‘City law firms warn of private equity exodus’, screamed one recent headline in The Times, while the threat of increased regulation even caused the usually sluggish Law Society to issue a press-released warning from president Fiona Woolf not to “ignore the advice of the Society and City firms”.
But it seems hard to see how the current press scrutiny and threats of regulatory intervention or higher taxes will have much impact on the
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The Treasury review on tax treatment of private equity houses has got lawyers fuming because private equity does not receive any specific tax exemptions. It might be adept at making shareholder equity appear as debt, but as many City lawyers argue, a corporate could leverage up its business to avoid tax in the same way. Others point out that the Treasury under Gordon Brown has for years gone out of its way to be pro-private equity.
There is also quiet confidence surrounding the British Venture Capital Association’s review of private equity houses’ transparency. The working party looks set to draw up guidelines for houses to file more regular, slightly more detailed accounts.
Freshfields Bruckhaus Deringer’s David Higgins argues much of the debate is simply an effort by the Government to give out an impression of toughness as the industry starts bidding for household names like Sainsbury’s and Alliance Boots. “Now private equity is on the front page, it has got on to the political landscape, but I do not see the regulation drive affecting us,” he predicts.
What the intensity of the debate does illustrate, however, is how important the sector has become for law firms. Clifford Chance globally generates around £100m annually in private equity-related work, while back-of-the-envelope calculations suggest the industry generates hundreds of million of pounds annually in legal fees in the UK alone. And while the current time in the spotlight is unlikely to seriously shackle the industry with regulation or taxes, the betting is that the maturing industry will emerge even larger and more transparent. That, as Blackstone’s surprise US float last month suggests, will probably make them a bit more like the public companies they prey upon and more important than ever to lawyers.
