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 (PE) 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 which 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 PE operators. Drivers behind these types of investments include the optimisation of GP/manager and performance-related income streams and a need for permanent capital by mid-market buyout groups.

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

This chapter provides an overview of the key trends and features of PE 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 PE fund.

1.2 Market Activity

Domestic market activity in Jersey is dominated by PE involvement in financial services sector businesses, such as professional corporate services and trust company businesses, which are the target of primary, secondary or tertiary trade investment. Global banking businesses with a Jersey footprint also provide non-core business carve out opportunities for PE sponsors in the local financial services sector.

Separately, a sustained use of Jersey vehicles by leading PE sponsors investing in larger scale primary cross-border deals across 2019 and 2020 has seen the most significant sector growth in infrastructure and, in particular, in the following asset sub-classes:

  • biotech;
  • broadband internet service provision;
  • refuse and recycling;
  • midstream O&G; and
  • transport and motorway services.

2 . P R I V AT E E Q U I T Y 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. Approximately 450 JPFs had been established by the middle of 2021, 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 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, which has no upper limit on number of investors, and with a commitment level of at least USD100,000.

As PE 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, continue to position Jersey favourably for fund establishment both by existing and new sponsors. At the start of 2021, 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 up by 21% year-on-year.

The ongoing effect of the pandemic on fundraising by sponsors has been mixed - larger, wellknown 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 Continuance

Following the adoption of the Limited Partnerships (Continuance) (Jersey) Regulations 2020 (LP Regulations) taking effect in 2020, the first example of such a migration was carried out by the Maples Group's law firm, Maples and Calder.

As limited partnerships are the most favoured vehicles for closed-ended PE funds it is expected that this change facilitating the continuance in Jersey of PE funds registered in other jurisdictions is likely to be an additional tool for sponsors and managers.

Economic Substance

Following the adoption of The Taxation (Companies - Economic Substance) (Jersey) Law 2019 (ES Law) with effect from 1 January 2019, there have been further amendments to the economic substance regime which has been extended to self-managed funds and limited partnerships (and certain other types of partnership).

The ES Law applies to a company incorporated or tax resident in Jersey, which generates income from a"relevant activity", including, among other activities, fund management business, holding company business or financing and leasing business.

In the context of private equity, some downstream PE acquisition vehicles are subject to the ES Law and have to meet the economic substance test in Jersey depending on the activities which they conduct (for example, holding company business or intra-group financing).

As Jersey tax resident companies are generally fully administered and managed companies, certain activities conducted by the Jersey administrator in Jersey will assist the company to meet the economic substance test under the ES Law with limited additional impact or burden.

Competition/Antitrust Regime

It has been proposed that the Jersey acquisition and merger control regime be changed from its existing "share of supply" test to a "turnover" test. The purpose of which is to narrow the category of M&A transactions that are notifiable to the Jersey competition authority. This is to ensure only those mergers that might impact the local market are referred.

To read the full article click here

Originally Published by Chambers Global Practice Guide

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.