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International Corporate / M&A - Isle of Man

posted 1 year ago

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Garry Manley

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Garry Manley
Appleby (Isle of Man) LLC

Appleby’s corporate team is the largest in the Isle of Man and is consistently ranked as one of the leading Isle of Man corporate law firms. We advise a wide variety of local and international organisations, including major private equity and venture capital funds, listed companies, financial services businesses, tech companies and other large privately owned businesses and investment companies, on every aspect of corporate and commercial law. We have particular expertise and focus on mergers and acquisitions, financing transactions, corporate restructurings, joint ventures, capital markets and investment funds.

Included within our corporate team is the Isle of Man’s pre-eminent financial regulatory team, and our team is increasingly being called upon to assist regulated financial services clients with contentious regulatory matters, including regulatory investigations and enforcement proceedings, often working closely with our dispute resolution colleagues.

In terms of M&A transactions, our team works on a broad range of transactions, from purely domestic deals to complex multi-jurisdictional, multi-disciplinary deals, across a wide range of sectors. We work on almost all of the most complex and high-profile transactions touching the jurisdiction, including “public-to-private” transactions, private company acquisitions and minority investments.

Our team’s experience of change-of-control transactions involving regulated businesses and court-sanctioned transfers of deposit-taking and insurance businesses (a process similar to the UK Part VII transfer) is unmatched in the local market.

Isle of Man company law has its origins in English company law, so it is very familiar to lawyers from Commonwealth countries.

Companies can be incorporated under either the Companies Acts 1931–2004, which are based on the English Companies Act 1929, or the Companies Act 2006, which is a more modern and flexible piece of company legislation closely modelled on the BVI Business Companies Act 2004. The legislation under which a company is incorporated provides the legal framework for its operation in all areas, including in relation to mergers and acquisitions.

The City Code on Takeovers and Mergers applies in relation to takeovers of certain listed companies that are incorporated in the Isle of Man, whether structured as contractual offers or schemes of arrangement.

The Isle of Man life insurance sector has seen a lot of M&A activity in the last 12 months, with interest coming from a combination of private equity firms, strategic buyers and overseas insurance consolidators. We have also seen a number of private equity investments into corporate services firms, often in the form of secondary (or even tertiary) private equity sales. There has been a lot of interest in growth-stage technology businesses on the Isle of Man recently, and we receive a large number of regulatory mandates to advise clients on the regulatory implications of indirect changes of control of Isle of Man captive insurers.

Overall, an exceptionally busy run of M&A transactions has softened, partly as a result of the global macroeconomic uncertainty. That said, lucrative opportunities still exist for investors with strong balance sheets and the appetite to make investments during a period of uncertainty. We expect the continuing weakness of the pound to make mature local financial services businesses that have consistent cashflows particularly appealing, especially to US private equity investors.

Significant recent deals we have advised on have included:

• the $936 million acquisition by AIM-listed Kape Technologies Plc of ExpressVPN, a premium consumer VPN business;
• the £483 million sale by Quilter plc of its international life insurance business;
• the £467.9 million recommended cash offer by Starwood Capital Group for London Stock Exchange-listed Isle of Man company RDI REIT PLC;
• the $250 million acquisition by Gopher Investments of Finalto, the financial trading division of LSE listed Playtech Plc (the world’s largest supplier of online gaming and sports betting software);
• the investment by BGF (the United Kingdom’s most active growth capital investor) in Myzone, the Isle of Man-based global manufacturer of wearable fitness tracking technology, in a deal that valued the group at $102 million;
• the acquisition by international private equity firm Cinven of a majority interest in International Financial Group Limited, the owner of the RL360, Friends Provident International and Arden brands (remains subject to regulatory approval at the time of writing);
• the acquisition by Monument Re of LCLI International Life Assurance Company Limited and Charles Taylor Group’s other Isle of Man operations; and
• the acquisition by IPS-Integrated Project Services (a portfolio company of Alleghany Capital) of Isle of Man-incorporated Anchorbuoy Limited, the parent company of Linesight (a global consultancy firm).

We are currently acting as counsel to a startup fintech business called Blackfridge, which is the issuer of “poundtoken” (or “GBPT”). Poundtoken, which launched in the summer of 2022, is the first regulated GBP stablecoin to be issued in the British Isles.

Unlike some stablecoins, which are pegged to underlying currencies or assets by algorithms, GBPT is 100% backed by GBP held in GBP-denominated bank accounts so it is always redeemable 1:1 for pounds sterling. GBPT is also audited monthly by KPMG and verified in real time by an oracle Proof of Reserve to enhance collateral transparency.

Blackfridge is licensed by the Isle of Man Financial Services Authority to provide and execute payment services and to issue electronic money. It recently participated in a pre-A fundraise, and we are currently negotiating and documenting its internal shareholder arrangements and advising it on strategic opportunities.

There was a noticeable downturn in M&A deal activity in the second quarter of 2020, but that was quickly reversed as buyers identified opportunities to acquire businesses at depressed valuations. Unsurprisingly, we saw particular interest in the technology and logistics sectors – many logistics premises in the UK (warehouses, etc) are owned by Isle of Man companies that changed ownership in the second half of 2020 as major players increased their exposure to that sector.

For more than 18 months from the summer of 2020, there was an M&A boom in the Isle of Man. Deal activity softened in the spring of 2022 – consistently with the drop-off in M&A activity globally – but we have seen buyers start to return to the market at the end of October and start of November.

The Isle of Man is a very safe place to live and work, and as the world’s oldest continuous democracy, it is an exceptionally stable place to invest and to do business. However, as an international financial centre, the Isle of Man participates in a global marketplace – meaning the current high levels of inflation are as relevant to Isle of Man businesses as they are to businesses in the United Kingdom. M&A activity has softened since the second half of 2020 and all of 2021, partly as a result of global macroeconomic issues, but we expect the continuing weakness of the pound to make mature local financial services businesses that have consistent cashflows particularly appealing, especially to US private equity investors.

See our answer to question 3 for the sectors that are experiencing the most activity.

The drivers for investment in the life insurance and corporate services sectors are a combination of the target businesses’ strong balance sheets, solid cashflows and geographic diversification, the political stability of the jurisdiction (the Isle of Man is the world’s oldest continuous democracy) and, in the case of life insurers, the robust regulation that applies to businesses in the sector, which is based on the EU Solvency II regime.

On the client side, we work with a broad mix of local and international organisations, including major private equity and venture capital funds, listed companies, financial services businesses, tech companies and other large privately owned businesses and investment companies.

The target businesses involved in the transactions that we are involved with tend to be large, established businesses, but we also work with SMEs and startups, as discussed in our answer to question 4.

The Competition Act 2021, which received Royal Assent in October 2021, will introduce a merger control regime into Isle of Man law for the first time. At the time of writing, the relevant provisions have not yet been brought into force, and we await the publication of draft secondary legislation that will set out the financial thresholds or other economic criteria that will require notification.

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