Mission creep(2)

Duke Street Capital’s decision to report on all its portfolio companies will boost the number of companies covered by the Walker code, but it also underlines worries that Walker’s remit will soon affect smaller deals, writes Nicholas Lockley.

Sir David Walker launched his final report on disclosure and transparency this week, including rules governing the reporting practices of private equity-backed companies. He estimated 65 portfolio businesses would be compelled to report from day one.

The proposals place reporting requirements on companies acquired in a public-to-private transaction with a market capitalisation at the time of acquisition in excess of £300 million (€419 million; $619 million), or in a secondary or other transaction with an enterprise value greater than £500 million.

The companies must generate more than 50 percent of their revenues inside the UK and employ equivalent to more than 1000 full time UK workers.

However, yesterday UK mid-market investor Duke Street Capital stepped forward with plans to embrace the Walker reporting requirements across the majority of its portfolio, according to Buchan Scott, a partner at the firm. This is despite Scott estimating that not more than a quarter of Duke Street’s portfolio would meet the Walker criteria.

He says he would be surprised if many of his peers in the mid-market were not considering doing the same. PEO knows of at least one other mid-market firm planning a similar response.

And while few would argue against the benefits of explaining what the industry does to a wider constituency, there is clearly a danger of burdening small businesses with the red tape that should be the preserve of larger companies alone.

Javier Echarri, secretary general of the European Venture Capital and Private Equity Association (EVCA), has identified this concern: “[W]hile the Walker Report may lead to greater trust in large buyout firms among the industry’s stakeholders in the UK, it is important to remember the law of unintended consequences. We hope that the Walker Report does not open the door to onerous reporting requirements on small and medium-sized private equity funds and venture capital companies, and their portfolio companies.”

We are a long way off venture firms volunteering for Walker-like levels of disclosure. But mission creep is an insidious process of small steps. The industry would do well to be watchful of what it offers, because the pressure groups in government and the unions will always want more.