In Globe Law and Business’ fourth edition of Private Equity: A Transactional Analysis, Latham lawyers have contributed chapters on “Due diligence” and “Private equity deals in the United States: separated from the United Kingdom by a common language?”. Much has happened in the five years since the publication of the last edition of the book. In recent years, private equity houses have raised huge amounts of money to invest which has had an effect on the dynamics of the market. In addition, there is a broadening of potential buyers with a number of other organisations adopting private equity style strategies.
In the chapter on due diligence, London corporate partners Neil Campbell and David Walker discuss why it is of crucial importance for private equity houses when investing in a target, refinancing or restructuring an existing investment. When investing in a target, the private equity house will want to build up a clear picture of what it is actually buying – in particular, to identify any issues that may impact on the structure of the transaction, the value of the target or the ability of the private equity house to effect a future exit. This includes seeking to understand the liabilities and obligations of the target, some of which could ultimately flow through to the private equity house itself. In the case of a refinancing or restructuring, the private equity house will want to understand their impact on its existing investment. Add to this scrutiny from the debt investors that provide acquisition or refinancing debt for such transactions, and the need for a careful and integrated approach to the due diligence process by private equity houses and their professional advisers becomes all the more apparent.
In the chapter on private equity in the US and the UK, New York corporate partner Howard Sobel and associate David Kim, and London corporate partners Huw Thomas and David Walker, discuss the differences and not so obvious similarities between private equity deals in the two countries. The modern private equity industry began in the United States during the early 1980s, fuelled by the widespread availability of high-yield financing, and grew rapidly in the United Kingdom at the same time. In the United Kingdom, that growth was helped in part by changes introduced by the Companies Act 1981 which established a ‘whitewash procedure’ and made it possible (subject to tight controls) for a target to give security over its assets for the purchase of its shares (before then, most private equity transactions took the form of equity-only development capital deals). Today, the United States remains the world’s largest market for private equity transactions, with the United Kingdom in second position, and the two markets are becoming increasingly connected. A number of US private equity sponsors have raised European funds and many more are working on buyouts of European targets. In addition, some of the larger European private equity sponsors have raised funds with an increased allocation to US targets, and (since the financial crisis and the subsequent collapse of the European collateralised loan obligation market) many are using US bank financing and the US high yield bond market for European leveraged buyouts.
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