The latest analysis by PitchBook would indicate buyout activity is trending down as deal volume and values continue to slide from recent quarters. In the latest report, the triggers for the current market is discussed covering EBITA multiples, debt levels and valuations, as well as where opportunities exist based on the transactional activities of private equity funds.

Read the PitchBook report.

 

McDermott Will & Emery recently published its latest issue of International News, which covers a range of legal developments of interest to those operating internationally. This issue focuses on Private Equity.

Read the full issue.

Focus on Private Equity

The Impact of Regulatory Changes on Private Equity Firms

Taking Advantage of the Consequences of Delisting or Downlisting in Germany

Equity Bridge Facilities and the French Private Equity Market

Will Private Equity Bet on the Price of Oil?

McDermott Will & Emery has released the October 2014 issue of Focus on Private Equity, which provides insight on issues surrounding private equity transactions and the investment life cycle across industries. Articles in this issue include:

The Use of Alternative Credit in Europe
As a result of the reduced availability of conventional credit from lending institutions in the wake of the financial crisis of 2008, Europe has been eager to develop an alternative credit market to unlock the demand for money from small and medium sized enterprises (SMEs).
Read the full article.

Buying and Selling a Craft Brewery in the United States
The craft beer business has never been hotter, with market share now approaching 8 per cent by volume in the United States and margins that have attracted the attention of private equity and venture capital investors, and even large brewers.
Read the full article.

 

McDermott Will & Emery has released the Winter 2015 issue of Inside M&A, which focuses on current issues surrounding mergers and acquisitions.  Articles in this issue include:

Recent U.S. Cases Highlight Liability Risks to Executives in Mining, Heavy Industrial Transactions
Historically, corporate executives rarely faced personal or criminal liability resulting from mining or environmental accidents in the United States. Several criminal cases stemming from two recent disasters, however, indicate that the tide may be turning. These disasters, the repercussions of which have been playing out recently in the U.S. criminal courts, should put private equity and strategic investors in the mining and heavy industrials space on alert. Thorough due diligence into a target’s past operations and compliance record is more important than ever before.
Read the full article.

Options for Buying a UK Company with Multiple Selling Shareholders
In the United Kingdom, the issues and considerations involved in the acquisition of a private company with multiple selling shareholders can be complex. Some of the issues that arise in such acquisitions are similar to those that are considered with publicly traded companies, but would not typically be encountered in the acquisition of a private company with few shareholders.
Read the full article.

Merger Control in Africa
Many African countries have enacted competition law legislation in order to improve market conditions and attract investors. These regimes differ from one country to another, depending on the country’s history, culture, economic development, and whether its legal system is based on common law or civil law. While most African competition regimes contain rules addressing anticompetitive practices (such as collusive practices, abuse of dominance and unfair state aid), the legislation does not always provide for a merger control regime.
Read the full article.

View the full issue (PDF)

McDermott Will & Emery has released the October 2014 issue of Focus on Private Equity, which provides insight on issues surrounding private equity transactions and the investment life cycle across industries. Articles in this issue include:

Proposed EU Merger Review of Non-Controlling Minority Shareholding Acquisitions: Challenges and Opportunities for Private Equity
A recently proposed plan to reform EU Merger Regulation could expand the scope of transactions subject to prior notification. For the first time, minority shareholding acquisitions that do not lead to a change in control could be subject to prior notification to the European Commission. The proposed expansion of the Merger Regulation’s jurisdiction could significantly impact businesses.
Read the full article.

IPO Market Offers Attractive Exit Alternative for Sponsor-backed Companies
The strong IPO market offers private equity sponsors an attractive alternative to the sale of a portfolio company. However, the IPO process is complex, and must be structured properly at the outset. This article discusses some of the most significant structural considerations sponsors must consider in order to be in the position to obtain the maximum benefit from an IPO.
Read the full article.

McDermott Will & Emery has released the Fall 2014 issue of Inside M&A, which focuses on current issues surrounding mergers and acquisitions.  Articles in this issue include:

Managing Compliance Risks in M&A Transactions
Compliance risk management plays an increasingly important role in mergers and acquisitions transactions.  Appropriate compliance due diligence helps to establish the true value of the target company because successor liability for non-compliance of the target company can jeopardize the whole transaction.  Post-closing compliance initiatives help to reduce the compliance risks significantly.
Read the full article. 

