Prof Sarah Paterson Cheng Kin Ku Building 6.19 and Mr Simon Witney N/A

This module is co-taught by Simon Witney, Visiting Professor in Practice and a practicing lawyer, and Sarah Paterson, Associate Professor of Law.  Simon teaches Sessions 1-8 and Sarah teaches Sessions 9 and 10.

This course is available on the Executive Master of Laws (ELLM). This course is not available as an outside option.

Students should note that private equity is a specialist asset class,and the basics of debt and equity are not covered in LL4CQE. The course is, therefore, recommended for students who are taking other, relevant corporate law and financial law courses, or who have relevant experience.

This module will equip students with a detailed understanding of the legal structures and issues arising in international private equity and venture capital.  It is founded on deep academic analysis of pertinent theoretical and legal issues complemented by insights from relevant practitioners.  It has a UK focus but includes relevant aspects of European Union law with comparative global perspectives.

The module will cover:

• Private equity and venture capital fund raising and fund structuring, including the usual terms of private equity funds.

• The European regulatory framework.

• The structure and terms of venture capital investments and buyouts.

• The corporate governance of private equity-backed companies.

• The debt financing arrangements usually encountered on an LBO.

Session 1: Introduction to private equity and venture capital and some basic theory

This Session will introduce the legal structures and commercial dynamics of private equity and venture capital and the theoretical frameworks that will underpin the course.

Session 2: Fund terms

In Session 2 we examine the core economic and non-economic terms of a typical private equity or venture capital fund.  We consider the theoretical basis for these terms. 

Session 3: Fund structures: the limited partnership

In this Session we look at the limited partnership structure, examine why it is used and its main legal and tax characteristics.  We also look at other aspects of the typical private equity fund structure.

Session 4: Private equity fund (and manager) regulation

This Session looks at UK and EU regulatory initiatives, and critically evaluates the provisions of the Alternative Investment Fund Managers Directive which affect private equity funds.

Session 5: Venture capital investments

Starting from a theoretical perspective, we will analyse the terms of a typical venture capital investment into a portfolio company by reference to example documents.  We will also examine various aspects of contract and company law which have particular relevance to VC structures.

Session 6: Negotiating the VC deal: case study

In this Session, we will discuss the key points arising from a venture capital investment case study.  We will focus on key points which have a legal as well as a commercial aspect, and connect these to the theoretical discussions in Session 5.

Session 7: The buyout: structure and terms

This Session will examine the structure of a buyout and how it differs from a VC investment.  We will focus on pertinent company law rules and the main commercial terms.

Session 8:  The buyout: corporate governance issues 

This Session will examine the ways in which private equity firms approach corporate governance.  We will consider this in the context of the UK legal framework and some recent developments in corporate governance regulation that apply to large, private companies.

Session 9: LBO debt financing

In this Session we will analyse and evaluate the structure of the LBO financing transaction; the relationship between the theory and practice of private equity and the legal terms found in the leveraged loan agreement; and the relationship between the theory and practice of private equity.

Session 10: LBO debt financing (continued)

In this Session we will analyse agency theory and maintenance financial covenants; the rise of covenant-lite and covenant-loose financing for PE LBOs; and the implications of these developments. 

Students will receive approximately 30 hours of contact time.

Students will have the option of producing a formative essay of 2000 words to be delivered one month from the end of the module’s teaching session by email.

Core texts:

• Gilligan, J. and Wright, M., Private equity demystified: An explanatory guide, ICAEW, 2014 (freely available at  https://www.icaew.com/technical/corporate-finance/financing-change/private-equity-demystified-an-explanatory-guide-160216).  

• Hale, C. (ed.), Private Equity: A Transactional Analysis, 4th edition (Globe Law and Business, 2020).

• Witney, S., The corporate governance of private equity-backed companies, 2017, PhD thesis (freely available at: http://etheses.lse.ac.uk/3557/).

Further readings wil be posted on Moodle.

Assessment path 1
Essay (100%, 8000 words).

Assessment path 2
Take-home assessment (100%).