Neel Sachdev, a partner at Kirkland & Ellis International LLP, gives us his perspective
Private equity clients are set up to raise and invest capital. They are always active on deals, and value legal advisors who are hard-working, responsive and can execute complex cross-border transactions. Private equity M&A and leveraged finance involve corporate and debt lawyers advising these clients on the acquisition of private and publicly listed companies as well as other strategies.
A private equity fund is a type of investment fund set up by a private equity firm (the fund manager), which invests other people’s money, such as that of pension funds, insurance companies and sovereign wealth funds, by investing in businesses and assets. Private equity firms have traditionally been associated with the acquisition of control equity stakes in different businesses. More recently some have adopted multiple strategies with related funds, investing in minority stakes, distressed situations, real estate, debt investments and other situations. In a private equity M&A transaction, the private equity firm will buy a majority of the shares of a private company (being a company whose shares are not listed on a stock exchange), control the company with management and put the firm’s representatives on the management board. The private equity firm will hold that company for usually between about two to five years, during which time it will seek to provide operational input to improve and grow the business of the company, following which it will look to sell the company, hopefully at a profit, and return the proceeds to the investors in the fund. A private equity firm will often seek to fund part of the purchase price for the acquisition from a bank or other source of debt finance to leverage its returns.
What do private equity lawyers do?
Private equity M&A and financing lawyers need to be committed and focused. As private equity firms are always looking to deploy capital, private equity and financing lawyers are often busy on multiple transactions at the same time.
A private equity M&A lawyer will work as part of a team on a number of work-streams including due diligence, structuring and advising on the share purchase agreement. A leveraged financing lawyer will work on advising on the terms and structuring of the debt finance needed for the transaction.
Our lawyers will work on multiple deals – all at various stages of completion – and a transaction can last from a few weeks to six months or longer. In the preliminary stages of a potential deal, we would be instructed by the client to carry out an initial analysis of the target company. Once a client decides to proceed with the acquisition, many lawyers and advisors are involved in the due diligence process, which is designed to flag up any risks or issues that might affect the value of the company. Towards the end of the process, solicitors work through the contractual arrangements with the seller and the senior management team of the target company, and arrange the financing.
Successful private equity M&A and financing lawyers develop long-standing relationships with private equity firms, and will continue to advise the same private equity firm repeatedly on different acquisitions and disposals and financings. As private equity clients are always active, they look for young, energised and committed legal advisors who are experienced in advising on many transactions.
Realities of the job
Young lawyers should be ready to work hard on complicated and fast-moving transactions, often involving high-profile companies. Working at Kirkland with our private equity clients is an opportunity for lawyers to accelerate their careers by gaining deal experience, enabling them to become partners and trusted client advisors at an early stage in their careers. The work can be intellectually demanding and will involve lots of client contact.
Private equity M&A and financing law are highly rewarding areas of law. Private equity is fast evolving and has become a huge part of the global macro economy.
Private equity is a young, meritocratic industry with many clients in their 30s and 40s. The relationship between lawyers and clients is long-standing and based on trust.
Good private equity lawyers will have strong commercial acumen and numerical skills, a genuine interest in the underlying business of their clients, and good people skills – for working in teams and building long, trust-based relationships with clients. From a purely legal perspective, they will mostly be working with contract law and company law issues, but will also develop a good grounding in many other areas of law such as tax, antitrust and employment law issues.
Trainees will assist with due diligence, help to implement usually complex corporate structures, and will work closely with the large amount of documents needed to close a transaction. There are opportunities for early responsibility for trainees, and on a large transaction there are plenty of discrete tasks that can be given to trainees.
Developments in private equity
Private equity has weathered the Covid-19 crisis in 2020. Our clients have been involved in a variety of transactions including managing their portfolio companies through the crisis and seeking new opportunities to make investments. Private equity investors are among the most innovative of deal-doers and will find ways of making the most of investment opportunities, even in difficult markets. Some of the more prevalent developments in private equity over the past few years have included:
(i) The emergence of alternative providers of debt finance beyond the large investment banks. As banks had their balance sheets shrunk following the financial crash, and came under increasing pressure to maintain higher levels of regulatory capital, their ability to lend into private equity deals has shrunk. They have been replaced to a large extent by alternative providers of finance, such as specialist credit funds.
(ii) Increased European-wide regulation on private equity funds raising capital from institutional investors in Europe, and subsequently investing in Europe. This has put increased cost and red tape on raising funds, and certain limitations on what a private equity firm can do with an investment after making an acquisition.
(iii) An increase in the number of private equity firms becoming ‘multiple asset managers’, which means raising investment funds which don’t just focus on typical control equity investments, but also on other investment strategies (such as investing in real estate or credit).
Kirkland & Ellis International LLP
Kirkland & Ellis is a global law firm specialising in advising on private equity M&A and financing transactions, fund formation, litigation and restructuring. The firm is pre-eminent in those areas globally across its 15 offices in US, Europe and Asia.