NEW
YORK, Dec. 2, 2022 /PRNewswire/ -- Debevoise
& Plimpton LLP released its 2022 Debevoise Private
Equity Fall Review and Outlook. 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 reviews some of the notable developments the firm's
practitioners are observing in the field, a useful guide during
this dynamic time.
The report notes that 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.
The report's authors explain that 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.
The Inflation Reduction Act 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.
Another key topic is that 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.
Regarding cross-border activities, 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.
The report discusses Restriction Notices that play an important
role in the enforcement arsenal of Hong
Kong's Securities and Futures Commission, which 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.
About the Debevoise Private Equity Group
Debevoise is
a trusted partner and legal advisor to a majority of the world's
largest private equity firms, and has been a market leader in the
Private Equity industry for over 40 years. The firm's Private
Equity Group brings together the diverse skills and capabilities of
more than 400 lawyers around the world from a multitude of practice
areas, working together to advise our clients across the entire
private equity life cycle. The Group's strong track record,
leading-edge insights, deep bench and commitment to unified, agile
teams are why, year after year, clients quoted in Chambers Global,
Chambers USA, The Legal 500 and
PEI cite Debevoise for our close-knit partnership, breadth of
resources and relentless focus on results.
Debevoise & Plimpton LLP is a premier law firm with
market-leading practices, a global perspective and strong
New York roots. We deliver
effective solutions to our clients' most important legal
challenges, applying clear commercial judgment and a distinctively
collaborative approach.
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SOURCE Debevoise & Plimpton LLP