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.
Break it down for me a little bit!
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.
A day in the life of... David Shipton, Associate, Weil
In just a few words, could you explain the sort of work you do in private equity law?
We work on a range of transactions in which the source of finance is usually a private fund established to purchase a majority of a private company’s shares. This primarily involves negotiating the main terms of the takeover between the buyers, the sellers and the management of the company (who may or may not be involved in the acquisition itself), conducting due diligence on the target, drafting the transaction documentation and facilitating the successful completion of the transaction.
Why did you choose to take this elective?
Although other departments at Weil have expanded considerably over the last few years, PE remains central to the firm’s business model and a major source of clients for the other teams. In light of Weil’s powerful reputation in the world of private equity, I was keen to experience the workings of PE first hand and begin to build the internal contacts which would assist in a career in any of Weil’s practice areas. A seat in private equity also offered the prospect of a more detailed and complete insight into the anatomy of a corporate transaction from start to finish which, given that my previous electives involved assisting only in discrete stages of private equity transactions, has significantly improved my understanding of the industry. Finally, the diligence process in which trainees are often heavily involved in private equity provides the opportunity to get an invaluable insight into the workings of a company, which is very useful for commercial awareness more generally.
What kind of projects have you been working on so far? Do you tend to take on short-term tasks or work on longer-term projects?
I have worked on a wide range of private equity transactions, representing both buyers and sellers. For the first few months of my elective, I was working on deals which had already reached their latter stages before I joined the team. This necessitated a significant degree of catching up so that I could be of maximum assistance during the signing process, which trainees are usually given responsibility for managing. For each signing process, my involvement included helping to finalise the main transaction documents, drafting supplementary documents and circulating and collating signature pages.
In more recent months, I have worked on a number of deals from their conception, which involves closer involvement with the creation of the preliminary term sheet and the due diligence process. In general, this involves helping to oversee large online “data rooms” containing thousands of documents and allocating them up between the private equity team and specialist teams such as intellectual property, employment and real estate. A trainee’s role is often then to review a large proportion of those documents for provisions which may cause the client cause for concern, before helping to draft a report based on our findings. Once the diligence process is complete, trainees take a more active role in the drafting of the transaction documents such as the sale and purchase agreement and the company’s new articles of association.
The work is generally a mixture of short-term discrete tasks (such as the drafting of board minutes) which might only take a few hours, and longer tasks (such as due diligence) which can take between two and four weeks.
Does your training put you in direct contact with clients?
Because I am in the latter stages of my training contract, I have a relatively large amount of direct contact with clients. However, this is usually limited to liaising by email and telephone, and face-to-face meetings are rare.
How does this seat compare with others you have completed?
Private equity has proven to be an intense but useful seat. A lot is expected of trainees during busy periods and it has taken me out of my comfort zone more than I had previously experienced, which is often the best way of learning. During my time here I’ve also worked on a larger number of simultaneous matters than in previous seats, where I would usually always have one major deal or case upon which I was mainly focused. That said, the average number of hours I have worked in private equity is broadly consistent with my three previous seats, with the only notable difference being a greater degree of “peaks and troughs”: busy periods are particularly busy and quiet periods are particularly quiet. The nature and level of the work at trainee level is probably less varied than in my previous three seats, with my time being split roughly equally between due diligence, drafting supplementary documentation and overseeing the signing/closing processes.