold off by the younger generation.
There is also a shift in attitude among shareholders on the Continent who now seek more immediate cash returns. Matthew Layton, a partner in the MBO team at Clifford Chance, said: “They are starting to demand Anglo-Saxon performance.”
On the supply side are UK and US banks looking for high-margin, low-risk business that large divestments can offer.
Apart from venture capital houses such as Doughty Hanson, Candover and CinVen, investment bank Schroders has raised £1bn to invest in Continental restructurings, while Charterhouse and CVC are among houses which have raised similar amounts.
“UK venture capitalists have had good rates of return in recent years,” said Martin, “which means they are now able to raise large amounts of money. It is more than is needed for the UK economy, while the imperative to restructure on the Continent is more pressing.”
“The large venture capital funds are looking to Continental Europe for high value transactions,” said Layton. “The UK is highly competitive and the vendors and their advisers are aware of that competition.”
The call on City lawyers relates to their longstanding relationships with London finance houses. But more important is the skill involved in putting together a complex loan and equity package.
“The financing is multi-layered,” explained Mostyn-Williams, “and there are three or four London firms which are the only ones in Europe with the right experience.”
Layton added: “One of the key drivers in these deals is new and innovative financing, and in terms of advisers the UK has more expertise.”
James Davis, the partner at Freshfields who led the team advising CinVen, said most of the financing documents were written under English law. “The banks in these very big transactions look to English or New York law,” he said.