Walker Guidelines Monitoring Group publishes annual report
14 December 2012
The Guidelines Monitoring Group (“the Group”), the body established to review the private equity industry’s conformity with the Walker Guidelines, has published its fifth report on disclosure and transparency in private equity.
The number of portfolio companies covered this year has increased by one to 79, with 45 private equity firms meeting the criteria, a decrease of three. This is due to movements in the underlying population of portfolio companies which fall within the scope of the Guidelines. Since the Guidelines were introduced in 2007, the participation of the industry has increased from 54 portfolio companies and 32 private equity firms.
As in previous years the annual report reviewed a sample of portfolio companies. Of the 31 reviewed, 27 met the disclosure requirements. A total of 16 of these companies had been previously reviewed and all continued to demonstrate a basic or good level of compliance with the Walker Guidelines. Of the 15 companies that were reviewed for the first time, 11 met the required threshold, a smaller proportion than in previous years. This represents a failure rate of 13% for portfolio companies reviewed in 2012, which has increased from 3% in our 2011 review and 9% in our 2010 review.
Since the first report was published in 2008 the Group has noticed two trends which affect a company’s ability to meet the requirements: the smaller size of the companies (given the reduction in enterprise value thresholds introduced in 2010), and the fewer number of former public companies that have been taken private.
The companies reviewed in this year’s sample that did not comply with the Guidelines in full were: Virgin Active, Worldpay, Park Resorts and SAV Credit. The private equity backers of three of these companies have expressed a commitment to comply with the Guidelines and intend to do so next year.
The Group also selected a sample of 10 private equity firms covered by the Guidelines to review for conformity with each of the individual requirements. All firms selected complied with the requirement, as was the case last year. In the coming year, the Group intends to review the entire population of private equity firms covered by the Guidelines to assess overall compliance rates.
Sir Michael Rake, the Chairman of the Guidelines Monitoring Group, said:
“Since the financial crisis the issue of stakeholder engagement has become an even more urgent priority for business, and this latest report underlines the commitment of the private equity industry to enhancing transparency and disclosure. It was disappointing to see an increase in the proportion of companies which failed to meet the requirements in the sample, and the Group will be working with them to ensure their reporting standards improve. Overall the quality of reporting reached a similar standard of the FTSE 350 but, as ever, the Group would urge all qualifying companies to aim for best practice even where this exceeds the FTSE 350.”
To read the report, please click here.
Notes to Editors
- The Walker Guidelines
In February 2007, the BVCA asked Sir David Walker to undertake an independent review of the adequacy of disclosure and transparency in private equity, with a view to recommending a set of guidelines for conformity by the industry on a voluntary basis. This review resulted in the publication of the Guidelines in November 2007.
- Guidelines Monitoring Group
The Group is chaired by Sir Michael Rake, Chairman of BT Group plc. He is supported by two other independent members, Alan Thomson, Chairman of Hays plc, and Baroness Drake, former president of the TUC. Representing the private equity industry are Robert Easton, Managing Director at The Carlyle Group, and Gerry Murphy, Senior Managing Director at The Blackstone Group.
- Definition of private equity firms and portfolio companies covered by the Guidelines
A private equity firm is a firm authorised by the FSA that is managing or advising funds that either own or control one or more UK companies or have a designated capability to engage in such investment activity in the future where the company or companies are covered by the enhanced reporting guidelines for companies.
A portfolio company in a UK company:
a) acquired by one or more private equity firms in a public to private transaction where the market capitalisation together with the premium for acquisition of control was in excess of £210 million and more than 50% of revenues were generated in the UK or UK employees totalled in excess of 1,000 full-time equivalents; or
b) acquired by one or more private equity firms in a secondary or other non-market transaction where enterprise value at the time of the transaction was in excess of £350 million and more than 50% of revenues were generated in the UK or UK employees totalled in excess of 1,000 full-time equivalents.