Weekly Banking Insight: with a spotlight on Luxury and Infrastructure sectors

Greetings and welcome back to this weekly global investment banking update where we talk about the top transactions, themes, and narratives in the investment banking world.

This week saw an increased optimism in M&A activity with rising stock markets and reduced interest rate hikes which has boost buyer confidence and capital. However, lingering challenges include slower-than-expected rate cuts, antitrust scrutiny, and the aftermath of consecutive years of falling M&A values causing job cuts across Wall Street. The optimism is driven by megadeals such as Capital One’s $35bn takeover of Discover Financial Services and Synopsys’s acquisition of Ansys Inc. The global deal values have gone up 21% year-on-year to over $660bn in 2024.

Liberty Media in talks to acquire Dorna Sports for €4bn

Liberty Media, chaired by John Malone, is in exclusive talks to acquire MotoGP’s owner, Dorna Sports, for over €4bn. This potential merger aims to unite elite car and motorcycle racing series. Despite rival bids, including from TKO and Qatar Sports Investments, Liberty is positioned to secure the deal. Regulatory scrutiny is expected due to the significant market impact, similar to past F1 ownership transitions. Dorna’s global reach, boasting 251 races in 20 countries, presents a lucrative opportunity. However, any agreement may face regulatory challenges, especially regarding competition. Financial details and shareholder information are also provided.

Ithaca Energy in talks to acquire Eni UK’s upstream assets for c.$1.1bn

Ithaca Energy is in exclusive talks to acquire Eni’s UK upstream assets, including those of Neptune Energy, in a deal estimated around $1.1bn. This move would elevate Ithaca as a major independent North Sea oil producer, potentially igniting further industry consolidation. The deal, excluding Eni’s carbon capture and Irish Sea assets, offers Eni a stake of 38-39% in the enlarged entity. Ithaca, buoyed by its partnership with Israel’s Delek Group, sees this acquisition as transformational, aiming to offset challenges posed by the UK’s windfall tax and declining production figures.

CitizenM exploring sale options

CitizenM’s owners, including APG and GIC, are exploring options for the boutique hotel chain, including a potential sale, with the assistance of Morgan Stanley and Eastdil Secured. GIC’s 25% stake acquisition five years ago valued the company at €2bn; now, it could fetch around €4bn. Discussions are preliminary, with a minority stake sale also considered. The company eyes institutional investment for expansion, leveraging its profitability model. Amidst a post-pandemic travel resurgence, the hospitality sector sees renewed deal activity, exemplified by Saudi Arabia’s investment in Sir Rocco Forte’s hotel group. Founder Rattan Chadha initiated CitizenM in 2008, pioneering the micro hotel concept.

Cardior Pharma acquired by Novo Nordisk for €1bn

Novo Nordisk has acquired Cardior Pharmaceuticals for €1bn, securing a potential heart failure treatment in mid-stage trials. This strategic move aligns with Novo Nordisk’s goal to diversify into cardiovascular disease treatment, leveraging its success with diabetes and weight loss drugs. The acquisition enhances Novo Nordisk’s expertise in RNA-based therapies, a burgeoning field in pharmaceuticals. Cardior’s therapy targets non-coding RNA molecules, crucial in regulating cell activity. Early trials show promise, with plans for further mid-stage assessments. Novo Nordisk aims to address heart failure’s root causes, highlighting its commitment to innovative healthcare solutions.

UK government divesting its stake in NatWest

NatWest Group announced that the UK government’s stake has fallen below 30%, ending its controlling shareholder status. The government’s divestment from the lender, bailed out during the financial crisis, aligns with plans for a public share sale this summer. NatWest seeks shareholder support to increase its stock buyback from the government. Chancellor Jeremy Hunt aims to return NatWest to private ownership by 2026, despite criticisms of the share sale’s cost and political motives. NatWest, formerly Royal Bank of Scotland, appoints Paul Thwaite as permanent CEO amidst governance challenges. Future share sales will consider market conditions and taxpayer value.

Special mentions

Luxury Industry Faces Slowdown

Fears of a slowdown among Chinese shoppers have plagued the luxury industry for some time, with Gucci, one of fashion’s largest brands, taking a significant hit last week. Kering SA, the French group that owns Gucci, saw a staggering $9bn wiped off its market value after reporting a slump in the Italian label’s sales in China this quarter. This decline reflects a broader trend in the luxury sector, with Swiss watch exports to China dropping and analysts predicting further cooling of luxury demand in China.

