What Are Private Equity Transactions?

Private equity, or Private Equity (PE), refers to an investment method that invests in unlisted equity or non-publicly traded equity in a listed company.

Private equity

Yao Gang: Efforts to change the structure of the A-share-dominated stock market

What are the characteristics of China's stock market? The first is the shareholder structure. From the perspective of shareholding structure, we are mainly institutional investors. I refer to institutional investors as general legal persons, most of which are corporate legal persons, holding 58.2% of the market value, and individuals holding 26% of the market value. Institutional investors are mostly industrial capital, and they are the largest type of shareholders.

There is another type of professional institutional investor, which is an organization that depends on investment. In China, for example, securities investment funds are the largest professional institutional investors.

In 2012, the downward pressure on the global economy has increased, and the private equity investment industry will face tremendous pressure to withdraw and return. China's VC / PE industry will enter a period of in-depth adjustment. The industry's "shuffle" will accelerate. PE institutions that have not reached the expected returns will be at a disadvantage in the market competition. Fundraising and investment are facing challenges, and they may even be eliminated. And mature institutions with high professional standards and completed fundraising in advance will better respond to industry adjustments, and investment strategies and competition patterns will face changes. Statistics released by Zero2IPO Research Center in 2012 on China's private equity investment market statistics show that in 2012, a total of 369 private equity investment funds that could be invested in mainland China completed the fundraising. The number of newly raised funds significantly exceeded last year, the highest level in history, but The amount raised was significantly lower than last year. 359 of the 369 newly raised funds disclosed a total of US $ 25.313 billion; of which 354 were RMB funds and 15 were foreign currency funds. Although the amount of RMB was absolutely dominant, the average On the scale of single fund raising, there is still a clear gap between RMB funds and foreign currency funds.

In terms of investment, in 2012 China s private equity market investment activity slowed slightly compared to 2011. A total of 680 investment transactions were completed. A total of 606 cases with a disclosed amount of investment totaled US $ 19.785 billion. Growth capital remained the most mainstream investment strategy. Real estate investment And PIPE investment also performed well.

With regard to exit

Development history of international PE

1. Private equity investment helps reduce transaction costs for investors and improves investment efficiency

Modern economic contract theory holds that, as the basic unit of economic activity, transactions have fees or costs. The so-called transaction costs "is the price or expense that the economic system needs to pay". Specific to investment activities, the huge risks and uncertainties that often accompany them make investors need to pay for the costs of search, evaluation, verification and supervision. As a collective investment method, private equity investment funds can share transaction costs among many investors and enable investors to share economies of scale and scope. Compared with direct investment, investors can use the private equity investment method to obtain the benefits brought by the transaction cost sharing mechanism and improve investment efficiency. This is the fundamental reason for the existence of private equity investment.

2. Private equity investment is conducive to solving the problem of adverse selection and moral hazard caused by information asymmetry

There are serious information asymmetries in private equity investment activities, and this problem runs through various links from project selection before investment to supervision and control after investment. As a specialized investment intermediary, private equity investment funds can effectively solve the problems of adverse selection and moral hazard caused by information asymmetry.

First of all, the managers of private equity investment funds are usually composed of elites in the industrial and financial circles who have considerable expertise and experience in specific industries. They have strong computing and understanding capabilities in complex and uncertain operating environments. Able to perceive the risk probability distribution of investment projects with a keen eye, have strong information search, processing, processing and analysis capabilities for the early investigation and management of investment projects, and it can minimize the reduction as a special outsider Information is asymmetric to prevent adverse selection. Secondly, the institutional arrangement of private equity investment is also conducive to solving the problem of moral hazard caused by information asymmetry.

The most common organization of a private equity investment fund is a limited partnership, which usually consists of general partners and limited partners. Senior managers generally act as general partners. Once they sign an investment project agreement, they will actively participate in the management of the company as shareholders and control and support the development of the investment company. Therefore, compared with shareholders of ordinary companies, shareholders of private equity investment companies can more accurately know the advantages and potential problems of the enterprise, and provide a series of management support and consulting services to the enterprise to maximize the value-added of the enterprise and share the benefits. In this way, the institutional arrangement of private equity investment has effectively solved the principal-agent problem, which is another reason for the rapid development of private equity investment.

