1. PRIVATE PLACEMENTS: From Term Sheets to Offering Materials to Closing
Leslie A. Drockton, Partner
Benesch, Friedlander, Coplan & Aronoff LLP

2. Overview
Capital Commitments are on a pace to surpass $220 billion this year, approximately half of which are committed to mega-funds (more than $5 billion in commitments).Through the first half of the year investors committed $ billion to 117 funds.
US EBITDA multiples have fallen from 10.7x in 2016 to 10.5x through the second quarter.
Deal flow in U.S. through the second quarter: 866 deals ($151.1 billion, estimated). Slightly below 2016 levels.

3. Overview (cont.) Exits decreased to 474 deals ($102.3 billion).
Firms are raising capital faster in Buy-out funds that closed in 2017 spent an average of 8 months between launch and first close (12 months in 2016 and 13 months in 2015). Time between launch and initial close is down to 6 months (7 months in 2015).

4. Overview (cont.)
Average buy-out fund closed with an average of 120% of its target commitments.
Buy-out funds currently have $540 billion to deploy, which will provide challenges for the industry.
Both family offices and institutional investors are allocating more resources to private equity.

5. Planning Assemble the Team Know your limitations Accountants Lawyers
Financial Intermediaries
Bankers/Lenders
Consultants
Know your limitations
Existing agreements
Non-Disclosure agreements
Regulatory restrictions

6. Planning (cont.) Self-Evaluation Understand the market and terms
Develop your business plan or investment thesis
Develop an investor profile and target list
Research your potential investors
Set up an electronic data room
Develop your time-line and process
Consider warehousing of deals
Check references on advisors

7. Structure Entity Structure Tax Considerations
Limited Partnership (traditional PE fund structure)
Limited Liability Company
C-Corporation
Tax Considerations
Limited Offering Exemption
General Solicitation (Jobs Act)
Pre-existing Relationships
Use of intermediaries to establish pre-existing relationship

8. Structure (cont.) Terms Understand what is market
Consideration of regulatory pressures on your terms and documents
Vet the key terms with advisors
Co-investments
Revisit your prior agreements
ILPA (Institutional Limited Partners Association) Standards
Guiding principles alignment of interest, governance and transparency
Announced at the beginning of the year Phase II of its Private Equity Transparency initiative which is focused on increasing global adoption of its reporting templates

9. Regulatory Considerations
Securities Laws
the Securities Act of 1933, as amended (Section 3(b) or 4(2))
Regulation D Safe Harbor/State Law Preemption
State Securities Laws (Blue Sky Laws)
Accredited Investor
Bad Actors
10b-5
Investment Advisers Act of 1940, as amended
Investment Advisers have a fiduciary duty to act in the best interests of their clients
Qualified Client
Attribution Rules
Family Office Exemption
Venture Capital Exemption
Private Fund Exemption

10. Regulatory Considerations (cont.)
Investment Company Act of 1940, as amended
Qualified Purchasers
100 Beneficial Owners (3(C)(1))
Attribution Rules (formed for the purpose of investing in the fund, 10% holder and vehicles where the holders can self direct)

11. Regulatory Considerations (cont.)
SEC Enforcement and Exam Trends
Valuations
Undisclosed fees
Trade allocations
Insider trading
Conflicts
Securities Act of 1934, as amended
Compensating fund employees for fund raising and M & A activity
Use of Placement Agents

12. Regulatory Considerations (cont.)
Commodity Exchange Act
Rescission of a central regulatory exemption for private fund advisers. If you engage in interest hedging activities registration as a commodity pool operator may be required.
ERISA
Heightened fiduciary obligations for funds who are considered to hold plan assets.
Significant participation test (25%).
VCOC and REOC exemption

13. Regulatory Considerations (cont.)
Other
AML Policies
OFAC

14. Documentation Term Sheet/Executive Summary Opportunity Principals
Performance
Economics
Disclaimers
Use it as an opportunity to test the waters
Use charts and graphs
Be strategic with disclosure; keep it brief

15. Documentation (cont.) Confidential Offering Memorandum
Dual Purpose: Compliance and Marketing
Style and substance varies depending on the target audience, deal structure, distribution channels and securities law exemption
Primary goal is to satisfy disclosure obligations
Disclosure regarding the nature, character and risk factors relating to your offering

16. Documentation (cont.) Governing Documents Other Materials
Limited Partnership Agreement
General Partner organization documents
Other Materials
Side Letters
Subscription Documents/Questionnaires
If you are engaged in a general solicitation under the safe harbor you have heightened obligations with respect to verifying “accredited investor” stratus

17. Documentation (cont.) Non-Disclosure Agreements Management Agreements
Custody Agreements
Privacy Policy
Co-Investment Policies
Allocation Policy
Compliance Program
Purchase Agreement
Direct Participation Programs

18. Closing Finalize Negotiations Multiple Closings
Manage Expectations/Communication with Investors is key
Confirm completion of subscription materials
Qualify investors
Escrow
Log/Document receipt of subscription materials and funds from investors
Preparation of securities filings v1

19. Practical Advice Be patient; spend the time in the planning stage
Understand the market
Know your investors
You have to build relationships before you need them
Communicate
Focus on the opportunity
Don’t ever fake an answer
Don’t overpromise on delivery of materials
Be consistent with your message
Avoid blind solicitations