Walker_Guidelines_for_Disclosure_and_Transparency_

1PagePREFACE..........................................................3SUMMARYOFGUIDELINESANDRECOMMENDATIONS...........5I.PRIVATEEQUITY:BACKGROUNDANDCONTEXT..............7II.INPUTFROMTHECONSULTATIONPROCESS..................12III.ASSESSMENT:PORTFOLIOCOMPANIESANDPRIVATEEQUITYFIRMS.................................16IV.ASSESSMENT:INDUSTRYASSOCIATIONINITIATIVE..........20V.GUIDELINESforenhanceddisclosurebyportfoliocompaniesandprivateequityfirms........................................24VI.RECOMMENDATIONSFORINITIATIVEbytheindustryassociation....................................................29ANNEXES:A.Organisationsandindividualscontributingtotheconsultationprocess...........................................33B.ExecutivesummaryfromtheJulydocument......................35C.Principlesandphilosophy(abridgedfromtheJulydocument)......40D.Section417oftheCompaniesAct2006...........................43E.SummaryofEVCAGuidelinesonreportingtolimitedpartners....45F.Guidanceforinputonattributionanalysis........................47CONTENTS231.IwasaskedattheendofFebruarybytheBritishVentureCapitalAssociationandagroupofmajorprivateequityfirmstoundertakeanindependentreviewoftheadequacyofdisclosureandtransparencyinprivateequitywithaviewtorecommendingasetofguidelinesforconformitybytheindustryonavoluntarybasis.2.ThisreportsetsoutguidelinesforadoptiononthisbasisbyprivateequityfirmsauthorisedbytheFSAandbyUKportfoliocompaniesownedbyprivateequityfunds.Theprincipalfocusisonlargerprivateequityfirmsandtheirportfoliocompanies,andonenhancementofthedatacollection,processingandreportingundertakenonanindustry-widebasis.Ihavebeenassistedinmyworkbyanadvisorygroupcomprising:AdrianBeecroftApaxPartnersDavidBlitzerBlackstoneRobertEastonCarlyle(joinedthegroupduringtheconsultationprocess)AnneGloverAmadeusRobinHallCinvenBaronessHogg3iGroupLordHollickKKRWilliamJacksonBridgepointDwightPolerBainCapitalSirMikeRakeBTGroupRodSelkirkHermesIhavealsodrawnonadviceandinputfromawidergroupoflargeprivateequityfirmsincludingCharterhouse,CVC,PermiraandTPG.3.InJulyIpublishedaconsultativedocumentthatsetouttheprinciplesunderlyingmyintendedapproachtosettingguidelines:anexecutivesummaryofmainelementsasenvisagedintheJulydocumentisatAnnexBbelow.SinceJulytherehasbeenafullconsultativeprocessdrawinginputfromandinvolvingdiscussionwithprivateequityfirms,accountancy,auditandlawfirms,withindividuallimitedpartnersandlimitedpartnerassociations,includingtheInternationalLimitedPartnersAssociation(ILPA),withtheBritishandtheEuropeanPrivateEquityandVentureCapitalAssociations(BVCAandEVCA),withHMTreasury,theDepartmentforBusiness,EnterpriseandRegulatoryReform(DBERR),andtheFinancialServicesAuthority(FSA),withtheTUCandtheCBIandwithotherinterestedparties:alistofcontactsduringtheconsultativeprocessisatAnnexA.4.ThisfinalreportdiscussesthemattersraisedintheconsultativeprocessbyreferencetothequestionsposedintheJulydocument(atAnnexB);setsoutguidelinesonenhanceddisclosureforprivateequityfirmsandportfoliocompanies;andmakesrecommendationsforadoptionbytheBVCAinrespectofdatagathering,processingandreportingonanindustry-widebasisandfortheestablishmentofareviewgroupPREFACEtokeeptheguidelinesunderreviewandtomonitorconformitywiththem.Forthepurposesofthisreportandtheguidelines,portfoliocompaniesarelargeUKcompanies(aspreciselydefinedinChapterV(3))acquiredandcontrolledbyprivateequity;andprivateequityfirmsarefirmsauthorizedbytheFSA(aspreciselydefinedinChapterV(2))thatinvest,orhavethescopeandcapacitytoinvest,inUKportfoliocompanies.5.Myhopeandexpectationisthatimplementationoftheseguidelinesandrecommendationswillmitigatemanyofthespecificconcernsaboutlarge-scalebuyoutactivitythathaveemergedintherecentpastandwillprovideforbetterunderstandingofhowprivateequityoperatesanditscontributiontoUKeconomicperformanceintermsofemployment,productivity,investmentandgrowth.6.IhavebeenassistedbyAndyOlding,onsecondmentfromErnst&Young,whoseability,energyandcommitmentwasasignificantsupportthroughoutthereviewprocess,andIamverygratefultohim.DavidWalker20November,2007451.Thissummarysetsoutinabridgedformthedefinitions,principalguidelinesforenhancedreportingbyUKportfoliocompaniesandprivateequityfirmsandrecommendationsforinitiativebytheBVCA.Forthepurposesofconformitywiththeguidelinesbyportfoliocompaniesandprivateequityfirmsonacomplyorexplainbasis,andforimplementationoftherecommendationstotheBVCA,thefulltextsrespectivelyinChaptersVandVIhaveprecedenceoverthissummary,whichisdesignedsolelytoprovideahigh-leveloverview.Definitions2.TheguidelinesapplyexclusivelytoUKportfoliocompaniesandprivateequityfirmsasdefinedbelow:AprivateequityfirmforthepurposeoftheseguidelinesisafirmauthorisedbytheFSAthatismanagingoradvisingfundsthateitherownorcontroloneormoreUKcompaniesorhaveadesignatedcapabilitytoengageinsuchinvestmentactivityinthefuturewherethecompanyorcompaniesarecoveredbytheenhancedreportingguidelinesforportfoliocompanies.Forthepurposeoftheseguidelines,aportfoliocompanyisacompany:a)acquiredbyoneormoreprivateequityfirmsinapublictoprivatetransactionwherethemarketca