3. Private equity investment can take advantage of risk management and provide value added

Modern financial economics believes that investment portfolios can reduce the non-systemic risks of economic activities and thus become an important means of risk management. But for individual investors, decentralized investment will bring additional costs to investors. For example, investors may have to reduce the proportion of investment in a certain enterprise, so that investors have less control over the enterprise, or investors will have to spend more energy and costs to monitor and manage different investment projects . The private equity investment fund adopts a collective investment method, which can diversify risks by investing in projects at different stages and in different industrial projects. Therefore, investors invest through the investment intermediary of private equity investment funds, in addition to enjoying cost sharing Can also share the benefits of diversified investment risks, thereby obtaining value added.

1. The name shall comply with the "Registration Regulations for the Registration of Names", and the name of the investment enterprise that has reached the scale is allowed to use the word "investment fund".

2. The terminology in the name can use the words "venture investment fund, venture capital fund, equity investment fund, investment fund" and so on. "Beijing" as an administrative division allows the use between trade names and industry terms.

3. Fund type: The registered capital (amount of investment) of the investment fund company shall not be less than 500 million yuan, all of which shall be contributed in the form of currency, and the paid-in capital (actually paid investment amount) shall not be less than 100 million yuan when it is established; within 5 years The registered capital is fully committed in accordance with the company's articles of association (partnership agreement). "

4. The investment amount of a single investor is not less than 10 million yuan (the general partners in a limited partnership enterprise are not covered by this restriction).

5. At least 3 executives have experience in management and operation of equity investment funds or related business experience.

6. The business scope of fund-type enterprises is verified as: non-securities business investment, investment management, and consulting. (Fund-type enterprises may apply to engage in other business projects outside the above business scope, but shall not engage in the following businesses: (1) issuing loans; (2) publicly traded securities investments or financial derivatives transactions; (3) raising funds in an open manner (4) Providing guarantees to enterprises other than the invested enterprise.

7. Managed fund company: Investment fund management: "The registered capital (the amount of capital contribution) is not less than 30 million yuan, all of which are contributed in the form of currency, and the paid-in capital (the actual amount of capital contribution) was paid at the time of establishment"

8. The investment amount of a single investor is not less than 1 million yuan (the general partners in a limited partnership enterprise are not covered by this restriction).

9. At least 3 executives have experience in the management and operation of equity investment funds or relevant business experience.

10. The business scope of a managed fund enterprise has been approved as: non-securities business investment, investment management, and consulting.

In order to cover the equity investment in various stages before the company's initial public offering, the investment in the seed stage, start-up stage, development stage, expansion stage, mature stage and

Private equity investment (Private Equity, PE) is also translated into "private equity investment", "private equity investment" and other forms. These different translations reflect the following characteristics of private equity investment to varying degrees:

First, in the fundraising, it is mainly raised to a small number of institutional investors or individuals in a non-public manner. Its sales and redemptions are conducted by the fund manager through private consultation with investors. In addition, the investment method is also carried out in the form of private placement, which rarely involves

(1)

According to the development stage of the invested company, private equity investment can be divided into Venture Capital, Development Capital, Buyout Capital, Mezzanine Capital, Pre-IPO Investment (Pre -IPO Capital) and Private Investment in Public Equity (PIPE).

1.

Private equity investment is a high-yield investment method. High-yield is accompanied by high-risk. With the continuous development of the private equity investment industry, many effective risk control methods have been formed.

(1) The contractual binding mechanism stipulates in advance that the responsibilities and obligations of the parties are legally effective risk aversion measures that all commercial activities will take. In order to prevent the company's actions that are not favorable to the investors and protect the interests of the investors, the investors will elaborate various clauses in the contract, such as positive and negative clauses, conditions for adjusting the proportion of shares, clauses for remedies for breach of contract, and priority for additional investment. Rights clauses, etc.

(2) Segmented investment Segmented investment refers to the use of private equity investment funds to effectively control risks and prevent companies from wasting funds, and to control investment progress in sections, and only provide the funds necessary to ensure that the company develops to the next stage, and retain and give up. The right to additional investment and the right to issue stocks when a company purchases additional financing. If the company fails to reach the expected level of profitability, the investment ratio in the next stage will be adjusted, which is a way to monitor the operation of the company and reduce operating risks.

(3) Share adjustment terms are the same as other commercial activities. Private equity investments can agree on share adjustment terms in the contract to control risks. Share adjustment is an important risk control method in private equity investment. The adjustment of the conversion ratio between preference shares and ordinary shares will change the proportion of equity between investors and enterprises accordingly, in order to restrict the investees from making objective profit forecasts and formulating reality. Performance goals, while also motivating corporate managers to be diligent and responsible, and pursue the maximum growth of the enterprise, so as to control investment risks.

(4) Composite securities instruments Composite securities instruments usually include convertible preferred stocks, convertible bonds, and recognizable bonds. It combines the advantages of debt investment and common stock equity investment, which can effectively protect the interests of investors and share the enterprise. growing up.

