Private Equity Report Fall 2022, Vol 22, No 3

November 2022
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Letter from the Editors

In the face of both the current economic environment and regulatory developments, private equity sponsors are exploring new structures and strategies, and reexamining previously existing approaches in a new light. This issue of the Debevoise Private Equity Report reviews some of the notable developments our practitioners are observing in the field. We hope that you find this a useful guide during this dynamic time.

  • In a Choppy Market, Preferred Equity Comes to the Fore

    Market conditions have made preferred equity an increasingly popular liquidity and financing alternative to traditional GP-led secondaries, NAV financings and GP financings. Sponsors using this strategy need to navigate several issues, including whether the terms more closely resemble equity or debt, obtaining LP consent and managing conflicts of interest and disclosure requirements.
  • Structuring Options for Addressing the New 1% Excise Tax

    The Inflation Reduction Act’s 1% excise tax doesn’t just cover garden-variety stock buybacks—it can also extend to the portion of the purchase price of a U.S. public corporation that is treated as a redemption for U.S. income tax purposes. Affected private equity buyers should consider an alternative financing structure in which the acquisition debt is undertaken by the parent holding company.
  • Implications of the Inflation Reduction Act for Investors in Life Sciences Companies

    The Inflation Reduction Act also includes provisions that constitute some of the most significant healthcare reform since the Affordable Care Act—most notably, by requiring HHS to negotiate the price of many of the drugs that account for the highest Medicare spending. Private equity investors in this space will need to factor this and other changes into their investment calculus.
  • Your Contract Can Only Be Amended in Writing? Not So Fast.

    Most agreements contain language requiring amendments to be made in writing. But such clauses aren’t the last word on the matter. A Delaware Chancery Court decision in June is only the most recent reminder that—as paradoxical as it may seem—provisions requiring written modification can be undone by oral agreement.
  • Avoiding Surprises in Brazilian M&A

    Many acquisitions and exits by international sponsors involving Brazilian targets are governed by Brazilian law but use agreements modelled on New York or Delaware forms. However, limited disclosures have made it difficult for sponsors to see how these imported provisions have held up in disputes. Research findings presented at this summer’s M&A Conference of the Americas in São Paulo shed light on this question.
  • Deep Freeze: What PE Funds in Hong Kong Need to Know About the SFC’s Asset-Freezing Powers

    The Restriction Notices that play an important role in the enforcement arsenal of Hong Kong’s Securities and Futures Commission recently survived a constitutional challenge. Private equity sponsors are well-advised to understand how Restriction Notices give the SFC a broad basis to freeze an entity’s assets—and the assets of the entity’s clients—pending an investigation.