Private Equity Newsletter
September 20, 2018
This edition of Dechert’s Private Equity Newsletter reviews recent developments in private equity worldwide, including:
- 2019 Global Private Equity Outlook
- Recent Developments in Acquisition Finance
- Minority Equity Investments: Evolving Market Terms in Europe
- EU General Court: Financial Investors Liable for Anticompetitive Conduct of Portfolio Companies
- Co-Investments: The Current Outlook
- Congress Enacts CFIUS Reform in Effort to Strengthen Foreign Investment Rules
2019 Global Private Equity Outlook
As the global private equity market continues its ascent, creativity is emerging in a crowded market. Our report, in partnership with Mergermarket, surveyed 100 senior-level executives and identifies key trends. Our survey finds that specialization and creative deal structures have become the norm, and an overwhelming majority of respondents rate diversification or expanding beyond borders to be important. Expectations for the exit environment are split down the middle, with about half predicting a favorable environment.
Recent Developments in Acquisition Finance
New York’s High Court Allows “Alter Ego” Claims Directly against PE Firms for Portfolio Company Bond Debt
In an overlooked aspect of the recent New York Court of Appeals decision in Cortlandt St. Recovery Corp. v. Bonderman, New York’s high court has allowed direct claims to move forward against two private equity firms for the debt of their portfolio company under a bond indenture. The decision found that the two required elements for the direct claims were asserted sufficiently in the complaint in order to avoid dismissal, namely (i) that the private equity firms controlled and “dominated” the affairs of the portfolio company and (ii) that the portfolio company’s redemption of their equity “perpetrat[ed] a wrong or injustice” or “otherwise resulted in wrongful or inequitable consequences.”
Minority Equity Investments: Evolving Market Terms in Europe
Given the increasingly competitive conditions for the deployment of capital by private equity sponsors and the desire for certain categories of owners to explore alternative opportunities for liquidity, we have seen increasing numbers of funds in private equity buy-out transactions in Europe (and in particular, credit/debt funds and other alternative capital providers) being willing to take minority positions in the equity interests of targets as a way of gaining foothold positions in trophy assets. This publication identifies certain key legal considerations for a minority investor pursuing such an investment.
EU General Court: Financial Investors Liable for Anticompetitive Conduct of Portfolio Companies
The General Court of the European Union recently held, in Goldman Sachs v. Commission, that purely financial investors such as investment funds may be held jointly and severally liable for competition law violations implemented by their portfolio companies when they can exercise “decisive influence” over the company, irrespective of whether they were aware of the infringement or actually influenced the market behaviour of the subsidiary. This decision has several major practical implications for investment funds and private equity funds.
Co-Investments: The Current Outlook
Private equity sponsors have typically offered co-investment opportunities to certain large investors in their main funds, or as a means to bridge financing gaps in deals they might not otherwise be able to consummate. In recent years, investor demand for coinvestment opportunities has grown significantly as they seek to lower net costs, increase fund allocations and more closely manage their portfolios. In turn, sponsors have used co-investors to enhance deal-making capabilities, cultivate relationships with important investors and increase the number of deals in which they can invest. This article provides a high-level overview of co-investments, the benefits and detriments of co-investments for sponsors and investors and the current outlook for co-investing.
Congress Enacts CFIUS Reform in Effort to Strengthen Foreign Investment Rules
President Trump signed into law the Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA) on August 13, 2018, which was included as part of the annual National Defense Authorization Act (NDAA). FIRRMA significantly reforms the Committee on Foreign Investment in the United States (CFIUS or the Committee), and makes related changes to the country’s export control regime. Congress considered myriad proposals over the past year as it attempted to balance national security interests against the policy of encouraging foreign investment in the United States. The new law settled on an approach focused on areas lawmakers believe are most under threat from certain countries.
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