Overview

We focus on and specialize in legal affairs in the field of private equity investment. Our services cover the entire process from the establishment and raising of various private equity funds to the launch of private equity investment, the management of investment projects, and the successful exit.

Assist promoters and investors in setting up various private equity funds, including

In order to regulate the operation and filing management of equity investment enterprises (including equity investment parent funds with equity investment enterprises as investment objects) established in the People's Republic of China that engage in equity investment business of non-publicly traded enterprises, the current standardization of equity investment enterprises is promoted. The relevant matters are notified as follows:
I. Regulating the establishment of equity investment enterprises, capital raising and investment areas (I) Establishment and management mode. Equity investment enterprises shall be established in accordance with the relevant provisions of the Company Law of the People's Republic of China and the Partnership Enterprise Law of the People's Republic of China. Among them, equity investment enterprises established in the form of limited liability companies or joint stock companies can implement self-management by setting up an internal management team, or they can entrust management of assets to other equity investment enterprises or equity investment management enterprises.
(2) Capital raising. Equity investment companies' capital can only be raised through private placements to specific qualified investors with risk identification and risk tolerance capabilities. They must not publish announcements in the media (including various websites), post notices in the community, and distribute leaflets to the community. Send text messages to the public or hold seminars, lectures, and other public or disguised public means (including placing prospectuses on the counters of commercial banks, securities companies, trust and investment companies, etc.), directly or indirectly to unspecified or non- Referrals from qualified investors. The equity fundraiser of an equity investment enterprise must fully disclose the investment risks and possible investment losses to the investor, and must not promise the investor to ensure that the investment principal is recovered or a fixed return is obtained.
(3) Capital subscription. All investors in equity investment enterprises can only subscribe for capital contributions with legal own currency funds. Capital payment can adopt a commitment system, that is, investors sign a subscription commitment during the capital raising phase of the equity investment enterprise, and in the implementation phase of the investment operation of the equity investment enterprise, the capital shall be paid in installments in accordance with the articles of association of the equity investment enterprise or the partnership agreement.
(4) Limits on the number of investors. The number of investors in equity investment enterprises shall comply with the provisions of the "Company Law of the People's Republic of China" and the "Partnership Law of the People's Republic of China". If the investor is an unincorporated institution such as a collective fund trust, partnership, etc., it shall open up to check whether the final natural and legal entity is a qualified investor, and open up the total number of investors, except that the investor is an equity investment parent fund.
(5) Investment fields. The investment field of equity investment enterprises is limited to non-publicly traded equity. Idle funds can only be deposited in banks or used to purchase fixed income investment products such as treasury bonds; the investment direction should conform to national industrial policies, investment policies, and macro-control policies. The projects invested by equity investment enterprises must fulfill the compliance management procedures for fixed asset investment projects. Foreign-funded equity investment enterprises shall, when investing, go through the formalities for the approval of investment projects in accordance with relevant state regulations.
2. Improve the risk control mechanism of equity investment enterprises (6) Investment risk control. The use of funds by an equity investment enterprise shall be based on the articles of association of the equity investment enterprise or the partnership agreement, to reasonably diversify the investment and reduce investment risks. Equity investment enterprises shall not provide guarantees for enterprises other than the invested enterprises. The investment decision of an equity investment enterprise to a related party shall implement the related party avoidance system, and shall be stipulated in the company's articles of association or partnership agreement, entrusted management agreement, and entrusted custody agreement. The standards for the identification of related parties shall be agreed upon by the equity investment enterprise investors in the company's articles of association or partnership agreement, entrusted management agreement, and entrusted custody agreement in accordance with relevant laws and regulations.
(7) Incentive and restraint mechanisms. The legal documents such as the company's articles of association or the partnership agreement of the equity investment enterprise and its entrusted management institution shall specify the performance incentive mechanism, the risk constraint mechanism, and agree on the decision-making procedures for related investment operations. Equity investment companies may agree on the duration of their existence.
(8) Inspection and evaluation of the entrusted management. Equity investment enterprises may regularly or irregularly inspect and evaluate the use of the equity investment enterprise s capital by their entrusted management institutions in accordance with relevant provisions of legal documents such as entrusted management agreements.
(9) Asset custody. The assets of an equity investment enterprise shall be entrusted to an independent custody institution for custody. However, with the exception of all investors who are exempt from escrow. If the entrusted management institution is a wholly foreign-owned enterprise or a Chinese-foreign joint venture, the assets of the equity investment enterprise shall be entrusted by an independent custodian institution with domestic legal personality.
