CORPORATE DEAL SOURCE
CORPORATE DEAL SOURCE
Critical Transactional Insights for Deal-Makers
CORPORATE DEAL SOURCE
Critical Transactional Insights for Deal-Makers
Private Equity
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Focus on Private Equity – April 2014

McDermott Will & Emery has released the April 2014 issue of Focus on Private Equity, which provides insight on issues surrounding private equity transactions and the investment life cycle across industries.  Articles in this issue include: Private Equity Firms Face Potential Liability Under Plant Closing Laws Private equity firms risk potential liability for Worker Adjustment and Retraining Notification Act violations. Case examples demonstrate the need for proactive activity management, including observing corporate formalities, establishing and filling the director and officer positions of all entities, permitting the operating company management to make the decisions regarding employment terminations and plant closings, and clearly communicating and documenting these activities, to help avoid or quickly exit litigation. Read the full article. Incentivising Management Across the Pond U.S. private equity investors are increasingly looking outside the...

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Equity Investors: Be ForeWARNed

The Worker Adjustment Retraining and Notification Act (WARN Act) requires certain employers to give employees 60 days’ notice of plant closings and mass layoffs.  The goal of the WARN Act is to “provide workers and their families transition time to adjust to the prospective loss of employment, to seek and obtain alternative jobs and, if necessary, to enter skill training or retraining that will allow these workers to successfully compete in the job market.”  Employers who violate the WARN Act are liable to affected employees for up to 60 days of compensation and benefits. On December 10, 2013, the Second Circuit in Guippone v. BH S&B Holdings LLC addressed whether a holding company (HoldCo) and certain investors (Investors) should be deemed “employers” under the WARN Act, and thus liable for violations thereof.  The Investors created various entities to purchase and manage Steve & Barry’s Industries, Inc., which it acquired out of bankruptcy.  HoldCo...

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Key Takeaways from McDermott’s 2014 HPE Symposium

The eighth annual McDermott Will & Emery Healthcare Services Private Equity (HPE) Symposium was held on March 12-13, 2014, at the JW Marriot Marquis in Miami, Florida. McDermott’s Health and Private Equity practices hosted a record crowd of over 350 top private equity professionals, investment bankers and company management teams from around the country. Speakers from a variety of sectors shared their insights and experiences on the state of private equity investing in health care services. Some of the key takeaways included: Operating partners of private equity (PE) firms believe that add-on acquisitions and cost-saving efficiencies will provide the most value appreciation for existing health care services platform businesses for the next 12 months; Most panelists believe that prospects for growth in the health care sector over the next three to five years vary significantly by sector, with health information technology and post-acute care trending...

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Insights for Driving Value Through Operational Performance of Private Equity Investments

The 13th annual Beecken Petty O’Keefe & Company Private Equity Conference took place on Friday, February 21st.  McDermott, a lead sponsor of the event, hosted a panel of leading, mid-market private equity (PE) funds to discuss how their operationally-focused strategies drive value as they pursue new investments.  Moderated by McDermott partner and private equity lawyer Larry Bronska, the panel included senior deal makers from Sterling Partners, RoundTable Healthcare Partners, Blue Sea Capital and AUA Private Equity.  Speaking to a packed house, the group shared their insights and experiences.  Some of the key takeaways included: Operating partners of PE firms often play a significant role in front-end diligence and the courting of target management teams. The most effective deal execution teams include integrated efforts of both the fund’s investment professionals and the operating professionals. Identified cost savings and operating improvements often...

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Alternatives to Typical Private Equity Funds: Search Funds and Fundless Sponsors

We are frequently asked about the differences between a traditional private equity fund, a search fund and a fundless sponsor. Many investors are familiar with the traditional private equity model in which a fund raises a pool of committed private capital, which it has a right to call for future acquisitions.  That capital is then invested over a five- to seven-year horizon in multiple portfolio companies.  The goal of these traditional private equity funds is to return the capital to their investors with a significant return on investment.  In the traditional private equity scenario, limited partners are not allowed to pick and choose between portfolio investments, although there may be some opportunities for limited partners to make additional deal-by-deal co-investments.  Typically, private equity principals take on an advisory, non-operational role with their portfolio companies. Search funds are specialized “micro” private equity funds that are formed...

