Private equity law covers private equity firms that pool investments of pension funds and other large investors to purchase assets and other companies. A private equity lawyer will help form the funds and help negotiate the terms of the contracts. The private equity industry in the United States began around 1946 when two venture capital firms were founded.
Private equity is a type of investment where investors’ money is used to buy out businesses. It’s like Dragons’ Den! In private equity deals, the investor buys a controlling stake in the business. So next time you’re watching the BBC show, that’s what Peter Jones, Deborah Meaden and their fellow Dragons are striking a deal upon – a controlling share of a business.
Private equity firms or individuals really want to increase the value of the company they’re investing in – usually by increasing the profits and growing the business. They then look to sell the company (or their share of it) after a few years, usually three to seven (known as an ‘exit’).
Why is it important? What does it involve?
Private equity lawyers have an important role in a deal as they help the private equity firm or individual negotiate the terms on how they contribute their cash and they also act on behalf of the private equity firm or individual when it buys and sells investments.
The private equity lawyer has the job of making deals happening and keeping clients in line with the law. When businesses are being bought or invested in, lawyers’ structure and negotiate the acquisition and finance documents. They then close the transaction and establish the business and legal structure for the new company.
When a private equity firm or individual wish to sell a company, private equity lawyers negotiate terms for the acquisition and advise on tax and disclosure. Usually, these are in time-sensitive situations where confidentiality is key.
Private equity lawyers’ work with some very influential private equity investors and are expected to provide sound legal advice on all aspects of a deal as well as displaying their commercial expertise. Given that private equity lawyers spend every day working for clients in the financial market, they should be able to solve business problems.
Private equity lawyers will draw on many of the skills a ‘normal’ mergers and acquisitions lawyer possesses. However, due to the different nature of investing in comparison to merging or acquiring (i.e. keeping the same management rather than replacing them), the exact terms of a deal may be more complex, making the work challenging and interesting. Additionally, and for obvious reasons, private equity law overlaps with finance and tax law and also competition law at different stages in the deal.
To succeed as a private equity lawyer, you will need to possess an abundance of energy, be able to work effectively as part of a team and also be pretty handy at problem-solving. As touched upon above, commercial awareness is vital as it means your advice will be on point and up-to-date.
Clients include private equity funds, investors in those private equity funds or banks. Lawyers work on lots of different areas, including setting up funds to receive investments, helping with the making of new investments, or on the day-to-day management of previous investments, such as selling a minority interest in a company, refinancing a company’s debts during the lifetime of an investment or floating a company on the stock market.
Private equity is a multidisciplinary practice area: in addition to the core principles of contract, equity and trusts and company law, lawyers use banking law when structuring debt financing; tax law when structuring funds and investments; and competition and regulatory law when making new investments. In some firms, private equity is a separate practice area; in others, it forms part of the broader corporate offering. As a trainee, therefore, you might have the option of undertaking a private equity seat or be exposed to private equity deals during a broader corporate seat, as well as in a finance, tax, competition or regulatory seat.
Private equity transactions are fast moving. A trainee might get involved at the initial stages when a company is putting itself up for sale in an auction. In that case, a financial adviser will solicit potential buyers, who will often include private equity firms. There is often a lot of competition in the auction process; you could work hard only to find that the client fails to win the bid. If your client wins, there is more work to do to make the deal go through.