Clarify the basic responsibilities of the equity investment management institution (10) The responsibilities of the entrusted management institution. Where an equity investment enterprise adopts entrusted management, the entrusted management institution shall perform the following duties in accordance with the entrusted management agreement: (1) Formulate and implement investment plans and conduct post-investment management of the invested enterprises. (2) Actively participate in the formulation of the development strategy of the invested enterprises and provide value-added services for the invested enterprises. (3) Regular or irregular disclosure of information on the operation and operation of equity investment enterprises. Prepare accounting statements on a regular basis and report to equity investment companies after review by an external audit agency. (4) Entrust other duties as agreed in the management agreement.
(11) Restrictions on conflicts of interest. The entrusted management institution of an equity investment enterprise of an equity investment enterprise shall treat the property of different equity investment enterprises that it manages fairly, and may not use the property of the equity investment enterprise to seek benefits for a third party other than the equity investment enterprise. Different equity investment enterprises should set up different accounts and implement sub-account management.
(12) The retirement of the trustee management agency. Under any of the following circumstances, the trustee management institution of an equity investment enterprise shall retire: (1) The trustee management institution is dissolved, bankrupted, or its assets are taken over by the receiver. (2) The entrusted management institution loses its management ability or seriously damages the interests of investors of equity investment enterprises. (3) In accordance with the entrusted management agreement, the investor holding the equity of a certain percentage or more of the equity investment enterprise requires the trustee management agency to retire. (4) Other circumstances in which the entrusted management agreement stipulates the retirement of the entrusted management agency.
4. Establishing an information disclosure system for equity investment enterprises (13) Submitting annual reports. In addition to the disclosure of investment operation information to investors in accordance with the company's articles of association and partnership agreements, equity investment companies should also submit annual business reports to the filing management department and the annual audited by an accounting firm within 4 months after the end of each accounting year. financial report. The entrusted management institution and custodian of an equity investment enterprise shall submit an annual asset management report and an annual asset custody report to the filing management department within 4 months after the end of each accounting year.
(14) Immediate report of major events. The equity investment enterprise shall report to the record management department within 10 working days when the following major events occur during the investment operation: (1) Amend the company's articles of association, partnership agreement and entrusted management agreement of the equity investment enterprise or its entrusted management agency And other documents. (2) Equity investment enterprises or their entrusted management institutions increase or decrease capital or conduct external debt financing. (3) The division and merger of equity investment enterprises or their entrusted management institutions. (4) Changes in the trustee management institution or trusteeship, including changes in the senior management personnel of the trustee management institution and other major changes. (5) The equity investment enterprise is dissolved, bankrupted or the receiver takes over its assets.
V. Strengthening the filing management of equity investment enterprises and industry self-discipline (15) Scope of filing management. Except for the following situations, equity investment enterprises shall apply to the corresponding management department for filing within one month after completing the industrial and commercial registration in accordance with the requirements of this notice: (1) they have been registered as venture capital in accordance with the "Interim Measures for the Management of Venture Capital Enterprises" enterprise. (2) Established by a single institution or a single natural person in full, or jointly established by the same institution and its wholly-owned subsidiaries and several wholly-owned subsidiaries of the same institution.
(16) Incidental filing of the entrusted management agency. Where an equity investment enterprise entrusts the management of assets to other equity investment enterprises or equity investment management enterprises by means of entrusted management, its trustee management institution shall apply for incidental filing and accept filing management.
(17) Filing management department. Equity investment enterprises whose capital scale (including the actual capital contribution by investors and the committed capital contribution without actual capital contribution) has reached 500 million yuan or an equivalent foreign currency in the National Development and Reform Commission (hereinafter referred to as the national record management department) Filing: Equity investment enterprises with a capital scale of less than 500 million yuan or equivalent foreign currency shall be filed with the filing management department (hereinafter referred to as the provincial filing management department) determined by the provincial people's government.
(18) The subject of the filing application. Where an equity investment enterprise adopts the self-management method, the equity investment enterprise shall be responsible for applying for record filing procedures; if the equity investment enterprise adopts the entrusted management method, its trustee management agency shall be responsible for applying for record filing procedures.
(19) Procedures for filing with the state record management department. When an equity investment enterprise applies for filing with the national filing management department, the applicant shall send relevant filing materials to the provincial filing management department where the equity investment enterprise is located for preliminary review. Provincial filing management departments will issue preliminary review opinions to the national filing management department within 20 working days after receiving the filing application of equity investment companies. The national filing management department shall, within 20 working days after receiving the filing application and preliminary review opinion of the equity investment enterprise reported by the provincial filing management department, announce the non-objection-reviewed equity investment enterprise through the portal of the national filing management department. The list and the basic information of the form, for the equity investment enterprises to complete the filing procedures.
