Private Equity. Post-Brexit investor confidence returning

Transcription

1 Volume 4 Issue 6 Private Equity Post-Brexit investor confidence returning Simpson Thacher & Bartlett lead the global interview panel North America Asia-Pacific Europe Latin America Investment hotspots Cross-border challenges Keynote deals Shareholder activism

2 [ Exclusively for: Patrizia Möker 16-Nov-17, 04:02 PM ] Getting the Deal Through Publisher: Gideon Roberton Senior business development manager: Adam Sargent adam.sargent@gettingthedealthrough.com Business development manager: Dan Brennan dan.brennan@gettingthedealthrough.com Readership development manager: Rosie Oliver rose.oliver@gettingthedealthrough.com Product marketing manager: Kieran Hansen subscriptions@gettingthedealthrough.com Welcome to GTDT: Market Intelligence. This is the fourth annual issue focusing on global private equity markets. Head of production: Adam Myers Editorial coordinator: Teya Humphris Subeditor: Janina Godowska Designer/production editor: Tessa Brummitt Cover: istock.com/dynasoar No photocopying. CLA and other agency licensing systems do not apply. For an authorised copy contact Adam Sargent, tel: This publication is intended to provide general information on law and policy. The information and opinions which it contains are not intended to provide legal advice, and should not be treated as a substitute for specific advice concerning particular situations (where appropriate, from local advisers). Getting the Deal Through invites leading practitioners to reflect on evolving legal and regulatory landscapes. Through engaging and analytical interviews, featuring a uniform set of questions to aid in jurisdictional comparison, Market Intelligence offers readers a highly accessible take on the crucial issues of the day and an opportunity to discover more about the people behind the most interesting cases and deals. Market Intelligence is available in print and online at Getting the Deal Through London October 2017 Published by Law Business Research Ltd 87 Lancaster Road London, W11 1QQ, UK Tel: Fax: Law Business Research Ltd ISSN: Strategic Research Sponsor of the ABA Section of International Law Printed and distributed by Encompass Print Solutions Tel: In this issue Global Trends...2 Australia...5 Brazil...14 Cayman Islands...19 France...23 Germany...28 India...32 Indonesia...39 Japan...45 Mexico...52 Russia...56 Switzerland...64 United Kingdom...71 United States...78

3 PRIVATE EQUITY IN GERMANY Peter Memminger is a partner and founder of Memminger LLP. He specialises in corporate, M&A and private equity. He also advises on questions relating to corporate governance, D&O liability and litigation. Peter was the founding member of Milbank, Tweed, Hadley & McCloy LLP Germany and built up the corporate team in Frankfurt as equity partner. Prior to his role as a lawyer, he worked as an executive assistant to the board member of the investment bank JPMorgan Chase & Co in the M&A area. In addition to legal practice, Peter Memminger regularly speaks on M&A topics and teaches international law and M&A. Ulrich Weidemann is counsel at Memminger LLP. He specialises in corporate finance and private equity. He also advises clients on capital market and regulatory issues, and on capital markets litigation. Prior to joining Memminger LLP, Ulrich worked in the capital markets practice group of US law firm Shearman & Sterling LLP in Frankfurt. In addition, he worked for Freshfields Bruckhaus Deringer LLP in Frankfurt and New York from 2004 to Ulrich has sector know-how in the fields of automobile, banking, finance, electronic engineering, telecoms, insurance, chemical industry, transport, energy, real estate and foodstuff. istock.com/rudybalasko 28 // GERMANY

4 GTDT: What trends are you seeing in overall activity levels for private equity buyouts and investments in your jurisdiction during the past year or so? Peter Memminger: Activity levels are strong and in line with the positive development we have observed over the past three years. The largest number of transactions occur in the mid-market segment and there is a steady deal flow in largescale transactions in Germany. This is generally the case across all industries, with some emphasis, however, on segments such as infrastructure, healthcare and IT. GTDT: Looking at types of investments and transactions, are private equity firms continuing to pursue straight buyouts or are other opportunities, such as minoritystake investments, partnerships or add-on acquisitions, also being considered? PM: As observed in the last boom cycle, all types of transaction are now pursued in Germany, including minority investments and private investment in public equity deals, although the private equity investor usually only has limited controlling influence over the business or management of the target in the latter type of transaction. The reason for this is that it is a seller s market, with a limited number of available targets at attractive levels and, hence, investors are more willing to pursue transactions off the beaten track if they promise attractive returns. GTDT: What were the recent keynote deals? And what made them stand out? PM: We had a number of high-volume secondary and even tertiary deals, but the transaction I want to highlight the most is the Stada situation, in which a number of activist investors were involved that were ultimately successful in achieving a change in the composition of the boards of a German publicly listed company. This is a gamechanger in the German landscape and we will now experience more and more of these situations involving hedge and private equity funds. GTDT: Does private equity M&A tend to be cross-border? What are some of the typical challenges legal advisers in your jurisdiction face in a multi-jurisdictional deal? Are those challenges evolving? PM: In medium-sized and large transactions, international private equity and sovereign wealth funds frequently participate and succeed in their respective transactions. They do not only come from typical private equity countries, such as the United States or the United Kingdom, but also, increasingly, from the Middle East and Asia. The challenges associated with this are in educating Peter Memminger the new players about the market practices and expectations of sellers, buyers and financing parties when pursuing transactions in Germany, and to avoid transactions falling through because of incompatible behaviour or expectations. GTDT: What are some of the current themes and practices in financing for transactions? Have there been any notable developments in the availability of debt financing or the terms of financing for buyers over the past year or so? Ulrich Weidemann: Debt financing continues to be available, on competitive terms, for almost every type of transaction, both for classical leverage finance and more capital markets-related instruments, such as bonds. In addition, we see an increasing number of debt funds offering debt financings. Debt financing levels and terms are moving towards the levels seen before GTDT: How has the legal, regulatory and policy landscape changed during the past few years in your jurisdiction? UW: Aside from the AIFMD, the general tendency towards creating more compliance systems, and improving on them, has also reached private equity, in terms of both fund structures and how closely due diligence is conducted on potential GTDT: Market Intelligence Private Equity GERMANY \\ 29