You’ve Acquired a New Qualified Retirement Plan?  Time for a Compliance Check
In connection with a merger or acquisition, an acquiring company may end up assuming sponsorship of a tax-qualified retirement plan that covers employees of the acquired company.  This article provides a brief summary of some key issues that a company should focus on to ensure that the numerous administrative and fiduciary requirements involved in maintaining a qualified retirement plan will continue to be met on an ongoing basis if the plan will continue to be maintained following the acquisition.
Read the full article.  

A Personal Interest in Compliance
All individuals involved in a proposed sale transaction have a personal stake in full federal, state and local legal compliance because of expanding doctrines of personal liability and successorship liability, notwithstanding transaction documents that purport to disclaim assumption of seller’s liabilities.
Read the full article.  

View the full issue (PDF)

As those in the search fund community are aware, finding the right investors for a fund is critical to its success.  Equity sources bring more than their capital to the table; the best investors serve as experienced advisers and trusted mentors to search funders as they navigate the acquisition phase and beyond.  As the search fund model has proliferated both within and beyond the United States, today’s search funders may have more potential stops on their “roadshows” than their predecessors.

In seeking their ideal mix of initial investors, several of our recent search fund clients have ventured north of the border to raise a portion of their equity.  For search funds, which are typically structured as U.S. limited liability companies (LLC) with heavily standardized investment documents, taking on Canadian investors in a U.S. search fund has raised some interesting legal and practical issues.  Below are a few gating items for the search funder to consider in deciding whether to open the fund up to investors in Canada and elsewhere:

  • What percentage of your investor base will be from Canada?  The greater your percentage, the more likely it is that the search funder will want to structure the fund to cater to its Canadian investors.
  • What type of tax treatment do your Canadian investors expect?  Search funds generally utilize an LLC as the capitalized entity, which is treated as a partnership for U.S. tax purposes.  However, for Canadian tax purposes, U.S. LLCs are treated as corporations, which are subject to an entity-level tax.  This is a discrepancy that can significantly affect a Canadian investor’s economics.  The search funder may want to explore with his or her attorney whether an alternative structure, such as a limited partnership, is a viable option.
  • Do your investors have a tax presence in the United States, or will this be their only U.S. investment?  Because partnerships are essentially pass-through entities to their partners for tax purposes, investors in a partnership are inherently U.S. taxpayers.  For this reason, many non-U.S. investors prefer to invest in U.S. corporations, whereby the profits and losses of the entity are not passed through to its members.  If this is a particular sensitivity to the search fund’s Canadian investors, then the search funder may consider implementing a structure which will not result in the investor being a U.S. taxpayer.

In evaluating these alternatives, search funders should always be cognizant of how their U.S. investors may be impacted.  The above suggestions are not intended to be one-size-fits-all solutions.  As a practical matter, implementing a non-standard fund structure may affect the fund’s marketability to traditional sources of search fund financing.

Part of a search funder’s ongoing challenge is determining how best to serve its investors.  Experienced counsel can be a valuable resource in tailoring a fund to best accommodate both the search fund and its investors.  If some of those investors are Canadian, then the search funder should be aware of the issues that might affect such financiers’ investment decisions.

McDermott Will & Emery has released the July 2014 issue of Focus on Private Equity, which provides insight on issues surrounding private equity transactions and the investment life cycle across industries.  Articles in this issue include:

Latin American Private Equity on the Rise
Favorable macroeconomic trends and positive regulatory developments continue to make Latin America an attractive destination for private equity investors looking for acceptable returns in relatively stable emerging markets. Not surprisingly, some challenges remain for foreign private equity investors entering the region, but most of these risks should be manageable for investment teams and advisors with sufficient experience in those jurisdictions.
Read the full article.

Tax Considerations When Acquiring Non-U.S. Portfolio Companies—Mitigating Subpart F Inclusions
Subpart F income can diminish returns for investors acquiring non-U.S. portfolio companies by increasing tax cost. The article discusses pitfalls to be avoided and strategies for mitigating this cost.
Read the full article.

Private Equity Funds at Higher Risk of Antitrust Fines
Recent developments in competition law enforcement in Europe mean that private equity funds are increasingly exposed to potential liabilities for alleged infringements of their portfolio companies. In this article, we look at how private equity funds investing in Europe can take practical steps to mitigate this risk.
Read the full article.