(20) Procedures for filing with the provincial filing management department. The equity investment enterprise applies to the local provincial filing management department for filing. The provincial filing management department shall, within 20 working days after receiving the equity investment enterprise filing application, pass the provincial filing management for the non-objection-reviewed equity investment enterprise The way for the departmental portal to announce its list and basic information is to complete the filing procedures for equity investment enterprises.
(21) Documents and materials that should be submitted for filing of equity investment enterprises. When applying for archival filing, an equity investment enterprise shall submit the following documents and materials: (1) Application for archival filing by an equity investment enterprise. (2) A copy of the business license of the equity investment enterprise. (3) Prospectus for equity investment company capital recruitment. (4) The articles of association or partnership agreement of the equity investment enterprise. (5) A capital subscription commitment signed by all investors. (6) Capital verification report of the capital verification institution on the actual capital contribution of all investors. (7) The sponsor's statement on whether the capital raising of the equity investment enterprise is legal and compliant. (8) Resume certification materials of senior management personnel of equity investment enterprises. (9) Entrusted custody agreement. If all investors agree to be exempt from escrow, a letter of consent signed by all investors should be provided to waive the escrow letter. (10) Legal opinion on the documents and materials involved in the filing issued by the law firm. Where an equity investment enterprise adopts entrusted management, it shall also submit an entrusted management agreement signed between the equity investment enterprise and the entrusted management agency.
(22) Documents and materials that should be submitted for the filing of an entrusted management agency of an equity investment enterprise. The trustee management organization of an equity investment enterprise shall submit the following documents and materials for the application for recordal filing: (1) A copy of the business license of the trustee management organization. (2) The company's articles of association or partnership agreement. (3) List and briefing of shareholders (partners) of the trustee management institution. (4) Resume certification materials for all senior management personnel. (5) Development and performance of equity investment management business.
(23) Definition and requirements for senior management personnel. The term senior management personnel as mentioned in this notice refers to the directors, supervisors, managers, deputy managers, financial managers, secretary of the board of directors and other persons stipulated in the company's articles of association, as well as the general partners and partnership agreements of the partnership enterprise. Other people. If the general partner of a partnership enterprise is a legal person or an unincorporated institution, the senior management personnel of the institution shall be regarded as senior management personnel. , At least 3 senior management personnel have more than 2 years of equity investment or related business experience.
(24) Application for cancellation of record. An equity investment enterprise may apply for cancellation for the record: (1) Dissolution. (2) The main business is no longer an equity investment business. (3) It shall be registered as a venture capital enterprise in accordance with the Interim Measures for the Management of Venture Capital Enterprises.
(25) Supervision and management. The filing management department strengthens the supervision and management of equity investment enterprises by establishing and improving the systems of filing management information systems for equity investment enterprises, social reporting, regular and irregular inspections, and public announcements. The equity investment enterprises and their trusteeship management institutions that have completed their filings shall conduct an annual inspection on whether they have complied with the relevant provisions of this notice within 5 months after the end of each accounting year. When necessary, you can learn about its operation and management through letters, telephone inquiries, visits, on-site inspections, and off-site monitoring.
(26) Penalties for circumventing record supervision. If the filing management department finds that the equity investment enterprise and its entrusted management agency have not filed it, it shall urge it to apply to the management department for filing procedures within 20 working days. The Trusted Management Institution for Filing Supervision announced to the public through the portal website of the Filing Management Department.
(27) Penalties for irregular operations. If the operation management does not comply with the provisions of this notice, it shall be urged to make corrections within 6 months; if there is no correction within the time limit, it shall be regarded as "a non-compliant equity investment enterprise with operational management and a trustee management organization with non-compliant operational management". The portal website of the filing management department announced to the public.
(28) Industry self-discipline. Establish a national equity investment industry association to conduct self-discipline management of equity investment enterprises and their trustee management institutions in accordance with relevant laws, regulations and this notice.
(29) Implementation. This notice comes into effect on the date of its publication. Equity investment enterprises and their trusteeship management institutions established before the implementation of this notice shall be filed with the filing management department in accordance with the relevant provisions of this notice within three months after the issuance of this notice; investment operations that do not meet the requirements of this notice shall be issued in this notice Rectify within 6 months in accordance with the relevant provisions of this notice.

General Office of the National Development and Reform Commission November 23, 2011