Stepping into the limelight

04 January 2008

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A new era of has dawned for the UK private equity industry. The privacy it once took for granted has been curtailed. Continued BVCA membership is now conditional upon private equity groups signing up to Sir David Walker's guidelines for enhanced disclosure. The freedom that private equity groups once enjoyed has taken some heavy hits in 2007. The press has ensured it can no longer go about its business quietly and now the industry body has formalised a culture of semi-openness. Whether the chicken or the egg came first is a moot point. The hedge fund world perhaps gives us a clue though - its working group looking at disclosure has come ahead of any media storm.

The report wasn't too clear in one area - what about those companies that on acquisition fall below the arbitrary thresholds of a £300m take-private value or a £500m private transaction, but then through organic growth or bolt-on acquisitions exceed those limits? Such an outcome seems likely due to the growth that is private equity's lifeblood. With this the case, one would have thought the guidelines would have prescribed for this situation. It seems they didn't. When unquote" followed up the matter, the general sentiment among professionals was that the industry should not see it as a potential loophole and would adhere to the comply-or-explain guidelines when a company reached the levels set. Interestingly, at least one large buyout house indicated that it wouldn't feel the need to report if a target reached the limits set post-acquisition. This underlines the fact that the success of these guidelines to promote disclosure is partially dependent on a spirit of goodwill.

The guidelines are voluntary and there is an 'explain' clause for those who believe disclosing the information would put them at a competitive disadvantage. It will be interesting to see how often this clause will be exploited. Although the guidelines generally seem to be seen by the industry as a positive and not too laborious or damaging step required to dampen some of the criticism private equity has faced - a compromise - it is frustrating that private equity has been singled out. Private equity, a form of ownership responsible for the fastest employment growth in UK companies, is to become slightly less private and yet other privately-held entities are entitled to remain as private as they like.

The concessions made by private equity are signs of the size and importance of the industry. Stephen Schwarzman's appearance at the CBI conference at the end of November is further evidence of private equity stepping into the limelight when previously it was thrust.

Yours sincerely

Sarah Young

Senior Editor, unquote"

Tel: +44 20 7004 7527

sarah.young@incisivemedia.com.