"To understand the legal aspects, you have to understand how these deals are done," says Mark Campbell, a partner at Clifford Chance, a law firm that has been more active in European venture-capital transactions than most.
Often a deal is the result of a European conglomerate selling off a division. The bidders may include a trade buyer, a venture-capital company and a financial buyer (such as Nomura, which has a portfolio of industrial businesses). "The seller is looking for amount, certainty and speed," says Campbell. The trade buyer will have corporate banking lines, so can produce the cash. But the trade buyer risks being held back by competition issues - the anti-trust authorities may investigate. The venture-capital firm has few competition hurdles to jump but needs to raise cash quickly, especially if the trade buyer is offering a high price.
"If the venture-capital company is proposing to use high-yield debt, it will normally need bridging finance in the meantime," says Campbell. A major factor is whether the issue is to be marketed in the US. In Europe the capability to analyze high-yield issues and their covenants still resides in the credit function of banks, whereas in the US institutional investors, being more used to high-yield issues, have developed this capability in-house.