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High Growth Segment

Fast-growing companies, particularly technology companies, have been looking to the US public markets rather than those in the UK for equity financing.  In fact, there have been no initial public offerings of European technology companies on the main market of the London Stock Exchange (LSE) since 2010. As a response to this, the LSE announced the creation of a new High Growth Segment (HGS). The HGS is designed for mid-sized European companies that need a public platform and better access to financing in order to continue their growth.  It is also anticipated that it will provide a transitional route for companies to the UK Listing Authority’s (UKLA) Official List. Status The HGS sits outside the UKLA’s Official List and is, therefore, not subject to the Listing Rules.  However, it does have the status of an EU Regulated Market and is subject to various EU financial services directives, including the Prospectus Directive, the Market Abuse Directive and the...

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AIFMD: More Than Just a Box Ticking Exercise

As you will no doubt be aware, the alternative investment fund industry is experiencing a serious shakedown in the European Union. The Alternative Investment Fund Managers Directive (AIFMD) comes into effect on July 22, 2013. It seeks to harmonize the European regulatory regime for managers of alternative investment funds, including private equity funds. Its extensive reach means that even funds based outside of the EU could potentially be affected. Funds and fund managers would be wise to ensure their house is in order to avoid non-compliance. We have noted a few points which bear thinking about. Who is your fund manager? Funds are required to nominate a single fund manager, external or in-house, who will be responsible for AIFMD compliance. Unlike the Dodd-Frank Act, the AIFMD provides a distinction between manager and adviser. The former provides investment management services whereas the latter provides administration, marketing or other non-regulated...

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For Private Equity Investors, Section 1202 May Be Worth Another Look

As many deal professionals are painfully aware, the federal capital gains tax rate (in most cases) rose from 15 percent in 2012 to 23.8 percent in 2013.   In light of this tax rate increase, it is now more crucial than ever for deal professionals to creatively structure their investments in order to maximize their after-tax return.   One method available to mitigate the effects of the capital gains tax rate increase is to qualify an investment under Section 1202 of the Internal Revenue Code.   The article linked below, authored by Daniel N. Zucker and Jeffrey C. Wagner, describes the requirements and potential benefits of qualifying an investment under Section 1202. For Private Equity Investors, Section 1202 May Be Worth Another Look The American Taxpayer Relief Act of 2012 extended some of the more significant benefits of Internal Revenue Code Section 1202, which permits eligible noncorporate taxpayers to exclude from taxable income a specified percentage of...

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Venture Funds: Don’t Fear the LLC

It has long been the case that venture funds (classified as partnerships for tax purposes) have insisted that limited liability companies (LLCs) taxed as partnerships convert to C corporations prior to the consummation of a venture financing.   Most commonly, there are three rationales given for this requirement: (1) certain venture fund limited partners are tax exempt institutions or foreign investors and prohibit the venture fund from allocating Unrelated Business Taxable Income or Effectively Connected Income to such types of limited partners that likely would result from an investment directly into an LLC, (2) venture funds are focused on the potential of a future initial public offering (IPO) and the most common vehicle to an IPO is a C corporation and (3) executive talent expects to be issued stock options and are not familiar with the more complex equity issued by an LLC. Perhaps though it is time to revisit this long held investment philosophy. ...

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Welcome to McDermott’s Corporate Deal Source Blog

Where have all the transactions gone?  The first quarter has quietly passed by.  Just a few weeks ago, looking through the pipeline, one could see almost unimpeded to the other side, relatively empty as the bankers say.  But hope exists, as suddenly activity seems to be reemerging.  We call it letter of intent flow (more poetically, LOI Flow).  The beginnings of real transactions.  Concurrently with these beginnings, we launch our inaugural Corporate Deal Source Blog.  And perhaps timing is on our side and we are well positioned to ride the next wave of deal activity from its very beginning. We set out here to provide commentary, not intended for other lawyers, but for our clients and those we hope will find benefit from becoming our clients.  Our goal is to dialogue as much as one can in the blogosphere and that our followers will help drive our content through comment and suggestion.  The Corporate Deal Source Blog aims to be a professional, yet...

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