Outlook 2013: Spinouts

These are good times for would-be independent GPs.

Shawn  Atkinson

They are also good times for the more junior members of the team. In the cases on which we have advised, the economics of the nascent firm are spread among the team in a much more equitable fashion than they might have been in years gone by. The parent company, which is driving the deal, is keen to create a stable business that is fit to manage any residual assets that the parent retains. Furthermore, for political reasons, the parent cannot be seen to be cutting a “sweetheart” deal to a small group of senior team members; creating wealthy individuals from regulatory change is not politically viable.

Ted Cominos

The list of tangible and less tangible issues facing a spin-out team is extensive. The remit of the senior fund manager broadens from making and realising successful investments to worrying about compliance, human resources, branding, investor relations and ordering tea and coffee supplies (all within a 2 percent management fee budget). It is a culture shock akin to moving out of your parents’ house and opening your first electricity bill.

2013 will be the year of the spin-out. The split from parent should be simpler and swifter than in previous generations. If teams are advised well (and seek advice early in the process), they should be able to create a sustainable business – with favourable terms negotiated from the parent – and focus on what they are good at, the business of doing deals.

Ted Cominos, based in Los Angeles, and Shawn Atkinson, based in London, are private equity partners at law firm Edwards Wildman Palmer.