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BVI’s M&A environment still as buoyant as ever

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Despite being a relatively new entrant to the BVI, global law firm Mourant Ozannes is fielding its fair share of enquiries in relation to fund formation. The firm established its BVI office with Corporate, Finance and Litigation practices in 2012, followed 18 months later by its investment funds practice. 

Rachael McDonald (pictured), Managing Partner, Mourant Ozannes (BVI) believes that the recent introduction of the approved and incubator funds will prove to be a great addition to the BVI's funds armoury: "We're seeing our fair share of enquiries and new instructions with respect to these funds. Both products are being well received by investment managers," says McDonald. 
 
Historically, the BVI has always been thought of as the world's leading offshore corporate domicile and M&A centre. Its funds industry has tended to play second fiddle: one only has to refer to the numbers to appreciate this – there were over 475,000 active BVI companies as of Q3, 2015. By comparison, there were just over 1,460 professional funds. 
 
Hopefully, the recent fund evolution will allow BVI to further appeal to emerging managers, but its funds industry is unlikely to achieve parity with its corporate appeal. 
 
"We are all working hard to promote its virtues, and that was really the point of introducing the two fund products. But it's worth pointing out that there are cultural differences between users of BVI products. In Asia, we don't see a BVI fund product being used too often. For example, in the private equity space an Asia-based asset manager will tend to use a Cayman fund with a number of investments in BVI companies. So we do see that downstream work involving BVI in a fund product. By comparison, in Latin America we see more start-up fund managers considering the BVI as a viable option for an incubator fund, or an approved fund. They are comfortable and prefer to have a BVI fund," explains McDonald. 
 
On the corporate side of things, McDonald is encouraged by more North American private equity work involving BVI companies. One particular transaction was for Peppertree Capital, who entered into a joint venture arrangement to invest in a number of telecommunication towers across Latin America. A BVI company was used to structure the joint venture. Part of the decision making, says McDonald, was ease of use and a preference for the way the BVI's companies law works. "There was also some historical comfort among Peppertree's investors with using BVI companies. One of the reasons why BVI is so well favoured is because its companies law is clear and flexible for use by international participants. 
 
"Our final court of appeal is the Judicial Committee of the Privy Council of the United Kingdom. This gives investors a lot of comfort that any disputes they hear will be done through a reputable judicial system. Also, the BVI has a specialist commercial court, which has a formidable reputation for being very efficient and handing down sensible decisions."

One of the BVI's biggest markets is Asia Pacific. It is estimated that Asia is home to approximately 50 per cent of all companies incorporated in the BVI, with McDonald confirming that in China, it remains the preferred corporate vehicle of choice. For Asian private equity groups, or multinational corporations looking to acquire companies with a view to structuring a future IPO, the BVI appeals because BVI companies are eligible to list on many of the world's leading stock markets: from the London Stock Exchange and the New York Stock Exchange, through to the Singapore Stock Exchange and Hong Kong Stock Exchange. 
 
Back in June 2014, Tianhe Chemicals Group Ltd listed on the Hong Kong Stock Exchange. Raising USD654 million, it became the largest listing of a BVI company in Hong Kong. 
 
That said, there is plenty of M&A activity coming out of Europe at present, especially as fund managers and institutional investors look to acquire real estate assets.

"Talking to my other corporate and finance partners, we are feeling fairly positive that M&A activity will be strong in 2016, not just in the UK but across European real estate, on the financing and refinancing side as well as the acquisition side," says McDonald. 
 
Utter the words `UK real estate" and there's every chance Mourant Ozannes will be involved in some capacity. "We are doing a lot of work with our Jersey and Guernsey partners in Mourant Ozanne's corporate and finance practice on acquisitions of commercial and residential real estate in the UK, and refinancings of debt on the assets of property in the UK and, to a lesser extent, across Europe," confirms McDonald.

Mourant Ozannes counts a large number of sovereign wealth funds and pension funds among its clients, in addition to fund management groups and corporates. Again, the interest tends to be among Asia-based investors, although McDonald adds that the team has recently been working with a couple of Canadian pension plans to acquire European real estate.

"The BVI companies are already in existence, either within the purchaser's structure or as part of the acquisition that is about to be made. We therefore get involved on the due diligence side, and on the financing side, with the BVI companies. Sometimes we might get involved on both sides of the deal if both the purchaser and the seller have a BVI company; it varies on a case-by-case basis. 
 
"Last year, we worked on a large deal with a Canadian pension plan whereby they acquired a portfolio of properties in the UK. The acquisition comprised of approximately 30 separate BVI companies and totalled in excess of GBP1 billion so it was quite a significant deal. 
 
"We also act for members of various royal families around the world who use BVI companies as part of their family office to acquire, for example, London residential properties," states McDonald. 
 
Aside from real estate, McDonald anticipates that infrastructure could prove to be of real interest to investors in 2016; in particular, Latin American infrastructure assets. In Mexico, for example, the privatisation of some of its infrastructure assets is already in train such as its state-owned oil and electricity companies, who are fast in need of outside investment. 
 
"The overall situation in Latin America is quite exciting from an offshore perspective. We should see more joint venture vehicles being established and I wouldn't be surprised if there are offshore entities already involved in terms of owning those assets. There will be opportunities to be advising on financing of these acquisitions also," suggests McDonald. 
 
Barring any significant natural disaster, serious stock market crash or major currency correction that impacts investments, the offshore markets should hopefully remain buoyant in 2016. Jurisdictions like the BVI are a vital cog that keeps the wheels of the global economy turning. 
 
"We facilitate global business, at the end of the day, and make investment as efficient as possible," concludes McDonald.

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