Our newsletter dealing with acquisitions and direct investments, with special emphasis on what's happening in Cyprus

In this issue:
Why You will Never Sell Your Business
The beginnings of Private Equity in Cyprus - at last!
M&A in Insurance and Corporate Services: Why it is inevitable
Cyprus Property - Up or Down?

M&A "War Stories" 

Our series of M&A War Stories is based on real-life experiences of interest to M&A colleagues, investors and entrepreneurs.
Our previous article "Investing A la Carte or Buffet approach?" dealt with a common Buy-Side mistake.
As for our latest article, the title is self-explanatory:
"Why You Will Never Sell Your Business" 
A Case Study in Deal Prostitution
Download at this link and read at your leisure. 
The Cyprus - Greece connection - a brief note

We are often told by international investors that Cyprus has a high country risk due to the connection with Greece. This is a misconception. There was a correlation with the Greek economy until 2013, due to (a) the high exposure of Cypriot Banks to Greek sovereign debt and (b) extensive banking operations in the Greek market. Neither of these apply any more.
The resilience of Cyprus in relation to the Greek economy is mentioned in both Moody's™ and Fitch's™ recent upgrades of Cyprus.
Private Equity in Cyprus 

Until now nobody had seized the opportunity offered by the equity gap in the private enterprise sector.... Cyprus needs home-grown Private Equity Funds.
We are happy to see the first serious effort on this front by CyCAP, a €100M Private Equity Fund targeting Cyprus-based firms with international growth potential.
We wish CyCAP the best and hope more will follow!

  • Private Equity is not for everybody, so those aspiring to either raise Funds or qualify for PE investment, should first take a "crash course". The InvestEurope (formerly EVCA) website would be a good place to start!

For hands-on support, either to establish a PE/VC Fund or secure investment from Funds, we have developed detailed strategies based on 15 years' direct investments experience in Cyprus, Israel, Greece and the USA.

M&A Dynamics in Cyprus 

Pressure: The use of persuasion, influence, or intimidation to make someone do something
M&A activity in Cyprus is way below what it should be*, but there are some sectors in which consolidation is inevitable, either due to Regulatory pressure or the Banks' need to sell non-core assets, or both.
*see our previous Newsletter, section Private Sector Initiatives

M&A in the Insurance Sector


The EU Solvency II Directive for Insurance companies finally comes into effect on 1st January 2016. It imposes strict requirements on capital adequacy and a heavy compliance regime.
Many Insurance companies, not only in Cyprus but all over Europe, will have a problem complying with Solvency II. Add to this the fact that Banks in Cyprus and many SE European countries need to increase liquidity by disposing non-core assets, M&A in the Insurance sector is inevitable.

M&A in Corporate Administration Sector

There is a global trend for "de-offshorization" with ever tighter regulation on transparency, domicile requirements, AML compliance and Audit standards; this trend is driven by the need to increase tax revenues in the US, EU and Russia, hence it's not likely to be reversed any time soon.

All this means for Fiduciaries is simply more overhead. Small firms, which cannot cope with the regulatory & compliance burden, will be bought out by larger firms with economies of scale.
The main Acquisition/Merger targets are licensed Corporate Administration firms, both independents (licensed ASP's) as well as affiliates of smaller Law & Accounting firms. But also small, independent Audit firms, whose client base is mainly derived from the Corporate Administration sector. 

We have very strong interest for deals in this sector, both from the buy-side and the sell-side.


Cyprus RICS Index 2009-2015

Cyprus Property

The major unresolved issue in Cyprus is the €28 Billion of Non-Performing Loans (NPL's) in the Banking system.
As it's in nobody's interest for property values to collapse uncontrollably, there has been a lot of foot-dragging since 2013.
Finally, Legislation for the wholesale disposal of Loan Portfolios was just passed in November 2015. Still, most experts agree that there will not be a fire-sale of property and any further reduction in prices will not be substantial (we are still trying to put a number on "substantial"...), while prime properties in select areas have apparently bottomed out already.
And.....Property Investments are a "sure thing" (??)

What we define as a bubble is any kind of debt-fuelled asset inflation where the cash flow generated by the asset itself - a rental property, office building, condo - does not cover the debt incurred to buy the asset. So you depend on a greater fool, if you will, to come in and buy at a higher price.
James Chanos

Popular "wisdom" has it that you never lose money if you invest in property. Thankfully, this myth (which after decades of pervasive "land banking" became a self-fulfilling prophecy) has been debunked. Like all sectors of the economy, property has its own cycles. A recent consensus of US Private Property Executives says it all - provided here courtesy of PERE, a division of PEI Media Group Ltd. (our highlights). Note that in the US, investors start getting nervous if property prices continue rising for more than 3 years....
Closer to home, after a 6-year cycle, the Cyprus property market is close to bottoming out. A positive indicator is that transaction volume is picking up, especially for prime properties, but also for homes sold under the "properties for visas" scheme.
The time to make a move is now, but with a focus on prime property only - of course, not to act as a greater fool and buy at a higher price, but to buy at 40%+ below pre-crisis prices.