Luxembourg Private Equity Group.

Transcription

1 Luxembourg Private Equity Group

2 2 Luxembourg Private Equity Group Allen & Overy is one of the best firms in Luxembourg. At least that's the consistent message from clients across all departments. They describe the firm as having a 'strong brand, good knowledge through to junior levels' and being leaps and bounds above the rest. One even goes so far as to say that every lawyer was perfect. IFLR1000 Allen & Overy LLP

3 3 The state of private equity Our Insights on the sector While levels of activity by PE funds are still not at the level seen in the frenzied years before the financial crisis, 2015 was undoubtedly a swing year for PE investment, with funds once again going confidently on the front foot to complete new acquisitions having focused largely on exits in recent years. Despite huge amounts of firepower to deploy and ready access to debt financing, funds remained in a pretty defensive mood in the wake of the crisis and right up to this year. They were reluctant to compete with well-financed strategic buyers, often prepared to pay a premium to secure cherished synergies. Auctions remained something of a no-go area for funds, as a result. That began to change in early 2015 and there has been a progressive uptick in primary buyout activity as the year has progressed, which not only indicates growing confidence but also mounting pressure to deploy the record levels of dry powder that funds have accumulated in the relatively quiet years. Some sectors have been particularly buoyant in recent months, not least retail and consumer where we ve seen a raft of deals including R&R Ice Cream and PAI Partners proposed joint venture with Nestlé to combine their global ice cream businesses, and Exponent s proposed GBP400m acquisition of Photobox Group, the digital personalised gifts and products business. Significant disposals continue too in this sector, not least the GBP550m sale by Exponent and Intermediate Capital Group of Quorn Foods, the international maker of meat alternatives, to Monde Nissin of the Philippines. And we ve seen a good spread of secondary deals between funds, not least two deals by PAI Partners the acquisition of A/S Adventure from Lion Capital and the specialist outdoor sports retailer, Snow and Rock Group, from LGV Capital. Business services also remains a busy area for transactions, including the acquisition by OMERS Capital and AIMCo of Environmental Resources Management, the international sustainability consultancy, from Charterhouse. This shift in activity towards a better spread of both acquisitions and exits is mirrored in many north European markets, with activity in France picking up particularly at the top end of the mid-market, and with Germany and the Benelux countries busy too. Italy and Spain are also getting more active, although activity is focused on smaller deals. We expect this to continue into After a year of heightened activity, it s hard to see any particular economic issue that could halt it in its tracks, although geopolitical events may cause disruption and the summer s volatility in Chinese stock prices did cause a brief, delayed slowdown in PE activity in the Autumn. The big funds are once again partaking in auctions, and it s no longer uncommon to see potential buyers seeing the whole process through. Even if ultimately unsuccessful, it shows that funds are once again prepared to make that investment to explore new opportunities. As confidence grows, deals are likely to become more ambitious and, probably, more complex. It s becoming increasingly common, for instance, to see a PE Fund joining forces with a strategic buyer to pursue a buyout, with the fund able to bring more innovative financing to support the strategic buyer in securing much prized synergies.

4 4 Luxembourg Private Equity Group Private equity in Luxembourg Luxembourg is a leading private equity centre with efficient transaction structuring being a major draw for investors who set up private equity vehicles here. The jurisdiction is popular among companies involved in transactions and with the introduction of Luxembourg s Investment Company in Risk Capital (SICAR) in 2004, the Specialised Investment Fund (SIF) in 2007 and the new limited partnership regime in 2013 the Grand Duchy has successfully attracted private equity funds. The expertise and experience Luxembourg has developed in the area of private equity has allowed the creation of a critical mass and positioned Luxembourg as a major gateway for private equity investments into or from Europe. Many private equity funds have substantial firepower, in the form of investor commitments, waiting to be deployed. Luxembourg is well-placed to provide asset managers and investors with a wide variety of vehicles for structuring their private equity transactions. It provides private equity players with access to an EU on-shore reputable financial centre providing regulated and unregulated investment vehicles that are both flexible from a structural point of view and attractive from a tax perspective. Allen & Overy LLP

5 5 Sources say: The team is businessdriven and solutiondriven. The lawyers take their time to meet clients and concentrate on getting the deal through. Chambers Europe AIFMD Background On 8 June 2011, the European Parliament and Council adopted the alternative investment fund managers directive 1 (the AIFMD) which regulates alternative investment fund managers (AIFMs) of alternative investment funds (AIFs) that manage EU AIFs or market AIFs in Europe to professional investors. Member States had until 22 July 2013 to implement the provisions of the AIFMD into national law. Luxembourg has transposed the AIFMD by the act of 12 July 2013 on AIFMs. The main purpose of the AIFMD is to regulate AIF managers to provide a harmonised and coherent approach to the risks arising from AIFs and their impact on investors and the financial markets. Although the European Commission acknowledges that private equity funds did not contribute to the macro-prudential risks of the global financial crisis, the AIFMD applies to private equity managers and indirectly to the private equity funds managed by them. The AIFMD has created a regulatory framework that affects not only EU AIFs and their EU managers but also managers and AIFs established outside the EU. The AIFMD has, among other things, introduced a marketing passport (the Passport) permitting the distribution of AIFs to professional investors in any Member State without additional authorisation and which will replace the fragmented national private placement regimes currently in place in the EU for the distribution of AIFs. 1 Directive 2011/61/EU of the European Parliament and the Council of 8 June 2011 on Alternative Investment Fund Managers.