Factors contributing to this downturn include rising unemployment, a property market downturn, and deflationary pressures in China. Chinese luxury consumers have become more discerning in their spending habits, raising the bar for brands to entice them. Gucci, in particular, has experienced a notable drop in Chinese online sales, possibly attributed to its recent shift to a more minimalist aesthetic under new creative director Sabato De Sarno.

Kering’s announcement of nearly a 20% decline in Gucci sales this quarter, primarily in the Asia-Pacific region, has prompted concerns and calls for strategic reassessment. Analysts suggest that Kering may need to consider leadership changes to address the brand’s challenges effectively.

The slowdown in China isn’t isolated to Gucci, as other luxury brands are feeling its impact to varying degrees. Rolex, Hermes, Chanel, and Louis Vuitton have also seen sales slowdowns in Hong Kong, signaling broader challenges in the region. The Federation of the Swiss Watch Industry reported a significant drop in watch exports to China and Hong Kong, highlighting the importance of the Chinese market for luxury goods.

While some luxury labels like Prada and Hermes have managed to buck the trend with strong sales growth, others are reevaluating their strategies. With China’s luxury market forecasted to slow down further, brands may need to diversify their focus beyond China to regions like India, Southeast Asia, and the Middle East for future growth opportunities.

In summary, the luxury industry is grappling with a slowdown in the Chinese market, prompting brands to rethink their strategies and adapt to changing consumer preferences. As brands navigate these challenges, those offering curated experiences and targeting high-net-worth individuals may be better positioned for resilience amidst market uncertainties.

Infrastructure in limelight

Investment in infrastructure assets is recently gaining recognition likely due to its stability vis-a-vis the economic uncertainties. In the last few months, pension funds and institutional investors are increasingly turning to infrastructure assets, which offer steady returns and long-term value. The definition of infrastructure has also expanded to encompass a diverse range of assets, including renewable energy projects, data centers, and telecommunications networks. This broadening scope reflects the changing needs of society and the growing importance of modern infrastructure in sustaining economic growth.

In the last few years, numerous infra funds from Stonepeak and GIP to Blackrock and CVC have performed well and this result has increased competition in the sector.

However, with increased competition comes heightened scrutiny and challenges. Questions regarding the ownership and management of essential infrastructure assets have prompted debates among policymakers and the public. Additionally, rising interest rates and asset prices pose new hurdles for investors seeking lucrative deals.

Despite these challenges, the outlook for infrastructure investment remains optimistic. Trillions of dollars are expected to be invested in infrastructure projects globally, driven by the need for modernization and sustainability. Major players like Blackstone, KKR, and Brookfield are ramping up their investments, signaling continued growth and opportunities in the sector.

Furthermore, the emergence of private credit as a financing option for infrastructure projects adds another dimension to the investment landscape. Alternative asset managers like Blackstone and Ares Management are raising billions of dollars for infrastructure debt funds, providing developers with alternative sources of financing.

Looking ahead, the infrastructure investment landscape is poised for further expansion and innovation. As the world grapples with challenges such as climate change and digital transformation, infrastructure investment will play a crucial role in driving sustainable growth and development.

In conclusion, the prominence of infrastructure investment in 2024 is a testament to its resilience and adaptability. Despite its humble beginnings, infrastructure has emerged as a cornerstone of the global investment landscape, offering stability, growth and opportunities for investors and society alike.

Parting thoughts

With interest rates stabilities and rate cuts on the horizon, although slow, is increasing the need and volume of M&A activity throughout 2024. In particular, luxury goods and infrastructure sector activity will be interesting to watch from M&A standpoint with the former needing serious financial rework while the latter boasting its stability-giving trait.

Stay tuned for the summary next week to stay upbeat in this fast-paced sector!

Sources: Bloomberg, Financial Times, Desktop Research

Disclaimer: This weekly global investment banking update provides insights into recent transactions and market trends for informational purposes only. It does not constitute financial advice, and readers are encouraged to verify information independently before making investment decisions. The content reflects the views of the respective sources mentioned, and while efforts are made to ensure accuracy, completeness, and reliability, we do not guarantee it. Investing involves risks, and past performance is not indicative of future results. The mention of specific companies or transactions does not imply endorsement. Stay informed about regulatory changes and market conditions, and consider seeking advice from qualified financial professionals for personalized guidance.