- What makes private equity deals different? - Structuring UK acquisitions - Management issues Brenda Coleman, Partner, Ropes & Gray

1. Structuring Private Equity Deals
19 November 2014
Presented by: Brenda Coleman

2. Scope of talk
•What makes private equity deals different?
•How are these issues dealt with in UK deals?
•Management issues
•What differences are there when deals are cross border?

3. What makes Private Equity deals different?
•Highly leveraged
•Significant amounts of shareholder debt (usually not current pay)
•Cashflowscritical
•Management issues (difference in CGT/income tax rates)
•Focus on exit/refinancing

4. How are these issues dealt with in UK deals?

5. UK Acquisition
ISSUES:
•Interest/group relief
•Withholding taxes
•Lux tax
•PECs/PPLs
–Equity treatment
•Exit
•BEPS
Lux TopcoUK BidcoUK TargetPECs/ PPLsSenior debtUK MidcoEquity/debtEquity/debtShares

6. Non-UK Target
Lux Topco
Target
PECs/ PPLs
Local Bidco
Debt/equity
Debt/equity
• Interest relief
• Debt push down?
• Withholding taxes
• “Substance” in
Luxembourg
• Challenges to
Luxembourg
companies

7. Non-UK Target with UK Subsidiaries
Luxco TopcoUK MezCoLocal BidcoTargetDebtMez debtequitydebtSenior AcquisitiondebtequitydebtPPLs/PECsUK SubOtherGroup reliefFinance CompanyequityDebt (NB: withholding taxes?)

8. Transaction costs
Objective
•Deductibility
•Minimise irrecoverable VAT
•Service providers charge “client” for services –who is the client?
•Is Bidcothe client? Can it recover?
•Ensure Bidcois a member of VAT group from Completion and is providing “management services” to the Group under a MSA

9. Management issues
•CGT
•Entrepreneurs’ Relief/ESS
•Roll-over relief
•Clearance?
•Transfer of assets abroad
•Income tax –s.431 election

10. Entrepreneurs’ Relief
•10% CGT on first £10 million of gains
•Qualifying capital gains
–Securities of a trading company/holding company of a trading group + employee + at least 5% voting power/ordinary share capital
–JV Condition
–1-year period of ownership
•Roll-over

11. Managers –Entrepreneurs Relief
•Voting agreement?
LPLuxcoBidco5% vote

12. Entrepreneurs Relief –JV Company
LPLuxco TopcoUK BidcoFeeder coMezzco5% 10%

13. Employee Shareholder Shares?
•CGT exemption on sale of shares
•Exemption available for first £50,000 of shares acquired
•Shares acquired in consideration for agreeing to adopt “employee shareholder” status
•Reduced employment rights
•Applies to shares acquired on or after 6 April 2013
•Opportunities for Management in PE acquisition structures
•Valuation key -£2k -£50k
•Corporate law issue

14. Brenda Coleman
Ropes & Gray International LLP
5 New Street Square
London EC4A 3BF
020 3122 1100
Brenda.coleman@ropesgray.com
www.ropesgray.com