06 April 2011

FN: Regulation favours venture, while buyouts suffer

While executives praised Chancellor George Osborne’s UK Budget measures aimed at encouraging early-stage investing, they were still bemoaning proposed changes to the Takeover Code that they fear will hamper their ability to do deals in the country. Trade bodies and industry experts have long emphasised that the lower sums of money and lack of debt involved in venture capital mean it should not be treated in the same way as larger-scale private equity. In late 2009 there was an outcry as European regulation, in the form of the Alternative Investment Fund Managers Directive, threatened to subject private equity and venture capital to the same disclosure requirements.

Commenting at the time, Elizabeth Ward, a lawyer at Linklaters and part of a trade working group on the Directive, said: “Some of the positive amendments proposed... are undone by the proposal to remove thresholds, so that even small venture capital firms would be caught by the regulations. This would be a disaster for venture capital.”

Takeover rule changes

The four most contentious areas of the changes are shortening the put-up-or-shut-up deadline to a mandatory four weeks, banning break fees, forcing buyers to disclose financing arrangements, and forcing the naming of all parties that have expressed an interest in an asset once one bidder goes public.

There are various problems associated with these changes, according to advisers, who say the four-week deadline period could mean that in situations where news of a deal leaks early, most private equity firms will find it nearly impossible to complete due diligence and get financing in place in time.

Budget boost

By contrast the UK Budget was well received by the industry after Chancellor George Osborne said the government intended to reform the investment rules for venture capital trusts and enterprise investment schemes, to allow them to finance a wider range of companies. It intends to raise the limits so they can invest in businesses with up to 250 employees (up from a current limit of 50 employees) and gross assets of £15m (up from the current limit of £7m).

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