Buyout code proposals given teeth

The UK industry’s last-ditch attempt at self regulation, Sir David Walker’s report on disclosure and transparency in private equity, has led UK industry body the British Private Equity and Venture Capital Association (BVCA) to appoint a monitoring group to check compliance with the proposals.

The chairman of this body, alongside the council of the BVCA, would under Walker’s recommendations expel members which do not comply with the proposals and do not undertake early remedial action.  The BVCA’s chief executive Simon Walker embraced the proposals as tough but necessary given the increased visibility of private equity.

Simon Walker

Simon Walker, the BVCA’s chief executive, told PEO: “It is going to be a real burden and I don’t want to underrate that. Everything that is done to make life trickier for private equity in the UK contribute to an erosion.” But he did not believe it would lead to an exodus to more favourable jurisdictions.

The report also recommends the BVCA introduce into its organisation a “private equity-like” business category to allow the asset class to remain competitive with private businesses and sovereign wealth funds meeting the criteria. The Qatari sovereign fund Three Delta said it would accept the Walker proposals during its take-private bid for UK supermarket Sainsbury’s, and was a participant in Walker’s review.

Simon Walker said the BVCA would go on a recruitment drive: “If sovereign funds and other large private companies join it will ease the concern among our members that in some way they are a special case.”

He said the response of the Qataris during their ultimately unsuccessful bid for UK retailer

Sir David Walker

Sainsbury’s was encouraging.

The proposals will place reporting requirements on companies acquired in a public to private transaction with a market capitalisation at the time of acquisition in excess of £300 million, or in a secondary or other transaction with an enterprise value greater than £500 million.

The consultation document suggested companies with an EV of more than £500 million should comply, but this is not mentioned in the final version. A concession has also been made to critics who have said the report places companies with a large international footprint at a disadvantage to their competitors.  Eligible companies must have more than 50 percent of their revenues generated inside the UK and employ equivalent to more than 1000 full time UK workers.

Companies will be expected to publish a report on their websites within six months of year-end substantially complying with a part of the Companies Act 2006, which had hitherto been only applicable to public companies. The adoption of this section had been an open question in the initial consultation document and will call on firms to reveal on a comply or explain basis trends and factors that will affect their future business as well as information on employees, environmental matters and social and community issues. The report will also include a review covering financial risk and uncertainties, including those relating to leverage.

The unions were damning in their judgement. Paul Talbot, Unite assistant general secretary said: “The recommendations in the Walker Report are just a way of getting the Industry off the hook and out of the spotlight. They'll be forgotten about in no time. We need proper regulation to protect workers and stop asset stripping.”

Simon Walker said: “Responsible trade unions will give it a go. They accept it’s a genuine attempt to deal with legitimate areas of concern. For the firms reputational sanction is significant. You don’t have to send them to prison of fine them for it to be a real sanction.”