From the Editors
Over the past year, the private equity industry has responded to the upheaval of the COVID-19 pandemic with tremendous resiliency and innovation. Private equity sponsors have acquired new long-term sources of capital through insurance investments, accessed the IPO market through SPACs and protected exit strategies from volatility in the debt financing market through the use of portability provisions. While these strategies were already part of the private equity playbook, the pandemic has intensified their use.
The pandemic has also highlighted the importance of nonfinancial factors in investing—not just climate change, but other environmental issues like biodiversity, and social issues, such as racial justice and economic inequality. The EU’s ESG directives are thus one point in an arc tracing the evolving expectations of regulators and investors.
In this issue of the Debevoise Private Equity Report, we explore these developments, what they mean for private equity sponsors and the caveats to keep in mind. We hope that you will find this to be a useful guide in developing your own strategies to flourish during times of great change.
We look forward to the opportunity to assist you in that journey.
- Spotlight Interview: KKR’s Susanna Berger
To mark its twentieth anniversary, we have added a new video section to the Debevoise Private Equity Report: Spotlight Interviews, featuring leading private equity figures from around the world in conversation with Debevoise partners on important industry topics of the day. In our inaugural segment, Susanna Berger, London-based Managing Director and General Counsel for KKR in Europe, speaks with Patricia Volhard, a partner in Debevoise's Frankfurt and London offices.
- SPACs: Key Regulatory Considerations for Private Equity Sponsors
SPACs provide sponsors with a permanent capital vehicle, access to different targets than might otherwise be available due to restrictive fund covenants and greater access to capital through retail investors and liquidity options that are not always available to a traditional private equity portfolio company and private equity funds, allowing for the pursuit of larger targets. Despite these attractions, SPAC sponsors should proceed with some caution.
- Locked Boxes in U.S. Practice: An Underused Tool?
The locked box in U.S. private M&A is a relatively foreign concept – relegated to special situations and often looked upon with suspicion by wary buyers. Is this reputation justified? Should U.S. practitioners embrace the locked box as a value and efficiency creating mechanism?
- Insurance Investments: Key Considerations for Investors in the U.S., Europe and Asia
Financial sponsors have long been important providers of capital to the insurance industry, but in recent years, private equity acquisitions of insurance businesses have become more common. While this trend has been most noticeable in the United States and Europe, it is beginning to take hold in Asia as well. Private equity sponsors considering insurance investments in Asia and in emerging markets can look to lessons learned from deal experience in United States and Europe—but need to keep in mind the quirks across different jurisdictions regarding capital, structure and reporting.
- Portability in Debt Financing Agreements: A Helpful Tool for Private Equity Sponsors
Portability provisions, allowing a buyer to step into the shoes of a seller upon a change of control and leave the target’s financing intact, have become a useful tool to mitigate the impact of market risk on a potential exit transaction. However, sellers need to think through the required conditions at the time they incur the debt to ensure that closing risks have been appropriately mitigated.
- The End of Leveraged Buyouts As We Know Them? Hardly.
On Dec. 4, 2020, Judge Jed S. Rakoff, of the U.S. District Court for the Southern District of New York, in a decision applying Pennsylvania law, declined to dismiss breach of fiduciary duty claims against the board of directors of the Jones Group Inc. in connection with the April 2014 take-private acquisition of the company by Sycamore Partners. While the decision – In re Nine West LBO Securities Litigation – was only a preliminary ruling and not a decision on the merits, it has been described as a potential “game stopper for the private equity business” and a “sobering punctuation mark to a sobering year.”
- ESG Outlook for Private Equity Sponsors
While ESG concepts have been gaining momentum for almost two decades, the pandemic, coupled with growing concerns around climate change, has elevated its importance. This article discusses the evolution of ESG investing, provides an overview of the current regulatory landscape in Europe and the United Kingdom, and examines the potential effects of ESG developments on private equity sponsors in the short, medium and long term.
About the Debevoise Private Equity Group
A trusted partner and legal advisor to a majority of the world’s largest private equity firms, Debevoise & Plimpton LLP has been a market leader in the Private Equity industry for over 40 years. The firm’s Private Equity Group brings together the diverse skills and capabilities of more than 300 lawyers around the world from a multitude of practice areas, working together to advise our clients across the entire private equity life cycle. The Group’s strong track record, leading-edge insights, deep bench and commitment to unified, agile teams are why, year after year, clients quoted in Chambers Global, Chambers USA, The Legal 500 and PEI cite Debevoise for our close-knit partnership, breadth of resources and relentless focus on results.
Debevoise & Plimpton LLP is a premier law firm with market-leading practices, a global perspective and strong New York roots. We deliver effective solutions to our clients’ most important legal challenges, applying clear commercial judgment and a distinctively collaborative approach.