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The Walker Committee Report on the UK Private Equity Industry |
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David Glass, Partner at London based Pritchard Englefield law firm
reviews the published in November “Guidelines for Disclosure and
Transparency in Private Equity”.
The report is intended to address public concerns about the perceived
lack of transparency of private equity groups and their holdings in the
UK.
“Private Equity” firms for these purposes are defined as those
regulated by the UK Financial Services Authority which manage or advise
funds that own or control UK “portfolio companies” as defined or have
the designated capability of doing so.
“Portfolio Companies” for this purpose are large UK companies owned by
one or more private equity firms, which generate more than 50% of their
revenues in the UK, have more than 1,000 UK employees, have a market
capitalization of more than £300M (where the private equity firms take
control through a “public to private” transaction) or have an
“enterprise value” of more than £500M (where the private equity firms
take control through a secondary or other non-market transaction).
The Walker Committee Report recommends that such portfolio companies
adopt “enhanced reporting” requirements by publishing on their website
annually within six months of their year end details of the identity of
the private equity fund that controls them together with details of the
senior managers and advisers who have responsibility for the portfolio
companies concerned and by also publishing a detailed business review
(along the lines of those now required of fully-quoted companies under
the Companies Act 2006). Portfolio companies are also recommended to
publish a mid-year report within three months of their mid-year point
giving details of major developments in their companies. Portfolio
companies are also recommended to supply various information to the UK
private equity industry trade body, The British Venture Capital
Association (“BVCA”).
The Walker Committee also recommends that UK private equity firms
themselves publish on their website information about their structure
and investment approach and details of the categorisation of their
limited partners by geography and type and also to supply various
information about themselves to the BVCA.
The final plank is that the BVCA itself is recommended to publish various information on a regular basis.
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The Report guidelines also talk of the need for UK private equity firms
to ensure “timely and effective communication with employees, either
directly or through its portfolio company as soon as confidentiality
constraints are no longer applicable”.
The recommended guidelines are voluntary and adopt the “comply or
explain” approach, long familiar in the UK and, in particular, a
feature of the UK Combined Code on UK Corporate Governance applied to
fully-quoted companies on the London Stock Exchange.
The Report also recommends disclosure guidelines for general partners to limited partners of UK private equity firms.
The guidelines have attracted a mixed response. Within the UK private
industry, there is criticism that private equity firms and their
portfolio companies are now subject to more onerous rules than would
apply to other large privately owned companies in the UK. Outside the
industry, there is criticism that the Walker Committee Report only
addresses the issue of transparency and does not deal effectively with
controversy over the huge earnings that are generated by the UK private
equity industry and that in addition the Report does not adequately
tackle investments by private equity-like funds (such as Sovereign
Wealth Funds) which do not technically fall within the definition of
“private equity firms” for the purposes of the Report.
Meanwhile, in his pre-Budget review of October 2007, the UK Chancellor
of the Exchequer has recommended various tax changes that could impose
a higher tax on UK private equity firms and their senior managers.
The influence of the UK private equity industry on British economic
life is universally agreed to be enormous and therefore the Walker
Report was almost bound to give rise to controversy. However, the
longest journey always begins with the first step!
© December 2007 David Glass
All Rights Reserved.
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