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Dealwatch: US firms take lead in quartet of Covid-driven transactions as bounceback continues

Another prolific week in the deal world has seen US advisers dominate on an eclectic mix of transactions driven largely – and for different reasons – by the ongoing coronavirus crisis.

Advent’s €1bn investment in the UK and German businesses of delivery company Hermes, Bayer’s acquisition of KaNDy Therapeutics, the restructuring of cash forex provider Travelex and Stormlight’s investment in Swansea City FC have all assuaged fears of a market slowdown.

A Kirkland & Ellis team, led by London dealmaker Adrian Maguire and Ben Leyendecker in Munich and including London debt partner Chris Shield, advised private equity house Advent as it bought a 75% stake in Hermes UK and a 25% stake in Hermes Germany from conglomerate Otto Group.

A Milbank team, led by Munich corporate partners Norbert Rieger and Sebastian Heim and including London corporate partner Lisa O’Neill, acted for the seller along with a host of antitrust and tax lawyers in London and Munich.

Priestly Soundy advised the senior management of Hermes, which will continue to lead the business as an independent company.

While this is not strictly a ’Covid deal’, with the wheels having been put in motion pre-lockdown, it can hardly be denied that the investment is timely, given the huge uptick in demand for delivery services as people shopped at home during quarantine. Hermes UK said that it expected parcel volumes to reach record levels during Black Friday and at Christmas.

While private equity has doubtless been hit by the crisis with some PE houses holding back on transactions while they analysed their portfolios and assessed the financial impact of their assets, playmakers are hoping that availability of debt returning from unitranche lenders and a backlog of stalled deals could see markets bouncing back in September or even sooner.

Striking a completely different note, German healthcare and life sciences giant Bayer acquiring KaNDy Therapeutics also made a splash, with the buyer paying $425m upfront, up to $450m in development milestone payments and ‘triple-digit millions’ in commercial milestones.

The deal was right in the wheelhouse of Goodwin’s vaunted London life sciences practice, with the UK-based biotech KaNDy Therapeutics and its shareholders calling in a team led by Graham Defries for the disposal. Meanwhile, Hugo Stolkin led a Linklaters team advising Bayer.

KaNDy Therapeutics is a private clinical-stage biotech that was founded in 2017 as a spin-off from NeRRe Therapeutics and backed by Advent Life Sciences, Fountain Healthcare Partners, Forbion Capital Partners, OrbiMed and Longitude Capital.

The company recently completed phase two clinical trials of NT-814, a non-hormonal drug that is being developed to remedy symptoms of the menopause. The phase three clinical trial is expected to start in 2021 and, once approved, the treatment could generate peak sales potential of more than €1bn globally.

Defries spoke to Legal Business shortly after the deal signed and pointed to the unusually large scale of the transaction. ‘If you take into account the up front and milestone payments, this has the clear potential to be a unicorn. For a private biotech company, and frankly for a publicly-held biotech, this is a substantial transaction.’

On the pricing of such an asset, he noted: ‘Valuations of biotech companies are calculated using a discounted cashflow on what the drug’s sales are likely to be, especially in key markets such as the US, and discounting back to today by applying probability analysis of how likely it is for the drug to get approved.’

Defries added that biotech was one of the few sectors that has not been adversely affected by the coronavirus pandemic. ‘If anything, biotech has been positively impacted. Covid has focused people’s minds on the importance of health in a way that wasn’t the case before. Healthcare is generating the same buzz that has been associated with tech companies over the past few months,’ he added.

Elsewhere, not a day seems to have gone by recently without a deal notice coming through from the City offices of Latham & Watkins. Among these was a mandate for London corporate partner Ed Barnett and Adam Sullins, a sports and media partner based in Century City, to advise Stormlight Holdings on its acquisition of a stake in cash-strapped Welsh football club Swansea City.

The deal sees Stormlight, the Portland, Oregon-headquartered family office and private investment arm of the Silverstein Family, invest, alongside matched funds from the entity controlled by majority shareholders Steve Kaplan and Jason Levien. It also involves Stormlight’s chairman and CEO, Jake Silverstein, being appointed to the club’s board of directors. Sheridans acted for the football club.

The financial strain coronavirus has placed on football has been immense, not just in the UK, but across Europe. Dealmakers are seeing considerable interest from alternative finance providers in football across Europe as clubs have been squeezed by a strain on regular revenues through lockdown. The result has been a need for additional cash injections, with opportunities for investors expected to arise in Italy, Spain, France and the UK.

Latham has also been kept busy by the restructuring of foreign cash exchange provider Travelex, which had been hit by a moratorium on travel amid the pandemic. The transaction is being delivered through a pre-packaged administration sale of various UK and international Travelex entities.

London restructuring and special situations partners Helena Potts and Yen Sum advised the committee of lenders in the debt restructuring to cut Travelex’s debt from £385m to £160m, while €360m of 8% senior secured notes due in 2022 received equity warrants, equivalent to 17.5% of the post-restructuring equity. Some senior secured noteholders provided £84m of new money and will take 100% of the post-restructuring HoldCo equity.

Sidley Austin acted for Travelex with a team led by by co-heads of its London restructuring practice, Jifree Cader and Mark Knight.

Finally, Latham’s Sum also led on an amend and extend of printing and packaging company Flint Group’s €1.89bn of credit facilities. Implemented through parallel English schemes of arrangement, the deal extended the maturity dates of Flint Group’s revolving credit, ABL and term loan facilities by around two years and was supported by the vast majority of the group’s creditors.