5 Ulrich Weidemann GTDT: What levels of exit activity have you been seeing? Which exit route is the most common? Which exits have caught your eye recently, and why? UW: Exits are clearly on the rise with the market recovery, from traditional players to venture funds that have been able to grow and exit start-up type investments. Exits take all forms, such as sales to strategic buyers, secondaries or even initial public offerings. The preferred route is clearly still a straightforward sale, because of the volatile capital markets. GTDT: Looking at funds and fundraising, does the market currently favour investors or sponsors? What are fundraising levels like now relative to the past few years? targets, particularly if fund investors come from the United States or the target has a significant US operation. GTDT: What are the current attitudes towards private equity among policymakers and the public? Has there been any noteworthy resistance to private equity buyouts by target boards or shareholders? Does shareholder activism play a significant role in your jurisdiction, and if so, how has it impacted private equity M&A? PM: Generally, policymakers and the press have no reservations about private equity transactions, and the unfortunate locust debate of 10 years ago, initiated by a former minister, is all but forgotten. Private equity is seen as a normal, regular player in the market of buying and selling companies, and private equity firms face no legal or tax disadvantages compared with strategic players. There has been a significant increase in interest regarding shareholder activism as it concerns the German market. Professionals have been expecting this for the past two to three years, and with the Stada deal it has finally happened. PM: Clearly the fundraising environment has been very favourable to sponsors over the past two years and even first-time funds are able to raise fund vehicles of the three-digit million size if they have a convincing story, their team has relevant transactional experience and they offer competitive terms. Nevertheless, investors have also learned their lessons over the past years and while they may be willing to take more risk in their search for interesting and lucrative investment ideas, they demand more and more from their general partners to lower management fees or other non-success-based compensation schemes. GTDT: Talk us through a typical fundraising. What are the timelines, structures and the key contractual points? What are the most significant legal issues specific to your jurisdiction? PM: It is hard to outline a typical fundraising approach as the fundraising market has become much more diverse, with a growing number of first-time funds, fund of fund investors and fund placement agencies, and wide transparency about how existing funds that enter fundraising have performed in their past funds. The fundraising approach taken really depends on the particular circumstances at hand and the duration may range from as low as three months up to 12 months to close. GTDT: How closely are private equity sponsors supervised in your jurisdiction? Does this supervision impact the day-to-day business? UW: Depending on the capital under management and whether the fund is located in Germany, private equity funds have to comply with legal provisions that also apply to (other) financing sources in the German market, such as 30 // GERMANY

6 banks or asset managers. Private equity funds are monitored for compliance with these rules like any other market participant and this supervision does not need to have an impact on the day-today operation of a fund if it is set up and advised properly. GTDT: What effects has the AIFMD had on fundraising in your jurisdiction? UW: The AIFMD had been widely discussed when it was proposed and, as is always the case with new laws, once it had been enacted people found out that even though it creates additional administrative burden and costs, it does not make fundraising or investment impracticable or even impossible. It has mainly resulted in additional notification, approval and housekeeping, and information requirements. GTDT: What are the major tax issues that private equity faces in your jurisdiction? How is carried interest taxed? Do you see the current treatment potentially changing in the near future? PM: Although not as favourable as other European regimes (eg, the United Kingdom), Germany generally provides for a beneficial treatment of carried interest as capital gains, subject to certain conditions. The increasing scrutiny of how management participation programmes are reviewed and treated currently has a greater impact on how deals are getting done, and even more so because this concerns already established programmes. GTDT: Looking ahead, what can we expect? What might be the main themes in the next 12 months for both private equity M&A and fundraising? THE INSIDE TRACK What factors make private equity practice in your jurisdiction unique? Germany offers everything that a serious private equity investor aims for: a reliable, stable, transparent and fair legal and political system; a sophisticated market environment where investors have a variety of reputable advisers and other market players to choose from; and, most importantly, the largest European economy with a high level of innovative power and a large number of Mittelstand companies, which are often global leaders in their respective areas and that have a need for succession planning. What should a client consider when choosing counsel for a complex private equity transaction in your jurisdiction? Investors should mostly focus on the experience of the adviser in representing investors against typical German medium-sized companies or publicly listed companies, the reputation of the lead counsel they seek to engage and, finally, his or her down-to-earth mentality. What interesting or unusual issues have you come across in matters that you have recently worked on? Transactions in the healthcare space are interesting, as you have to address and solve the inherent conflict between the return expectations of shareholders and a healthcare system whose legal and economic set-up was not developed with the view that business-minded investors might acquire a stake or control in it. Peter Memminger and Ulrich Weidemann Memminger LLP Frankfurt PM: Despite an already challenging political environment in Germany and the EU, and continuing concerns over worldwide economic slowdown and political crises in some countries and regions, market activity has been very robust and stable. If the financing availability and terms do not change, we can expect another good year for private equity. But if they do change, we might experience months of uncertainty, as valuation multiples are currently so high that they can only be justified with the generous availability of debt financing. At this point in time, the extent to which Brexit may influence markets in Europe (and abroad) is unclear. GTDT: Market Intelligence Private Equity GERMANY \\ 31

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