Private equity explained

Private equity is a pretty confusing area of corporate law, but one which more and more law firms are involved in. Here's a brief primer and some firm work examples.


What is private equity?

Private equity and investment firms operate funds that pool the investments of anybody prepared to part with their money for a sustained period of time. Private equity firms use investors' cash (equity) in combination with money raised from banks (debt) to buy companies or other assets with the goal of selling them on at a profit. When the targeted company's assets are used as leverage and a significant amount of bank debt is employed, the transaction is known as a leveraged buyout (LBO). 

Venture capital is a subset of private equity that sees investors put money into start-up companies or small businesses in the hope they will be sold to a private equity firm or taken public. Although this typically entails high risk for the investor, it has the potential for above-average returns. This high risk is typically offset by investing smaller amounts over a shorter timespan. 

Investment management is the professional management of various securities (shares, bonds etc.) and assets in order to meet specified investment goals. Investment management lawyers advise on the structuring, formation, taxation and regulation of all types of investment funds. 

A hedge fund is a private, actively managed investment fund. It aims to provide returns to investors by investing in a diverse range of markets and financial products, regardless of whether markets are rising or falling. Using the derivatives market helps hedge funds achieve this. 

A mutual fund is a collective investment vehicle that pools money from many investors to purchase securities. The term is most commonly applied to collective investments that are regulated and sold to the general public. 

A real estate investment fund/trust is a publicly traded investment vehicle that uses investors' money to invest in properties and mortgages. Both hedge funds and mutual funds generally operate as open funds. This means that investors may periodically make additions to, or withdrawals from, their stakes in the fund. An investor will generally purchase shares in the fund directly from the fund itself rather than from the existing shareholders. This contrasts with a closed fund, which typically issues all the shares it will issue at the outset, with such shares usually being tradable between investors thereafter. 

Private equity at Kirkland & Ellis

There's no escaping it: for trainees at Kirkland & Ellis, private equity is the name of the game. “If you're looking for public M&A or public sector work, you won't find it here,” one trainee advised. “The firm wants to provide a full service to private equity clients, and our aim is to be the go-to firm for funds at any stage.” Consequently you'll find private equity clients on nearly every department's client roster. As this trainee put it: “It's all encompassing.”


So if you want to make it at K&E, you're going to need to know your stuff. Showing that you've mastered the basics of the PE market at the interview stage will stand you in good stead: if they ask you about hedge funds, you don't want to raise eyebrows with a hopeful theory about pro-environmental bursaries. “I had to justify why I was interested in private equity and why I found certain deals that I mentioned fascinating,” one trainee recalled of their interview with the firm.

Private equity at Weil Gotshal & Manges

At Weil, private equity is the linchpin of the corporate practice. The firm has almost 80 PE partners across the world, and its London group has earned enviable Chambers UK rankings for its investment funds and buyouts capabilities. In a lucrative coup a few years back, the team poached a 16-strong private funds practice from Clifford Chance, further padding its practice and solidifying its rep as one of the best in the biz. In 2014, the team proved its pulling power again, this time by snagging two partners from Latham & Watkins and Hogan Lovells. The team also attracted new clients: three of the world's largest funds – Blackstone, KKR and CVC – switched to Weil for legal representation.

On the funds front, lawyers assist in the formation of funds like venture capital, distressed debt, buyouts and hedge funds. Those working on the transactional side deal with a host of PE-related matters, from banking and finance and capital markets issues to regulatory, IP and restructuring transactions. The industries lawyers come into contact with are wide-ranging and include food and beverage, retail, real estate, media and energy (to name a few). According to our sources, the department – which typically takes on four or five trainees at a time – is “a great one to experience as it's a primary source of work for Weil.” For trainees, “a big part of the job is managing the completion agenda and keeping on top of everything during the signing and closing process.” We also heard that juniors have a go at drafting ancillary documents and board minutes, and take on some non-transactional tasks like researching company law matters.

In 2014 total UK deal volume for Weil's PE lawyers topped a colossal $146 billion. Here are some recent work examples:

  • It oversaw Bain Capital's £1.2 billion acquisition of TI Automotive;
  • Represented Cinven, Blackstone and CPPIB as the trio put in their consortium bid for assets being sold by building materials outfit Holcim and Lafarge;
  • Acted as lead counsel to Ono's principal shareholders during the Spanish cable operator's €7.2 billion sale to Vodafone;
  • Represented TowerBrook Capital Partners during the £238 million sale of designer fashion brand Phase Eight to a South African retail group;
  • Advised Ontario Teachers' Pension Plan on its £173 million acquisition of a significant minority interest in the Lowell Group, a UK-based credit management services provider;
  • Represented Technology Crossover Ventures as it invested in Spotify and music distributor Believe Digital.

Private equity at King & Wood Mallesons

Private equity work was a big deal at legacy SJ Berwin, which frequently topped the private equity league tables for volume and value of buyouts across Europe, and even won the award for private equity team of the year in the Financial News Legal Awards the year it joined forces with King & Wood Mallesons (2013).

Since the merger, some of legacy SJ Berwin's key private equity partners – Steve Davis, Richard Lever, Tim Wright and Ed Harris – have jumped ship. Their departures were significant due to the notable client relationships they'd cultivated with the likes of Lion Capital, Terra Firma, Duke Street and Lloyds bank. As a result the firm slipped a bit in the Chambers UK rankings moving from band one for venture capital in 2011 to band three in 2014. The department is now also smaller in size.

However, KWM is in the process of rebuilding its private equity practice and in July 2015 hired a partner from Fried Frank. Time will tell how KWM's post-merger reshuffle will impact on SJ Berwin's once solid status as a private equity hotshot, but for now, take a look at some of the firm's recent work highlights in the area:

  • It acted for Core Capital Partners during the sale of its £200 million-plus stake in Kelway Holdings, a UK-based IT services provider;
  • Advised Inflexion Private Equity Partners on its acquisition of Succession Holdings, one of the UK's largest privately-owned wealth management businesses;
  • Represented Vitruvian Partners as it invested $66 million into boutique fashion retailer;
  • Acted for New Enterprise Associates when it invested $104 million into Adaptimmune, a UK-based biotech company which specialises in cancer gene therapy;
  • Advised Development Partners International, who in turn advised an African private equity fund on its $20 million investment in Université Privée de Marrakech.

Private equity at Mayer Brown

Mayer Brown's global private equity offering is set to grow after it added two PE pros in London.In February 2016, Chambers UK-ranked Perry Yam was brought over from Reed Smith to head up Mayer Brown's London private equity group; just four months later he was joined by fellow former Reed Smith partner James West. Yam's reportedly been tasked with increasing London's collaboration with the Paris office and the firm's US offering. It appears that he's wasted no time in getting things ramped up: “Since we've hired the new partners we've already seen an increasing amount of private equity work,” reported our trainee sources in the corporate department.