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Structuring Private Equity Co-Investments and Club Deals: Risks and Opportunities for Sponsors and Investors Presenting a live 90-minute webinar with interactive Q&A Structuring Private Equity Co-Investments And Club Deals: Risks and Opportunities For Sponsors and Investors Choosing the Right Investment Structure, Negotiating Key Deal Terms, and Navigating Tax and Regulatory Ramifications THURSDAY, OCTOBER 13, 2016 1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific Today’s faculty features: Alex Gelinas, Partne, Sadis & Goldberg, New York Steven Huttler, Partner, Sadis & Goldberg, New York Daniel G. Viola, Partner, Sadis & Goldberg, New York The audio portion of the conference may be accessed via the telephone or by using your computer's speakers. Please refer to the instructions emailed to registrants for additional information. If you have any questions, please contact Customer Service at 1-800-926-7926 ext. 10. Tips for Optimal Quality FOR LIVE EVENT ONLY Sound Quality If you are listening via your computer speakers, please note that the quality of your sound will vary depending on the speed and quality of your internet connection. If the sound quality is not satisfactory, you may listen via the phone: dial 1-888-450-9970 and enter your PIN when prompted. Otherwise, please send us a chat or e-mail [email protected] immediately so we can address the problem. If you dialed in and have any difficulties during the call, press *0 for assistance. Viewing Quality To maximize your screen, press the F11 key on your keyboard. To exit full screen, press the F11 key again. Continuing Education Credits FOR LIVE EVENT ONLY In order for us to process your continuing education credit, you must confirm your participation in this webinar by completing and submitting the Attendance Affirmation/Evaluation after the webinar. A link to the Attendance Affirmation/Evaluation will be in the thank you email that you will receive immediately following the program. For additional information about continuing education, call us at 1-800-926-7926 ext. 35. Program Materials FOR LIVE EVENT ONLY If you have not printed the conference materials for this program, please complete the following steps: • Click on the ^ symbol next to “Conference Materials” in the middle of the left- hand column on your screen. • Click on the tab labeled “Handouts” that appears, and there you will see a PDF of the slides for today's program. • Double click on the PDF and a separate page will open. • Print the slides by clicking on the printer icon. Structuring Private Equity Co-Investments and Club Deals: Risks and Opportunities for Sponsors and Investors Choosing the Right Investment Structure, Negotiating Key Deal Terms, and Navigating Tax and Regulatory Ramifications October 13, 2016 6 Steven Huttler, Partner Sadis & Goldberg LLP Steven Huttler is a partner in the firm’s Financial Services and Corporate Groups. Mr. Huttler has extensive experience in corporate, finance, investment fund and securities matters, including the representation of U.S. and foreign investment funds, underwriters, and private clients in various registered public and private offerings of debt and equity securities totaling in excess of $10 billion. As part of his investment fund practice, Mr. Huttler has served as corporate counsel to many private investment funds and partnerships based in or domiciled in the United States and in international and offshore jurisdictions such as the Cayman Islands, Bermuda, the British Virgin Islands, Ireland, Luxembourg, Isle of Man, Jersey, Guernsey, Cyprus, Mauritius, United Kingdom, Austria, Russia, India and Gibraltar. Mr. Huttler's legal practice has exposed him to diverse fund clients with an exceptionally wide range of investment programs and structures, including large mutual funds and hedge fund complexes, private equity firms, real estate partnerships and funds, venture capital funds and funds focused on specialty finance assets. He has also counseled small start-up hedge funds and financial industry entrepreneurs. His practice has included structuring and establishing start-up funds and managed accounts, and structuring investment funds to benefit from U.S. double taxation treaties. He has advised management companies and fund managers on compensation structures, restructured and reorganized funds, structured, negotiated and documented fund trades, negotiated seed, joint venture and start up agreements, and advised on a range of sophisticated transactions. He has also represented financial services providers, such as brokerage firms (including proprietary trading broker-dealers), fund administration firms and third party marketing firms in structuring their operations, reorganizations to achieve tax benefits, advising on disputes with clients, and in the development of forms for their pension, investment, trading, administration and other services to investment funds, equity, debt and option traders and other clients. 