Private Equity Newsletter
July 14, 2017
Read the latest edition of the "Private Equity Newsletter." This edition of Dechert’s Private Equity Newsletter reviews recent developments in private equity worldwide, including:
- D&O Insurance Coverage - How Careful Should the Drafting Be?
- Recent Developments in Acquisition Finance
- President Macron's Election in France: Impact on the French PE and M&A Market
- How Might Brexit Affect the Exit?
- The ABCs of Fund Finance: Credit Facilities for Secondaries Funds and Funds of Funds
- A Buyer’s Guide To Carelessly Losing Indemnification Rights
D&O Insurance Coverage - How Careful Should the Drafting Be? Very.
Directors are required to review and approve transformative M&A transactions. The power to approve, however, comes with the potential liability that could be asserted if the transactions do not turn out as projected. Directors, therefore, rely on existing D&O insurance coverage and in certain instances purchase additional insurance which is tailor-made to the contemplated transaction at hand.
Recent Developments in Acquisition Finance
Basic to any acquisition and its financing are the projections of the target’s future performance. These play a key role in setting the price for the target as well as on the availability of acquisition financing. Projections prepared by the target will likely influence projections prepared by others as well, such as those of potential acquirors and financiers. The integrity of a set of projections may be challenged in a number of different contexts. A recent bankruptcy court decision dealt with some of these issues, and sheds light on how a court considering them may think about them.
President Macron’s Election in France: Impact on the French PE and M&A Market
President Macron announced his will to conduct meaningful reforms which could have a significant positive impact on the economy and the French M&A market. His electoral program lays out ideas to simplify the legal framework for entrepreneurs and small companies, reorganize unemployment benefits systems, introduce additional flexibility in the French labor laws and reduce the tax rates and social charges for corporations.
How Might Brexit Affect the Exit?
The UK referendum on membership of the EU took place just over one year ago (on June 23, 2016). Since then, much has been written by various commentators about the potential consequences for every conceivable industry or business sector, and private equity is no exception. However, the focus of that discussion for PE has been almost exclusively on the funds/investment management side of the PE equation (perhaps because there is a greater perceived risk for, and undoubtedly greater uncertainty about, that aspect). Relatively little has been written about the effect of Brexit on the exit side of PE activity. This article looks at whether and, if so, how the UK's decision to leave the EU might affect the process, timing or choice of exit route.
Recent Updates From Dechert's Data Privacy and Cybersecurity Group
The recent WannaCry ransomware attack that impacted 150 countries and over 300,000 computers highlighted the fact that all companies, including private equity firms, need to prepare for, and know how to respond to, ransomware attacks. Dechert’s Data Privacy and Cybersecurity Group recently published “Newsflash: OCIE Publishes Risk Alert in Response to WannaCry Ransomware,” which identifies three practical tips that the Office of Compliance Inspections and Examinations of the U.S. Securities and Exchange Commission has provided to asset management firms for how they might mitigate the risk and impact of future cyber-attacks. In addition, Dechert’s Employee Benefits and Executive Compensation Group recently published “Employers: Are you Ready for a Cyberwar? Attackers Using Ransomware are Saying Show Me Your Bitcoin!” In this article, Dechert attorneys outlined an employer’s responsibilities under the Health Insurance Portability and Accountability Act (“HIPAA”) in relation to ransomware attacks. Attorneys in Dechert’s Hong Kong office also identified key points for financial services firms as they prepare to comply with China’s Cybersecurity Law in a recent article entitled “China Cybersecurity Law: Key Takeaways for Financial Services Firms in China.”
The ABCs of Fund Finance: Credit Facilities for Secondaries Funds and Funds of Funds
Private equity fundraising in Q1 2017 was its strongest since the financial crisis, according to Preqin. Private equity secondaries funds in particular raised more than double the amount raised in Q4 2016. Many sponsors of secondaries funds, as well as private equity funds of funds, are now entering into credit facilities supported by their sizable fund portfolios to increase rates of return and provide a measure of liquidity. Sponsors, however, should be mindful of the critical issues that can arise when structuring and negotiating these financing arrangements.
A Buyer’s Guide To Carelessly Losing Indemnification Rights
The recent Delaware case of Davis v. EMSI Holding Co. reminds us that basic Delaware law can defeat even the most well-crafted indemnification arrangements in a private company stock acquisition. The purchaser may have negotiated broad representations and covenants backed by strong indemnification provisions with aggressive baskets, caps, definition of damages, and all of the other bells and whistles that a purchaser looks for to protect its interests. The parties may have fully documented an agreed-upon allocation of risk. Yet, if the sellers or the sellers' representatives are directors and officers of the target company, all that planning and drafting may be for naught.
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