An EU policy paper outlining the areas of priority for assisting private equity growth over the next three years was unveiled by the European Venture Capital Association (EVCA) in Brussels this week. The majority of attendees were EU officials and representatives as well as some of the associations more active proponents.
Ari Tolpannen, EVCA past chairman and CEO of Capman, the listed Finnish private equity investor – speaking prior to terrorist attacks in the US – ventured that the slow down in the economy may work to the advantage of those pressing for a more positive private equity investing environment. This comment was made in light of the surveys undertaken recently – such as the 3i-sponsored survey on the economic impact of buyouts – which conclude that private equity backed companies on average grow faster than those not private equity backed. And, private equity has been found, on average, to increase employment.
The main areas for legislative improvement, as far as Tolpannen was concerned, rest with variable capital gains and stock options. “With stock options the question is not that they are tax exempt we are driving to change when you pay the tax. We think the tax should not be paid when a stock option is granted, nor should it be paid when you exercise that option but when you sell the option,” says Tolpannen.
He went on to cite that lessons could be learned from practices employed in existing European countries, such as the taper relief system used in the UK.
Much of the thrust of the EVCA’s latest EU Policy White Paper called “EVCA White Paper: Policy Priorities for Private Equity, fostering long term economic growth” lies with expanding the long term capital sources available for private equity investment – namely European pension funds.
The EVCA’s paper, which aims to work in conjunction with the EU’s Risk Capital Action Plan paper, is concerned with providing a framework at European level and implementation at local level, i.e. national venture capital associations.
The recent (July 2001) rejection of a European wide Takeover Directive, was undoubtedly a blow for the EU’s wider integrated capital markets plan and the current largely absent provision for squeeze outs means the public to private market is unlikely to develop to any serious extent beyond the UK. The Takeover Directive is not at the top of the EVCA priority list at present, despite the increasing amount of private equity funds available being committed to the public to private market.
The EC announced last week that it has not given up hope and has decided to put together a “high level group of experts” to consider the issues. The chosen a group of European figures has been given a broad remit to come forward with recommendations by the middle of next year. Among the issues which the group will consider are “squeeze out provisions” – the right of a majority shareholder to buy out small minorities, which is vital in facilitating takeovers – and corporate governance.
The EVCA is focusing on merger competition law in the EU, which has size referral levels that bizarrely mean that a number of non-competitive private equity transactions have to go forward for review. It is the view of Tolpannen and others within the EVCA that if the association lobbies when legislation is proposed such anomalies should not recur. This is understandable, since, as the association, which produces its last – very similar – White Paper three years ago, is finding out, effecting retrospective legislation is a time consuming process.