In my, admittedly limited, experience legal advisers need to effectively manage BOTH a) the legal aspects, and b) the logistics of a fund raising, for a fund raising to be successful.
I have been told that a EURO3bn fund raising an be run by 3 lawyers. Nonetheless, I assume such a raising was done a limited number of investors and/or took place over an extended timetable. Recently I was involved in the closing of a “mega-fund”, involving about 100 investors, was significantly oversubscribed and run by an “aggressive PE House” and as a result was closed in about a third of the time usually used for a fund closing. So following this experience, set out below are what resources, in my humble opinion, should you utilise to orchestrate a PE mega-fund (Euro2-4bn) raising.
[SPOILER WARNING: THIS HAS BEEN DRAFTED LATE AT NIGHT AND HAS NOT BEEN PROOFED, SO PLEASE EXCUSE ANY TYPOS!]
Client/Investor Call Team:
Realistically at least some members of the PE house will be virtually camped at your firm throughout the closing stages of the fund raising. A senior relationship partner + mid level associate should stick with the client in the client suite. This team will attend most calls with investors and be responsible for getting client sign off on each position taken in respect of the documentation drafting.
Lawyer Management Team:
The second matter partner + a junior associate should have an over-view administrative side of the transaction. This partner should manage/coordinate the legal team that actually produces the fund documentation. The client will often engage with this partner, but this partner is the one that ultimately coordinates the fervent below-water leg action that ensures that the fund closing duck travels along so smoothly.
Side Letter Team:
A partner, senior associate and junior associates. The majority of the legwork on Side Letter drafting and investor management can be easily done by junior associates. Ensuring that drafting is consistent across side letters with the “agreed house position” is the role of the partner. E.g. the partner will agree with the PE House what wording should will be used when an investor requests comfort as to a cap on the fund size, whilst the junior associates will utilise this wording in their drafting when it is appropriate to do so. NOTE that ultimately the partner will “sign off” on each Side Letter signed out, so there is a real risk that they become the bottle neck that slows down the Side Letter process. They must therefore ensure that they have enough capacity and/or assistance from senior associates to ensure that sign off can keep pace with the pace of side letters generated by the junior associates working in this team.
Investor Management/LPA Team:
LPA drafting should be controlled by a very senior associate/partner who is a) familiar with the various nuanced approaches it is possible to take with each aspect of an LPA and b) aware of the history and needs of this particular client. This drafting team will work extensively and closely with the PE House and Client team to establish what positions the PE should take vis a vis the LPA.
There should be atleast 1 associate per every 10-15 investors. These associates will manage negotiations with their investors and feed the LPA requests of those investors into the drafting team.
A PE mega-fund, can easily involve negotiations with 100 investors. The constant drafting of the legal team, investor requests/redrafts, PE House negotiations etc to deal with the interaction of so many parties can therefore quickly lead to an extremely inefficient allocation of lawyer capacity. Therefore, from an early stage on a mega-fund, at least one (and ideally two) paralegals should be employed to keep the Investor Email/Document Filing, Investor Status Spreadsheet, Investor Comment Spreadsheet, Call Pack Production and Call Timetabling (see below) up to date.
These tasks are often allocated to trainees, but on a large transaction allocating such tasks to a trainee becomes inefficient in terms of a) costs (i.e. 12hours a day can be easily taken up by these tasks and PL time in the UK is usually charged out at about 60% the cost of trainee time) and b) trainee development (i.e. such tasks are vital to the transaction and require legal understanding, but beyond a certain level will not develop a trainees capacity to be able to ever be the “legal advisor” on a PE fund closing.)
The sheer number of investors involved in a PE mega-fund can add an effectively debilitating level of complexity to the fund raising process unless suitable management/accounting processes are utilised. The following are some simple spreadsheets which if maintained by a paralegal throughout the transaction can save a lot of time and costs.
Investor Comment Spreadsheet:
Each investor will typically initiate negotiations with the PE House by setting out a series of requests for each document involved in the closing (largely focusing on the LPA). In order to save time and ensure a consistent response is given to investors, these requests and their responses once considered and agreed upon by the PE house should be collated into a single word searchable document/spreadsheet. Before raising new investor requests with the PE House, the responsible associate can search this document to check if the query has been asked /responded to before.
Investor Status Spreadsheet:
The stage of negotiations reached with each investor and “next steps required” for each investor should be collated into a single document/spreadsheet each day. The paralegal maintaining this spreadsheet should approach each associate working on the fund raising late afternoon each day to get an update of the status of each investor they are responsible for. This document can be used by the PE House/management team to inform their strategy for the efficient utilisiation of resources throughout the fundraising.
Call Timetable and Call Packs:
A timetable for each week’s calls with investors should be collated and easily accessible to the PE House and each lawyer working on the fund raising.
For each call, a “call pack” including recent/important correspondence with that investor, important information about that investor and any submitted requests/drafting amendments and responses and current Side Letter raft should be produced. This allows the PE House/Call team to bring themselves up to speed at short notice of the issues to be faced during that call. These will, obviously become more and more useful as first closing approaches as time becomes increasingly pressured, calls happen with diminished preparation time and the call teams become increasingly tired.
Consolidated Side Letter:
A Master Side Letter will act as the basic template for each Side Letter. Many investors will however request additional items to be addressed in their Side Letter. A single document with all Side Letters copied and pasted into it is therefore an extremely simple, but a very useful drafting aid for the Side Letter team as it allows the junior associate drafting the first draft of each SIDE LETTER to search for where similar issues have been previously raised by other investors and respond with consistent/”client signed off” language.
If a team of PE executives are going to be camped in your office, they will consume a) many breakfasts, lunches and dinners and b) many “snacks” prepared by your firm’s kitchen. The big meals should obviously be nutritious, varied and delicious (thankfully our menus are designed by a Michelin starred chef and thoroughly check all the above boxes). I suspect however that an under appreciated aspect of “deal nutrition” is that many/most firms will serve tea/coffee with high sugar snacks like biscuits and/chocolate bars. These snacks will form something between 10-30% of the deal team’s calorific intake each day. Now the deal team of any major transaction will have to deal with significant amounts of stressed, tiredness and swings of emotion. This emotional rollercoaster has real effects on the deal that is ultimately achieved.
I personally think that deal produces enough emotion that the deal team should not have to additionally deal with rising and crashing blood-sugar levels. I.e. snacks a firm offers should be made up of complex carbohydrates (e.g. flapjacks oatcakes), sugar should be avoided if possible and provided in the form of honey rather than refined sugar (e.g. the flapjacks), and more firms should think of offering things like cashew nuts, pumpkin and sunflower seeds rather than Quality Street chocolate. No-one will complain about chocolates, but there must be a benefit in keeping people awake and level headed when they are discussing £[X]bn of investment over a number of months.