Complex financial deals demand novel ideas and legal support

Stephen Whitfield, partner at Travers Smith, has recent first-hand experience of the many hoops through which private capital lawyers must now jump to get their deals over the line.

Last year, he was one of the leading lawyers who advised London-based private equity firm Epiris on its purchase of Sepura, a Chinese-owned, UK-based supplier of critical communications equipment to police and other emergency services across the world.

Hytera, its previous owner, has faced US sanctions and import bans over some products because of spying concerns.

The UK government considered the sale sensitive from a national security perspective, despite the transaction taking Sepura out of Chinese and back into British ownership. The technology was so critical that it was subject to the UK’s 2021 National Security and Investment Act and became the first transaction cleared under the legislation.

To get it through this complex process, the legal teams drew in private equity, financial services and national security expertise to ensure all the bases were covered.

“You have to deliver that in an integrated way,” says Whitfield, describing the need to co-ordinate lawyers from across different disciplines.

And this working style will become even more critical as yet more deals are required to clear regulators in multiple jurisdictions, and comply with complex foreign ownership controls and competition concerns.

Live, real-time access to key information of the stages of fundraising became really important

Not that long ago, one benefit of being an asset manager purchasing a business, rather than a trade buyer, was the relative rarity of having to deal with a “very large number of substantive competition or foreign investment issues”.

Three or four years later, Whitfield says: “There’s a much greater willingness among enforcers and governments to look into asset management structures, from a foreign investment and competition perspective, and question whether they are appropriate in every case.”

That has increased the need to fight any “siloed mentality”, he reflects. “You have to . . . make sure that somebody is taking a holistic view of how competition, foreign investment and national security rules might impact a transaction.”

Adam Wollstein, of law firm Paul Weiss, confronted a very different complexity when working on the €6.8bn acquisition of Hong Kong’s Baring Private Equity Asia by Sweden’s EQT in March 2022.

“An asset manager deal of this size just doesn’t happen,” he says. Both businesses had dozens of portfolio companies across dozens of markets and industries, raising myriad potential regulatory competition issues: “You have portfolio companies that are global in nature [and] that are subject to a lot of regulations.”

Luckily, the heavy lifting was around foreign ownership and concerns over change of control, as no substantive antitrust issues arose that would have blocked the deal. Wollstein says the substantive complexity was handled by engaging more than 100 lawyers working across at least 20 jurisdictions.

In this particular case, he notes, technology could “not really” play a significant role beyond enabling the virtual meetings that were needed to secure the deal, especially as Hong Kong was subject to Covid lockdowns.

Nevertheless, he hopes, “artificial intelligence in the future will be able to help on this”. And he expects other large mergers and takeovers among asset managers to follow soon, as they will find organic growth is increasingly elusive.

New technology is, however, already transforming some parts of the legal space in asset management.

Law firm Proskauer Rose has developed a cloud-based system for fundraising so investors can track the status of their financing, see trends in the comments from investors, and share information in real time.

Nigel van Zyl, London-based partner in Proskauer’s private investment funds group, says the tool began as an internal tracker the firm had used for funds before the Covid pandemic. During the lockdown, the lawyers quickly realised it was also “extremely useful” for keeping clients up to date on fundraising rounds. “We were raising a number of funds during lockdown where we were dealing with 70, 80 counterparties,” he says.

“Historically, a spreadsheet went up once a day [with commitments and queries] . . . the live, real-time access to key information of the stages of fundraising became really important.”

The tool was built on HighQ, a data-sharing system, and adapted for the world of private funds so that it could be used for such tasks as issuing individualised documentation in bulk to investors, based on their tax and legal circumstances.

As Proskauer deployed the portal more widely, its functionality grew. It can now alert clients to themes emerging around a fund, such as concerns about levels of management fees. Funds that are clients of Proskauer can also use HighQ to instruct lawyers and resolve questions. “We’re innovating on it all the time,” van Zyl comments.