6 6 Luxembourg Private Equity Group Regulated private equity funds: SIFs and SICARs Private equity sponsors wishing to establish a regulated private equity fund in Luxembourg will generally turn to either the specialised investment fund (fonds d investissement spécialisé, SIF) structure or the investment company in risk capital (société d investissement en capital à risque, SICAR) structure. SIFs are governed by the act of 13 February 2007 on SIFs and SICARs are subject to the act of 15 June 2004 on SICARs. SIFs and SICARs are subject to the ongoing supervision of the Luxembourg regulatory authority for the financial sector, the Commission de Surveillance du Secteur Financier (the CSSF). SIFs and SICARs share a number of common features. They however differ in key factors such as tax, eligible investments and portfolio diversification requirements. Common features of SIFs and SICARs SIFs and SICARs benefit from very flexible corporate rules and can freely set the terms governing the issue and redemption of their shares as well as the rules governing distributions of dividends (no profit test applies). Variable capital structures are available. SIFs and SICARs can also be organised as umbrella vehicles with several ring fenced compartments, each of which can have its own distinct features (investment policy, distribution waterfall, classes of shares, etc). It is thus possible to launch several vintage compartments of the same strategy within the same structure. They are reserved for subscription by well-informed investors. That concept encompasses institutional investors, professional investors and any other investor that commits to invest at least EUR125,000 in the fund and confirms in writing his/her/its adherence to the status of well-informed investor. Key distinctive features The choice between the SIF and the SICAR structure will generally be driven by the following considerations: eligibility of the investment strategy, risk diversification of the portfolio and tax. On top of this, sponsors should know that the contractual fund structure (tax transparent fonds commun de placement) is not available in the SICAR context. A SIF can invest in virtually any kind of asset class, without restrictions so far as the eligibility of the investments is concerned. By contrast SICARs can exclusively invest in risk capital assets. The CSSF has issued prudential guidelines on the concept of risk capital and considers that two elements must be met for an investment to be eligible under the SICAR regime: the existence of high risk and the willingness to develop, or add value at the level of, the end-investment. The compliance of a SICAR s investment strategy with these criterions is assessed by the CSSF on a case-by-case basis. SICARs are not subject to any risk diversification requirements. A SICAR can be established for the purpose of making one single risk capital investment. SIFs are subject to basic risk diversification requirements, ie no single investment should in principle represent more than 30% of the SIF s gross assets/commitments (at the end of a portfolio building phase of up to four years). Certain investments are looked through for the purpose of the 30% diversification requirement (eg investment funds or intermediary holding companies). From a tax perspective, SIFs are fully tax exempt, except for an annual subscription tax of 0.01% levied on their net assets (subject to certain exemptions) whilst SICARs are in principle subject to the ordinary Luxembourg taxation regime. A SICAR s tax base does however not include income and capital gains generated by investments in securities. This generally enables SICARs to avoid any material taxation. Allen & Overy LLP

7 7 New Luxembourg limited partnership regime In the context of the implementation of the AIFMD, some amendments have been introduced to the act of 10 August 1915 on commercial companies to further enhance the attractiveness of Luxembourg for the establishment of investment funds. In particular, the legislator took the opportunity to completely overhaul the Luxembourg limited partnership regime by (i) improving the regime of the corporate limited partnership, ie the société en commandite simple (SCS), and (ii) introducing a new limited partnership structure, the special limited partnership (société en commandite spéciale or SCSp) that has no separate legal personality of its own. The Luxembourg limited partnership (ie, SCS and SCSp) is established by way of a partnership agreement entered into between one or more unlimited partners (the general partners) with unlimited liability and one or more limited partners whose liability is limited to the amount of their investment. The Luxembourg limited partnership regime allows high level of flexibility. In particular, the rules governing the transfers of partnership interests, voting rights, entitlements of partners to profits and losses and issue and reimbursement of partnership interests may be freely determined in the partnership agreement. Limited partnerships are not subject to a specific regulatory status. It is possible to use these structures to set up regulated (SIFs and SICARs), as well as unregulated vehicles. In a private equity context, an unregulated limited partnership (i.e. SCS and SCSp) qualifying as an AIF is fully transparent from a Luxembourg tax point of view.

