Equity issues 10.02.14 GMG publishes updated guidelines on good practice reporting by private equity portfolio companies

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  • 1. Welcome to EQUITY ISSUES, a short note on a relevant issue in the private equity and venture capital industry. If you would like to discuss any of the points we raise below, please contact me or one of our other lawyers. Claire Cummings 020 7585 1406 claire.cummings@cummingslaw.com www.cummingslaw.com EQUITY ISSUES Guidelines Monitoring Group publishes updated guidelines on good practice reporting by private equity portfolio companies On 5 February 2014, the Guidelines Monitoring Group (the “GMG”) published an updated version of its guidelines on good practice reporting by private equity portfolio companies under the Walker Guidelines (the “Guidelines”). The Walker Guidelines set out a voluntary code requiring larger PE firms to provide greater public disclosure of their activities, with the aim of improving industry transparency, and the first guidelines were published in 2007. The Guidelines only apply to those private equity firms which are authorised under the Financial Services and Markets Act 2000, but voluntary adherence is encouraged. The GMG is responsible for monitoring the on-going relevance of the Guidelines and industry compliance with them. The Guidelines impose enhanced reporting obligations on portfolio companies, which go further than those ordinarily applicable to UK private companies, in an attempt to narrow the reporting gap between quoted company and PE-controlled private company obligations. A “portfolio company” is a UK company which has been acquired by one or more PE firms either: (i) in a public to private transaction where the market capitalisation, together with premium for acquisition of control exceeded £210 million; or (ii) in a secondary or other non-market transaction where the enterprise value at the time
  • 2. of the transaction exceeded £350 million. It is generally considered that the Guidelines provide clear and detailed information for PE firms, as well as useful examples to illustrate good practice. It should be noted that the substantive content of the 2014 Guidelines remains unchanged from the version issued in March 2012. In line with the version published in February 2013, the Guidelines include updated examples of reporting drawn from portfolio companies' accounts over the last two years that the GMG considers to represent good practice. In its updated Guidelines, the GMG notes that the annual report when taken as a whole should be considered fair, balanced and understandable to a user of the accounts. Guidance on what constitutes a good annual report includes that reports should be tailored, avoid clutter and boilerplate language and be drafted on a consistent basis, with linking between each area covered. In relation to the definition of a portfolio company for the purposes of the reporting guidelines, the GMG is currently reviewing whether the transaction size criteria should be lowered to bring more portfolio companies into scope. If there are changes, the GMG intends to communicate these during 2014. The GMG will also review how the new narrative reporting requirements of BIS and the FRC applicable to listed companies will be incorporated into the Guidelines. The updated Guidelines will be applicable for reporting firms with a year-end in September 2014 onwards. The GMG will publish further guidance in the spring, which it will aim to finalise by June 2014. This document is for general guidance only. It does not contain definitive advice. Cummings Tel: + 44 20 7585 1406 Mob: + 44 7734 057 327 www.cummingslaw.com 10 February 2014