Editors' Blog

Regulatory fears keep buy-out lawyers on their toes

Posted 30/04/2007 by John Malpas

It was entirely appropriate that as delegates gathered for the inaugural Legal Week Private Equity Forum last Thursday in London, KKR was emerging as the victor in the £11bn takeover tussle for Alliance Boots.

The publicity surrounding this landmark deal served as an appropriate backdrop for a conference during which the debate about the merits of private equity was never far from the surface.

Among the delegates there was a heavy bias towards the growing community of in-house lawyers working at the major private equity and venture capital houses, as reflected in its chairmanship by Claire Wilkinson, the driving force behind the Private Equity Lawyers Forum.

As private equity houses emerge into the limelight, so their need for their own legal teams grows, to co-ordinate the use of outside counsel, to help with deal execution and – perhaps most crucially in the current environment – to deal with regulation and compliance.

A lively session on regulation highlighted the extent to which private equity houses are coming under the regulatory microscope.

Top of the list of concerns for in-house private equity lawyers is how the Financial Services Authority’s (FSA’s) principles-based approach to regulation can be squared with an understandable desire among the houses for coherent guidance on exactly how the regulator thinks these principles should be applied. This may seem straightforward, but the resources available to the FSA are not limitless and it can be difficult to get a response from the body.

But current bugbear number one is the implementation of the European Commission’s Markets in Financial Instruments Directive (MiFID). Concern focuses on the uneven implementation of the directive across Europe, given the UK’s enthusiasm for ‘gold-plating ’ EU directives.

As for the directive itself, the fear is that rules drawn up for European investment banks will have unforeseen consequences when applied to private equity houses. Politics will inevitably play a key part of this process. The ‘we’re different’ plea will only work if the leading private equity houses show a greater willingness to engage in the public debate over the merits of private equity.

At the conference itself, there was certainly a thirst among many of the delegates for a more open debate about the merits of private equity, even if that necessitated a recognition that they are not whiter than white (see Macfarlanes partner Charles Martin’s blog in Legal Village here for an excellent summary of the key components of this debate).

As for MiFID, no doubt it will be largely alright on the night when the directive comes into force this November. No doubt too, those in-house lawyers who are responsible for reassuring their bosses that their business model will not be outlawed overnight will have some sleepless nights before then.

Then again, that is what increasing numbers of corporate counsel are being paid for…

There will be further coverage of the Legal Week Private Equity forum in this Thursday’s issue of the magazine.