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The Wire

Nov. 16, 2021

CenterGate sells Owen Family of Companies to Wynnchurch; Side letters, long 'out of control,' catch SEC's eye

Morning Hubsters!

 

It’s a new era here at the Hub as we work to find the next Wire champion. Until then, I’ll be guiding you through the frigid early morning deal and PE landscape. So if you have some great stories, as always, hit me up at cwitkowsky@buyoutsinsider.com.

 

Regs: Have yins paid attention to the posturing by the SEC around new rules for PE fees and expenses, conflicts, and apparently, side letters? It’s, I believe, the biggest news on the regulatory front in a long time as the SEC can simply make new rules, rather than have to push legislation that is unlikely to make it through Congress (such as, Elizabeth Warren’s vision for a new private equity world).

 

I found it interesting that SEC chair Gary Gensler said during a keynote hosted by ILPA that the commission was eyeing side letter reforms. I’ve heard for a few years now that side letters have gotten out of control -- many LPs ask for them, and other LPs demand ‘most favored nation’ arrangements for transparency into what other LPs are getting on the side. The review process is burdensome for LPs, all the various requests make for a tough process for GPs, and generally the ones really making out are … take a guess … the lawyers!

 

Most Favored Nation clauses can work in a variety of ways. Some GPs will grant MFN reviews to every LP in a fund, while others may allow MFN reviews based on size of commitment, I wrote way back in 2015.

 

The review process has become burdensome, LPs told me at the time. “It used to be that LPs got ‘special’, valuable terms in side letters but everyone learned to require MFN provisions so [the] impact was diminished,” an LP told me at the time. “It’s hard to manage an agreement with lots of different side letters, each with quirks, especially for GPs like Bain with lots of LPs.”

 

What do you think about side letters, have they gotten out of control (or, maybe more to the point, has the industry figured out how to get them back into control?) Hit me up at cwitkowsky@buyoutsinsider.com with your thoughts. I’ll be exploring this issue this week.

 

That’s it for me! Have a great rest of your day and as always, reach me with tips n’ gossip, feedback and of course, The Drama, at cwitkowsky@buyoutsinsider.com or over on LinkedIn.

 

Read the full wire commentary on PE Hub... 

 

Also of note (may require subscriptions)

"General Electric's decision to split into three companies has set the stage for a feeding frenzy among private equity buyers looking to carve the industrial conglomerate into more pieces." (Financial Times)

 

"Steve Cohen's Point72 Asset Management raised $600 million for its first private equity fund that will use artificial intelligence to modernize and improve efficiencies at companies it acquires." (Bloomberg News)

 

"Mattress maker Casper to be taken private by PE firm Durational Capital Management" (CNBC)