8 8 Luxembourg Private Equity Group Downstream M&A As well as the structuring of private equity investments, our group comprises experienced M&A lawyers who drive and execute downstream deals both upon acquisition and disposal. Our lawyers are experienced negotiators, deal managers and draftsmen, and we are one of the very few law firms in Luxembourg to offer a full M&A service, across all practice areas, including tax, acquisition finance, target management retention and incentivisation, regulatory, real estate, IP and IT. As a strategic office of a leading global law firm we are used to providing seamless cross-border services with other offices of Allen & Overy and best friends whenever the context so requires. We have been consistently ranked as number one Benelux M&A law firm by the most relevant specialised media. Law Firm of the year for M&A in Benelux for the 8th time in 9 years in Mergermarket M&A Awards Securitisation undertakings The Luxembourg Act dated 22 March 2004 on securitisation, as amended (the Securitisation Act 2004) provides for a specific legal framework for undertakings carrying out securitisation transactions. The Securitisation Act 2004 allows for the securitisation of all assets which produce a regular and predictable flow of funds. Securitisation undertakings must be mainly financed by the issue of securities. There is no risk diversification requirement. To enable a securitisation undertaking to securitise undrawn loans, partially drawn loans or revolving loans or to grant, under certain circumstances, loans directly, the Luxembourg Banking Act 1993 exempts securitisation undertakings from banking licence requirements. On that basis, securitisation undertakings have been widely used for the acquisition of distressed assets and debt. Furthermore, the Securitisation Act 2004 has created a very favourable legal regime for the securitisation of existing and future claims and has implemented an arsenal of legal provisions (including the recognition of non-petition, subordination and limited recourse provisions) giving full creditor protection and a flexible way to structure a transaction, including the possibility to create compartments for each class of assets or each issue of securities. Securitisation undertakings may be set up in the form of a company or a fund in a tax efficient manner. According to the CSSF, securitisation undertakings exclusively issuing debt securities fall outside the scope of the AIFMD. Allen & Overy LLP

9 9 Why Allen & Overy Our international private equity and funds experts handle all types of transactions, from investment in start-ups and new funds to large cross-border leveraged buy-outs, refinancings and restructurings. With our specialist partners in the key markets of Europe, the Middle East, Asia Pacific and North America we are able to bring together smart, up-to-date and effective cross-border teams at any time. Known for our expertise in M&A and for applying the latest financing techniques, our work is supported by a thorough knowledge of tax and structuring. Luxembourg Private Equity Group Our multi-disciplinary group consists of corporate, tax, funds and finance lawyers with extensive experience and know-how advising private equity houses and venture capitalists on leveraged buy-outs and other private equity transactions (including restructurings and trading of distressed debt) involving Luxembourg acquisition/finance vehicles. We are known for providing innovative and pragmatic advice. We regularly advise on the establishment and ongoing operation of regulated and unregulated private equity funds, as well as the downstream deals that they undertake. Our funds specialists have a significant track record in providing and implementing innovative ideas for private equity houses and investors developing new funds. We assist on all aspects of setting up new private equity funds, including tax and fund structuring, drafting information material and constitutional documents, and joint venture arrangements. As well as advising private equity houses on the establishment of their funds, we also advise institutional investors on their investments into private equity funds. This prominent magic circle firm has a strong track record in this field, with clients pointing to its impressive combination of domestic know-how and international scope. Chambers Europe

10 10 Luxembourg Private Equity group Key Contacts Corporate Marc Feider Fabian Beullekens Peter Myners Vincent Naveaux Partner Partner Partner Counsel Tel Tel Tel Tel Christophe Balthazard Richard Ledain Santiago Jacques Graas Torsten Sauer Counsel Counsel Counsel Senior Associate Tel Tel Tel Tel Tax Jean Schaffner Patrick Mischo Florent Trouiller Partner Partner Counsel Tel Tel Tel Allen & Overy LLP 2015

11 11 Investment Funds Pierre Schleimer Jean-Christian Six Renaud Graas Nicolas Fermaud Partner Partner Counsel Counsel Tel Tel Tel Tel Yannick Arbaut Christopher Dortschy Counsel Senior Associate Tel Tel Leveraged Finance Securitisation/Structured Finance Henri Wagner Frank Mausen Paul Péporté Partner Partner Counsel Tel Tel Tel

12 FOR MORE INFORMATION, PLEASE CONTACT : Luxembourg Allen & Overy 33 avenue J.F. Kennedy L-1855 Luxembourg PO Box 5017 L-1050 Luxembourg Tel Fax GLOBAL PRESENCE Allen & Overy is an international legal practice with approximately 5,150 people, including some 525 partners, working in 42 offices worldwide. Allen & Overy LLP or an affiliated undertaking has an office in each of: Abu Dhabi Frankfurt Paris Amsterdam Hamburg Perth Antwerp Hanoi Prague Bangkok Ho Chi Minh City Riyadh (associated office) Barcelona Hong Kong Rome Beijing Istanbul São Paulo Belfast Jakarta (associated office) Seoul Bratislava Johannesburg Shanghai Brussels London Singapore Bucharest (associated office) Luxembourg Sydney Budapest Madrid Tokyo Casablanca Milan Warsaw Doha Moscow Washington, D.C. Dubai Munich Yangon Düsseldorf New York Allen & Overy means Allen & Overy LLP and/or its affiliated undertakings. The term partner is used to refer to a member of Allen & Overy LLP or an employee or consultant with equivalent standing and qualifications or an individual with equivalent status in one of Allen & Overy LLP s affiliated undertakings. Allen & Overy LLP 2014 I LU: A