Interest from private equity investors means that trust and corporate service providers are often targets for M&A activity.
Jonathan Heaney, the managing partner of Walkers' Jersey office, has worked on many significant deals for regulated service providers advising both buyers and sellers, and leading teams of lawyers not just from different legal disciplines but also different jurisdictions.
In this Q&A, Jonathan explains why M&A deals involving trust and corporate services providers needs specialist legal support.
Why are M&A deals for trust and company services providers different from typical M&A work?
There are a few reasons – they tend to have a wide geographical footprint that follows, or partly follows, our own footprint of offshore jurisdictions; they tend to involve a complex multi-jurisdictional regulatory picture and ultimately they require the input of lawyers from across a range of practice areas. These transactions also involve lengthy and detailed due diligence exercises in respect of the client books which are essentially the real asset that is being bought and sold.
Transactional legal support tends to span a range of activities very similar to our own practice areas and skill sets. A typical target often has a number of divisions: corporate services, trustee services, fund services and administration. As a result, the technical legal knowledge required encompasses a range of disciplines. Besides the corporate M&A work, the due diligence exercise (whether vendor or purchaser driven) requires specialist expertise, including employment, pensions, dispute resolution, regulatory, property, trusts, investment funds and general commercial contract knowledge. In addition, many deals are leveraged requiring support from our Banking & Finance lawyers.
There has been a lot of consolidation within the industry, and there are still very high multiples. Private equity buyers remain interested with typical hold period ranging from 5-7 years. Having said that, we have seen some very quick turnarounds in the industry.
What is the role of the offshore lawyers in the process?
It's as much about project management of the offshore piece and knowledge of the legal framework in your jurisdiction as it is about pure M&A advice. We work very closely and as a team with lead onshore counsel and are generally expected to handle every element of, say, the Jersey and BVI law aspects of the deal. Being able to co-ordinate and formulate all of the required due diligence queries and data flow relating to the offshore elements and bring it all together into a concise report to that feeds into and complements that of onshore counsel is key to the successful progress of a transaction.
So from our side, there has to be management of different legal disciplines and the ability to provide a broad church of legal skills. This is a major plus point for the larger legal teams and there are not many outside of the top few firms here that can deploy that deep a bench.
Where does the offshore team fit into the wider advisory picture?
As is so often the case with our work, we're one of the advisers forming part of a wider advisory ecosystem that will include onshore counsel, accountants, regulatory consultants, and of course, the management of the companies involved.
A global corporate service provider acquisition necessarily demands a highly skilled and technical advisory team across a range of disciplines. Financial, tax, regulatory and legal advisors are all part of the professional team. Integral to the efficient operation of any team is knowing and sticking to your role. Our service offering include lawyers who have all worked with onshore firms recently, and who have experience of that environment, and how it all comes together from the onshore perspective. This is a big advantage. We know where our role stops and someone else's starts. We don't double up or "over –lawyer" the transactions. It goes without saying that the talent with whom we work on these transactions is exceptional.
We are generally instructed as a one-stop shop for all six of our jurisdictions – Bermuda, BVI, Cayman, Guernsey, Ireland and Jersey. One of the reasons that we have been successful is the combination of our geographical reach, the depth of our legal experience and our ability to essentially team up with the chosen professional advisors and project managing the offshore legal components of these deals.
What are the current trends with this kind of work?
There has been a lot activity, there continues to be a lot, and I expect that to carry on. The corporate service provider business model serves private equity ownership very well.
Values are largely driven by the number of clients in the book and the ability to generate annuity revenue streams at no or little marginal cost.
Underlying client due diligence is therefore key. The worst scenario for a buyer is that the client review is not strong enough and within 12 months the purchaser ends up exiting half the book because it does not meet, for example, the risk tolerances of the acquiring group.
This has the effect of focusing minds on the value of due diligence as an exercise – it is not just about knowing what you are buying but also knowing you have got the right price. Vendor due diligence exercises in a tender scenario have become commonplace. Effectively sell side due diligence coupled with the usual buy-side due diligence is therefore the norm.
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