USA Law and Practice Contributed by: Vijay Sekhon, Brien Wassner, John Godfrey and Justin Macke, Sidley Austin LLP
Securities Regulation – SEC The SEC plays an increasingly active role in regulating private equity fund governance and disclosure. Spon - sors managing complex fund programmes, especially those with bespoke side letters, affiliated service pro - viders or multi-tiered expense allocations, had to build new infrastructure to comply with recent SEC Private Fund Adviser Rules which were vacated by the Fifth Circuit in 2024. The SEC’s focus on transparency and investor protection has also led to tighter controls around preferential treatment of certain LPs and the need for fair valuation processes. Enforcement risk is elevated for managers that fail to standardise disclo - sure and apply consistent practices across investor classes. Global Impact – EU FSR The EU Foreign Subsidies Regulation (FSR), effec - tive mid-2023, applies to US sponsors acquiring EU- based targets where non-EU state-linked financial contributions are involved. While the regulation has yet to significantly delay US deals, FSR filings are increasingly being run in parallel with merger control approvals. The regime has introduced additional dili - gence and timeline considerations for globally active sponsors, particularly those with sovereign-backed LP capital or subsidised portfolio companies. Compliance Themes Sanctions and anti-bribery compliance remain front of mind, while ESG has become less of a focus follow - ing the Trump administration’s related criticism and scrutiny. Cross-border transactions involving China or Russia-related exposure now routinely trigger elevated diligence. The DOJ has reiterated its focus on FCPA enforcement and successor liability, emphasising the importance of thorough diligence and post-closing integration. ESG oversight has decreased to appease political pressure from the Trump administration.
ensuring that liabilities are identified early and core commercial assumptions are validated, including to support no related exclusions to any contemplated representations and warranties insurance (RWI). Legal advisers co-ordinate closely with deal teams to priori - tise high-impact issues and focus on materiality. Scope and Process Diligence is generally led by the buyer’s legal counsel, with support from subject-matter experts in tax, regu - latory, IP/IT, benefits, data security, labour and envi - ronmental law. Review is conducted through virtual data rooms, often with rolling reporting and red-flag summaries for investment committees, lenders, and representations and warranties insurers. In auction processes, time constraints may limit the scope, so efficient issue-spotting becomes critical. Key Areas of Focus Key areas of focus for legal due diligence are as fol - lows. • Corporate Governance and Capitalisation – Confir - mation of valid formation, authorised and outstand- ing equity (including equity plans), shareholder rights, and historical M&A, reorganisations or similar transactions. • Material Contracts – Scrutiny of customer, supplier, partnership and financing agreements for termina - tion rights, change of control provisions, exclusiv - ity, most favoured nation (MFN) clauses, other restrictive terms, uncapped indemnification and revenue concentration risks. • Labour and Employment; Benefits – Assessment of classification risks (employee versus contractor), compliance with wage and hour laws, restrictive covenants, benefits obligations and collective bar - gaining exposure. Change-in-control and retention triggers are flagged for integration planning and cost modelling. • Data Privacy and Cybersecurity – Diligence has evolved to include in-depth review of data process - ing practices, third-party access, cyber incident response protocols and sector-specific compli - ance (eg, HIPAA for healthcare, GLBA for financial services). Regulatory fines, unresolved breaches and the use of AI or sensitive datasets are often considered material.
4. Due Diligence 4.1 General Information
Legal due diligence in US private equity transactions is typically comprehensive and tailored to the size, com - plexity and risk profile of the target. It serves as both a risk mitigation tool and a value confirmation exercise,
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