Andrej Wolf, a partner at Kirkland & Ellis LLP, gives us his perspective
Solicitors practising in the area of private equity law are principally divided into two categories: (i) those advising private equity funds in connection with ‘raising a fund’, ie the arrangements between the fund manager and the investors in the fund; and (ii) advising private equity funds investing the fund and selling its investments, most commonly being the acquiring and disposal of companies and any legal issues that arise during the time they own a company. This page focuses on the work of the second category.
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 buying and owning businesses. Typically, a private equity firm will buy a majority of the shares of a private company (being a company whose shares are not traded on a stock exchange), control the company 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 usually not only use the money in the fund to acquire a target company, but will try to ‘leverage’ its returns by also using debt finance provided either by a bank or an alternative provider of finance (such as a credit fund or the bond market).
What do private equity lawyers do?
On a typical private equity acquisition, one law firm acts for the private equity fund that is buying the company; another firm acts for the seller; a third for the bank or other institution that is providing finance to the private equity fund; and a fourth firm advises the company’s senior management team.
Solicitors work on up to five or six deals at a time – all at various stages of completion – and a transaction typically lasts three to six months. In the preliminary stages of a potential deal, private equity solicitors are 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.
The number of lawyers working in a team will vary vastly depending on the complexity of the deal and whether the client is the bank or other provider of finance, the senior management team, the sellers or the buyers – there is more work involved when buying a company, particularly at the due diligence stage, than when advising a seller or the senior management team.
Successful private equity 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, or fund raises, as the case may be. For lawyers involved in mergers and acquisitions generally, having private equity clients is therefore a very good source of business as private equity firms are, by definition, serial users of lawyers capable of doing mergers and acquisitions.
Realities of the job
Private equity solicitors can expect to travel overseas; the amount of travel depends on the firm you join and where the clients are based. The work is cyclical and the hours can be long and involve working weekends leading up to key deadlines and the completion of a deal: some working days are 9.00am to 5.00pm; some are 8.00am to midnight or later. Many private equity deals are competitive auctions so lawyers are often busiest in the run-up to the auction bid dates, when the client is in a race against other buyers. The variability of the hours can be tough but the variety of interesting work makes up for it: you may be buying companies as varied as Odeon cinemas, Alton Towers or Aston Martin. The best aspect of this practice area is working with such motivated clients; 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 so it is important to build those relationships socially.
Good private equity lawyers will have strong commercial acumen and numerical skills, a genuine interest in the underlying business of their clients, and probably most importantly 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 discreet tasks that can be given to trainees.
Developments in private equity
Private equity was badly affected at the beginning of the recession following the 2008 global financial crash because of general economic uncertainty and a lack of available finance from banks. However it did not take long for activity levels to pick up again, and 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 private equity-style investments, but also on other investment strategies (such as investing in real estate or credit).
Kirkland & Ellis International LLP
Kirkland & Ellis is an international law firm with more than 2,500 lawyers representing global clients in offices worldwide. In London it is renowned for providing multidisciplinary advice to a wide range of leading private equity clients.