Private Equity EU
Private Equity EU
EU Law Adds More Regulation of Private Equity
Private equity in Europe has felt already been struggling in the economic downturn and a new draft Euriopean Union law threatens to make matters even more difficult for private equity firms.
A draft EU law that will be published next week would require any private equity group managing funds of at least €250m (£220m) total to report more information about its structure, strategy and investors. Simon Walker, head of the British Private Equity and Venture Capital Association, estimates that this law will effect 86 UK private equity firms. That’s in addition to the 16 large firms already complying with the voluntary transparency code enacted last year. Nine of the effected firms are venture capital and provide a seed capital for technology start-ups, an area which European politicians have been striving to encourage.
Another aspect of the draft EU legislation effects companies owned by private equity groups. Any private equity owned company with a turnover exceeding €50m would have to submit an annual report of its finances, strategy and outlook. Mr. Walker estimated that 500-600 UK firms would be affected by the law. According to his “quick estimate by a big four accountant” he calculates that the firms will have to pay an additional £25,000 to £30,000 cost in order to comply with the new law.
Strangely, according to Mr. Walker the law would apply to a company outside the EU if it is possessed by a EU private equity firm. On the other hand, if a UK firm is purchased by a private equity firm it does not have to adhere to the new law.
Mr. Walker criticized the new law predicting: “This will provide a profound disincentive to be owned by a private equity fund. Will it be passed on through increased costs for investors? I think so.”
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