Market UpdateSeptember 20 2019

Fortnightly Thoughts from our Senior Management Team

3 mins read

Our fortnightly market commentary from members of our Senior Management team provides valuable insight into the latest trends, opportunities, and views on the current marketplace. Read about recent events within private equity, corporate finance, investment management, and real estate.

Corporate Finance

Paul Staples

Within the current market environment, it is interesting to observe the increasing level of collaboration between family offices regarding potential investment opportunities. One noteworthy feature of this cooperative climate is the contribution being made by the international networks established by these organisations. This provides a depth of perspective regarding supply chain dynamics, competitive landscapes and operating models that is of growing significance – particularly given current levels of volatility. It also highlights the intrinsic value of patient capital. Cross-border collaboration is strengthening the ability of multi-family offices to perform more sophisticated due diligence and to improve boardroom decision-making in a post transactional environment.

Investment Management

StJohn Gardner

Following the drone attacks on a Saudi processing plant and fields, the oil price has been a focus of attention this week. Over 5 million barrels a day have been removed from a global supply of around 100 million causing the price to rise 15% in the immediate aftermath. Whilst currently settling lower following Saudi Arabia’s assurance that lost production will be back on line within weeks, it should be borne in mind that the price remains 20% below last October’s peak of $86.74 a barrel. Significant reserves held globally will help smooth such a short term supply shock, provided it lasts no more than a couple of months, but the possibility of further attacks may conspire to maintain prices at current elevated levels for the time being. This bodes well for oil companies and distributors whose share prices have risen, but is not good news for travel companies and airlines. Price rises will also ultimately feed into inflation data; but most economies recent inflation rates have been on a strong downward trend and thus we do not see central banks current rate cutting cycle being held back as they seek to stimulate growth with plenty of headroom to reach their inflation targets.

Private Equity

Michael Mowlem

News that the private equity industry has seen the close of the largest ever fundraise, by Blackstone for its eighth fund, comes as little surprise. The $24.6bn raised by Apollo Global Management for its ninth fund in 2017 has been exceeded by over $1bn according to reports. In a week where the US Federal Reserve confirmed an expected interest rate reduction following the European Central Bank the previous week, investors looking for returns in a prolonged low-interest rate environment continue to be attracted by the long term returns sought by the private equity market. The large end of the private equity market is seeking ever larger investments as a serious alternative to public markets. Meanwhile investors appear undeterred by the ‘dry powder’ available to invest. This new fund will add to Blackstone’s $75bn of capital already available to invest in private equity alongside the capital already invested in their 100-strong portfolio of companies across the world. Meanwhile in Europe the IPO of EQT I referred to in my last column appears to be progressing smoothly. This contrasts with the now aborted IPO of WeWork which has attracted much coverage. My esteemed colleague in Real Estate offered his thoughts on the prospects for the business in his last fortnightly thoughts column and we shall have to see what effect the IPO attempt has on sentiment in the larger end of the venture market.

Real Estate

Robert Stokely

Notwithstanding a general reluctance amongst both investors and buyers of commercial property to commit to transactions whilst the outcome of the Brexit negotiations remain uncertain, some parts of the property industry are continuing to transact business and the subject of this week’s briefing is the budget hotel sector.

The two main players in this sector are continuing to build their hotel portfolios, particularly Whitbread plc, whose core business is now the Premier Inn brand following the sale of Costa Coffee to Coca Cola earlier this year and who are now developing their ‘hub by Premier Inn’ concept alongside their original Premier Inn brand. In addition, they have recently announced plans to develop a premium brand to compete with ‘Travelodge Plus’ and the same company’s new ‘SuperRooms’.

In the past fortnight, we have been approached by developers with genuine ‘off-market’ opportunities to enter into forward funding agreements in respect of brand new hotels (for both Premier Inn and Travelodge) yet to be built. These opportunities are in strong locations, one in a city popular with overseas visitors, and provide the investor with a 20 year lease without breaks to a strong financial covenant and with the additional benefit of regular 5 yearly rent reviews in most cases linked to RPI or CPI with caps and collars.

These opportunities play to the strengths that Sandaire clients have over many other investors with the ability to complete the transaction without recourse to third party finance and with an experienced inhouse property team to monitor the investment through the development process and beyond.

As always we would be delighted to discuss these specific opportunities or indeed any other property matter with clients to whom this may be of interest.