The end of a legal saga

On April 7, 2014, the Commercial Court of Paris put an end to the Coeur Défense’s legal saga by acknowledging the implementation of the two safeguard plans adopted for Heart La Défense (HoLD), a French corporation, and Dame Luxembourg S.à r.l. (Dame), HoLD’s sole shareholder.  As a reminder, HoLD subscribed to a 1.64B-Euro loan in July 2007 in order to purchase “Coeur Défense”, the largest office building in Europe.  In 2008, further to Lehman Brothers’s bankruptcy, safeguard proceedings were initiated to the benefit of HoLD and Dame.  Under the safeguard plans, HoLD had to repay the principal of the loan on July 10, 2014 to Windermere XII, a French securitization mutual fund.  From the beginning of these proceedings, Coeur Défense has attracted the attention of French courts, authors and specialists due to its potential impact on French bankruptcy proceedings.

The reform of the French safeguard proceedings: the rebalancing of powers between debtors and creditors

The end of Coeur Defense’s legal proceedings happened to occur at the same time as the introduction of Order No. 2014-326 dated March 12, 2014, modifying the French safeguard proceedings and due to enter into force on July 1, 2014 (the Order).  This reform aims at restoring balance in the powers of the debtor and its creditors, and grants the latter a significant role in the preparation of a safeguard plan implemented by a distressed company.  One would say this reform is creditor-friendly and makes French bankruptcy laws closer to U.S. laws.

Mainly, the Order modifies Article L. 626-30-2 of the French Commercial Code and enables creditors to take part in the preparation of the safeguard plan.  As a consequence, in the presence of creditors’ committees, creditors are now allowed to submit their own plan to the court.  In introducing a countervailing strength to the debtor’s power to elaborate a safeguard plan, the reform should foster discussions between creditors and debtors, and prevent debtors from forcing an inefficient plan onto creditors by threatening them to implement a more traditional 10-year plan.  In fact, one of the issues in Coeur Défense was that Windermere XII, the main creditor, had failed to introduce to the court modifications that HoLD had previously refused to integrate in its plan.

In addition, as of the entry into force of the Order, if creditors’ committees fail to adopt a safeguard plan and if closure of the proceedings would lead, in a short period of time, to a “cessation of payments” (or inability of the company to meet its financial obligations), the safeguard proceedings may be converted into reorganization proceedings at the request of the court-appointed officers or the public prosecutor (in addition to the debtor, as provided prior to the reform).  Taken together with Article 55 of the Order, which allows the court to order the sale of all or part of a debtor company in the event the submitted safeguard plans seem clearly unlikely to lead to a recovery of the company or in the event no safeguard plan was submitted, the reforms should deter debtors from seeking subsequent extensions of the observation period in order to gain additional time.  In addition, such ability to convert safeguard proceedings into reorganization proceedings may be detrimental to the shareholders if the company is under-capitalized.  Indeed, Article 52 of the Order states that the court may, in the framework of reorganization proceedings, appoint a representative who will be in charge of voting in lieu of the shareholders, should such shareholders refrain from restoring the equity capital when it is required by the plan.

A key takeaway is that French bankruptcy laws, which used to be debtor-friendly, are now alerting reluctant shareholders of the consequences of their resistance to reorganization proceedings.

McDermott Will & Emery has released the April 2014 issue of Focus on Private Equity, which provides insight on issues surrounding private equity transactions and the investment life cycle across industries.  Articles in this issue include:

Private Equity Firms Face Potential Liability Under Plant Closing Laws
Private equity firms risk potential liability for Worker Adjustment and Retraining Notification Act violations. Case examples demonstrate the need for proactive activity management, including observing corporate formalities, establishing and filling the director and officer positions of all entities, permitting the operating company management to make the decisions regarding employment terminations and plant closings, and clearly communicating and documenting these activities, to help avoid or quickly exit litigation.
Read the full article.

Incentivising Management Across the Pond
U.S. private equity investors are increasingly looking outside the domestic market and into the United Kingdom and Europe to deploy dry powder.  As the buy-out market in the United Kingdom heats up, U.S. private equity investors should be aware of tax-efficient structures to deliver equity incentives to U.K. resident management teams in order to maintain a competitive edge. In this article, we’ll explore the significant negative consequences of issuing U.S.-style stock options to U.K. resident management teams and the significant tax savings that can be obtained with restricted stock, enterprise management incentive options and structuring incentive equity to obtain Entrepreneurs’ Relief.
Read the full article.