Private Equity Newsletter
February 12, 2015
This edition of Dechert’s Private Equity Newsletter reviews recent developments in private equity worldwide, including:
- New Reporting Requirements Regarding Foreign Investment and Ownership
- Control Transactions in the UK Mid-Market
- Distribution of Private Equity Funds in Europe after AIFMD
- Recent Developments in Acquisition Finance
- A New Era for Private Funds in China?
New Reporting Requirements Regarding Foreign Investment and Ownership
With the globalization of the economy, most private equity funds are likely to own companies based in the United States that have operations or subsidiaries outside the United States, and/or have interests in non-U.S. companies that have operations or subsidiaries in the United States. Recently, the U.S. Commerce Department Bureau of Economic Analysis (“BEA”) quietly took action that could impose significant new reporting requirements with respect to these portfolio companies.
Control Transactions in the UK Mid-Market
In a number of transactions in the UK mid-market in which we have been involved recently, we have noted a departure from the traditional private equity buy-out model, whereby the sponsor acquires 100% of the target and satisfies the consideration with a mixture of cash and paper issued by the acquiring entity. In transactions involving a partial acquisition of the target with some existing shareholders cashing out and others, typically management and their close affiliates, retaining a significant proportion of the equity, the rights afforded to the management team with respect to the governance and future exit of the target can be surprisingly different.
Distribution of Private Equity Funds in Europe after AIFMD
With the AIFMD now effective, the attention of U.S. private equity sponsors has turned to capital raising in Europe under the new regime. The key impact of the AIFMD for U.S. sponsors is the prohibition on the active marketing of alternative investment funds (AIFs) to investors in the European Economic Area (EEA), without some form of registration and ongoing compliance requirements.
Recent Developments in Acquisition Finance
Recent legal and regulatory developments have raised issues for those considering a loan-to-own acquisition strategy, and have continued to impact both the structure of highly leveraged financings and the makeup of those willing to provide it.
A New Era for Private Funds in China?
In September last year, our Financial Services Group reported on a rule whereby the regulatory framework for private funds raising money from local renminbi investors was made much clearer, and consequently, had the potential to open up a new era for renminbi – denominated funds (commonly known as RMB funds) in China. This marked an important development since as recently as 2011, Chinese private equity and venture capital firms actually raised substantially more money from local renminbi investors than from foreign investors. We replicate our prior article but with some important updates, notably regarding the experience to date of those fund managers which have registered their funds under the new rules.
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