Private equity and venture capital update - October 2015

Published on 27th Oct 2015

Welcome to the latest edition of Osborne Clarke’s quarterly private equity and venture capital update.
We hope that you find it interesting. If you would like to discuss any of the content, or have a subject that you would like us to cover in a future edition, please let one of us know. Our contact details are set out below.

Limited Partnership reform

The government has published proposals for reform of the UK limited partnership (LP), as announced in the Summer Budget 2015. Under the proposals, LPs will be able to register as “private fund LPs” and so take advantage of a number of relaxations to the current LP regime.

As expected, there is a “white list” of activities which a limited partner will be able to undertake without being considered as taking part in the management of the LP’s business (and accordingly without losing its limited liability). However, the proposals do not include any amendments to allow UK LPs outside Scotland to elect to have separate legal personality.

The consultation on the proposals closed on 5 October 2015. We expect the government to publish its response in the next few weeks and for the proposals to come into effect later this year or early in 2016.

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“PSC register” implementation delayed

Implementation of the people with significant control (PSC) register regime has been pushed back by three months to allow UK Companies House processes to get up to speed. UK companies and limited liability partnerships (LLPs) will have to start keeping their register from April 2016 (delayed from January 2016). PSC register information will have to start being filed at Companies House from June 2016 (delayed from April 2016) and will be searchable online via the Companies House website.

As we have covered in previous updates, the PSC register is a new compulsory corporate register which will name, and contain information on, individuals who directly or indirectly own or control more than 25% of a company’s shares or voting rights, or who otherwise have the ability to exercise “significant control” over the company or its management. The government recently announced that the regime would also apply to LLPs.

We have a set of resources dedicated to the introduction of the PSC register here.

Modern Slavery Act 2015: New reporting requirements for portfolio companies

From October 2015, under the new Modern Slavery Act 2015, most large commercial organisations in the UK will need to publish an annual, Board-approved, statement setting out the steps that they have taken to prevent slavery, not just within their organisation but also within their supply chain.

The obligation to provide an annual Transparency in Supply Chains statement will apply to all commercial organisations that carry on all or part of their business in the UK, supply goods or services and have a total annual turnover (worldwide) of £36 million or more.

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Anti-trust risk arising out of portfolio company activities

Earlier this month the Dutch national competition authority confirmed its decision to fine Bencis Capital Partners, Bencis Buyout Fund II and two CVC entities a total of €1.9 million for the anti-competitive actions of one of their portfolio companies.

This follows in the footsteps of last year’s decision by EU antitrust authorities to fine Goldman Sachs €37.3 million because of the cartel activities of Prysmian, a portfolio company which was the subject of a Goldman Sachs Capital Partners buy-out.

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Portfolio company operations may need review following major data protection ruling

Earlier this month, the US Safe Harbor scheme was declared invalid by the Court of Justice of the European Union.

This decision is hugely significant for portfolio companies that rely on Safe Harbor as a simple and cost-effective legally compliant mechanism to transfer European personal data to group companies or suppliers in the US. Technology, telecommunications and cloud companies which have been key in enabling the digital revolution and which have benefitted from the free flows of European customer data to the US will be hardest hit. Now companies will need to consider additional compliance steps to ensure an adequate level of protection for EU-US data transfers, or face potential regulatory action.

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What does the EU Capital Markets Union mean for private equity and venture capital?

Earlier this month, the European Commission published its Action Plan on Building a Capital Markets Union. Click here to read our summary and view on what this means for the UK’s financial sector as a whole.

We have picked out the six proposals from the Action Plan which will impact private equity and venture capital covering raising funds, debt financing of portfolio companies and exit.

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Carried interest and fees

How carried interest is taxed continues to attract discussion at a politically high level. In the US, Hillary Clinton, Jeb Bush and Donald Trump have all spoken in favour of taxing carried interest as income rather than capital.

In the UK, an amendment has been proposed by SNP MPs to the Finance Bill 2015-16 currently going through Parliament requiring George Osborne to publish proposals to “ensure that no element of the remuneration paid to an investment fund manager may be treated as a capital gain, and that such remuneration shall be treated for tax purposes wholly as income”. An investment fund manager is defined in the amendment as “a person who performs investment management services directly or indirectly”. The amendments are due to be debated in Parliament shortly and, as the proposals are not endorsed by the government, they are likely to be defeated.

We have also seen a focus on the fees charged by fund managers. Earlier this month in the US, the SEC required Blackstone to pay $39 million in compensation and fines. In the EU, the issue of fees is likely to come under the spotlight when AIFMD is reviewed in 2017 (colloquially referred to as AIFMD II).

Osborne Clarke news

In the last quarter, we advised on PE and VC deals with a value in excess of £830 million, including advising:

  • Synova and Newco on the MBO of receivables software business Merit Software.
  • Management on the secondary buyout of Alcumus Group Limited funded by Inflexion.
  • Management on the acquisition of LA Fitness by Pure Gyms.
  • Management on the disposal of Kew Green Hotels by Goldman Sachs and TPG Special Situations Partners.
  • Prodigy Finance on the equity aspects of its £100million financing.
  • Siemens Ventures on its investment in Materials Solutions.
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* This article is current as of the date of its publication and does not necessarily reflect the present state of the law or relevant regulation.

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