1. Transaction Activity

1.1 M&A Transactions and Deals

As a well-regulated international finance centre, Jersey continues to deliver innovative and highquality downstream acquisition and investment fund structuring solutions to global private equity and sector-focused institutional sponsors

Strong top sponsor appetite remains for infrastructure opportunities that attract greater potential for value creation over the life of an asset. Such transactions may involve more upfront cost and complexity. One key attraction for maintaining a stable of infrastructure assets is the "best in class" investor return prospects they have the potential to achieve.

An increasing number of sponsors are putting investor capital to hard work through innovative minority (GP) stakes deals. In these deals, a larger sponsor acquires economic rights in smaller scale private equity operators. Drivers behind these types of investments include the optimisation of GP/manager and performancerelated income streams and a need for permanent capital among mid-market buyout groups.

The mid-market landscape has been the most competitive and possibly overcrowded segment of the global private equity market in recent years, with the considerable pressure on increasing investor returns continuing unabated. As a result, the constant pace and number of participants involved in pre-emptive bid and conventional auction processes persists.

This chapter provides an overview of the key trends and features of private equity transactions in Jersey and those involving Jersey-registered vehicles – ie, an acquisition (or disposal) where the buyer (or seller) is a special purpose vehicle owned and controlled by a private equity fund

1.2 Market Activity

Domestic market activity in Jersey is dominated by private equity involvement in financial services sector businesses, such as professional corporate services and trust company businesses, which are the target of primary, secondary or tertiary private equity investment. 2021 and 2022 have also seen reasonable levels of trade sale M&A, with certain standout transactions triggering significant consolidation in the trust and corporate services industry. Global banking businesses with a Jersey footprint also provide non-core business carve-out opportunities for private equity sponsors in the local financial services sector.

Separately, a sustained use of Jersey vehicles by leading private equity sponsors investing in larger scale primary cross-border deals across 2020 and 2021 saw the most significant sector growth in infrastructure, and in the following asset sub-classes in particular:

  • biotech;
  • broadband internet service provision;
  • refuse and recycling;
  • midstream oil and gas; and
  • transport and motorway services.

2. Private Equity Developments

2.1 Impact on Funds and Transactions Jersey Funds Regimes for Private Equity Funds

The Jersey Private Funds (JPF) regime that was introduced by the Jersey Financial Services Commission (JFSC) in 2017 has become an increasingly popular regulatory regime for structuring private equity funds in Jersey. More than 550 JPFs had been established by the middle of 2022, with particular application for funds with up to 50 investors.

The JPF regime is streamlined and flexible, with a 48-hour online authorisation procedure, and is subject to a light regulatory touch but without compromising investor protection. JPFs are aimed at professional investors, high net worth investors or investors committing at least GBP250,000 (or equivalent). For more widely marketed private equity funds, the Jersey Expert Fund regime also remains popular – it has no upper limit on number of investors, and a commitment level of at least USD100,000.

As private equity funds are typically closed-ended funds, the attraction of the JPF and expert funds for speed of establishment, together with appropriate and proportionate regulation for the sophistication of the investor base, continues to position Jersey favourably for fund establishment by both existing and new sponsors. The total net asset value of regulated funds administered in Jersey rose by almost a fifth in 2021, reaching a record level of just over GBP459 billion. At the start of 2022, the alternative asset classes, which now represent 89% of total funds business in Jersey, continued to see new activity, with private equity and venture capital in particular increasing by 27% over the year.

The continuing effect of the pandemic and other economic factors on fundraising by sponsors has been mixed – larger, well-known sponsors and mid-sized groups with strong existing platforms (and investor bases) have continued to fundraise. Although conditions have been more challenging for new and smaller investment groups, there has been evidence of those with strong investor bases being able to proceed with the raising of successful, small first funds and club deals, which correlates to the continued growth in the number of JPFs.

Limited Partnership Amendments

Jersey limited partnerships (LPs), which are governed by the Limited Partnerships (Jersey) Law 1994 (the "LP Law"), have long been popular with both fund managers and lenders to fund structures, and are the most common legal form used for private equity funds. The Limited Partnerships (Amendment No. 2) (Jersey) Law 2022 came into force on 12 August 2022 (the "2022 Amendments"). Broadly, the 2022 Amendments provide for the following, among other things:

  • an annual confirmation statement to be filed with the Registrar confirming certain matters (including that the matters in its original declaration of limited partnership have not changed);
  • changes to the process of winding-up and dissolution of a limited partnership;
  • changes to the repayment obligations of limited partners; and
  • additional safe harbours for limited partners not to be considered to be participating in the management of the limited partnership.

In addition, there is express recognition that rights can be granted to a third party in a limited partnership agreement (LPA) (such as an investment manager) and are directly enforceable by that third party, which is an exception to the usual rule regarding privity of contract.

Third party rights

The 2022 Amendments have put the ability for third parties to benefit from and enforce rights in LPAs without being a party to the LPA on a statutory footing. They also restrict any amendments being made to such third party rights without the consent of the relevant third party. This will give useful comfort to lenders seeking to include negative controls in an LPA.

Originally Published by Chambers and Partners

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