7 Alex Gelinas, Partner Sadis & Goldberg LLP Alex Gelinas is a partner in the firm’s Tax Group. Mr. Gelinas focuses his practice on providing tax advice to investment managers of hedge funds, private equity funds and other investment funds on all aspects of their businesses, including management entity and fund formation, partnership taxation issues, compensation arrangements and ongoing investment activities and transactions. Mr. Gelinas also provides tax advice to U.S. pension funds, sovereign wealth funds and other U.S. and foreign institutional investors in connection with their investments in private equity funds, hedge funds and U.S. joint ventures. He also has extensive experience in providing tax planning advice to high- net-worth individuals and families. 8 Daniel G. Viola, Partner Sadis & Goldberg LLP Daniel Viola is the Head of the Regulatory and Compliance Group. He structures and organizes broker- dealers, investment advisers, funds and regularly counsels investment professionals in connection with regulatory and corporate matters. Mr. Viola served as a Senior Compliance Examiner for the Northeast Regional Office of the SEC, where he worked from 1992 through 1996. During his tenure at the SEC, Mr. Viola worked on several compliance inspection projects and enforcement actions involving examinations of registered investment advisers, ensuring compliance with federal and state securities laws. Mr. Viola’s examination experience includes financial statement, performance advertising, and disclosure document reviews, as well as analysis of investment adviser and hedge fund issues arising under ERISA and blue-sky laws. 9 Overview of Presentation I. Co-investment structures II. Deal documents and key deal terms III. Current trends in private equity co-investments IV. Regulatory hurdles: broker, dealer and investment advisor regulation V. Tax and ERISA regulatory considerations for sponsors and investors VI. SEC’s Recent Pronouncements on Conflicts VII. Recent SEC Enforcement Cases 10 Co-Investments & Club Deals • Co-Investment An equity co-investment (or co-investment) is a minority investment, made directly into an operating company (or SPV for such purpose), alongside a financial sponsor or other private equity investor, in a leveraged buyout, recapitalization, growth capital or other transaction • Club Deal A private equity buyout or the assumption of a controlling interest in a company that involves several different private equity firms or institutional investors 11 Co-Investment Recapitalization Structure 12 Club Deal Structure 13 Capital Structure Pyramid 14 Who’s Investing to Bridge the Gap? • Pension Funds ▫ ERISA ▫ Non-ERISA • Sovereign Wealth Funds • Insurance Companies • Private Equity Funds • US Tax-Exempts • US Taxable Investors and High Net Worth Platforms • Family Offices 15 Private Equity Fund Structure 16 Drivers • Concentration ▫ Single Investment • Really Big Deals ▫ How much is too much? • Investment Focus ▫ Types of investments • Deal Access ▫ Deal flow ▫ Premium in today’s market • Investor Allocations • Flexibility ▫ Maintain investment control ▫ Unwilling to commit to PE funds on a long-term basis 17 Economics • How do Fund Sponsors make money? ▫ Management fees ▫ Transaction fees ▫ Carried interest ▫ Other fees • Certain compensation structures provide favorable tax treatment in the U.S. 18 Economics • Management Fees: 1.5 – 2% of Committed Capital initially and, after “Investment Period,” 1.5 – 2% of Invested Capital for each Fund • Transaction Fees: Until recently, advisory, consulting or transaction fees, break-up fees, etc. (but see recent SEC actions) • Offset Rights: Until recently, 50 – 100% of Transaction Fees (but see recent SEC actions) 19 Deal Documents • Organizational Documents for Investment Vehicle ▫ Articles/bylaws ▫ Partnership agreement/LLC agreement • Purchase Agreement ▫ Related to the purchase of the relevant interest • Others ▫ Notes ▫ Guarantees ▫ Warrants 20 Deal Documents • Organizational Documents ▫ Serve as the road map for the portfolio company/joint venture ▫ Economics ▫ Governance ▫ Capital call mechanics ▫ Exits • Purchase Agreement ▫ Investor representations and warranties ▫ Assists in addressing regulatory concerns ▫ Disclosure regarding tax status ▫ Indemnity from investor • Others ▫ Notes Convertible/exchangeable ▫ Guarantees Credit parties ▫ Warrant coverage Foot faults can result in failure to exercise 21 Trends • Pipeline access is valuable ▫ Investors are negotiating for co-investment rights in connection with their fund investments ▫ Supply/Demand imbalance for capital versus transactions ▫ Sponsor favorable terms in co-investments Fees Carry • Position in
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