Private equity firms are experts at buying and selling businesses. When a potential transaction arises, the PE firm will assemble outside experts in areas such as legal and accounting to assist. Rochford advises on the financial risks associated with transactions outside the scope and expertise of customary transactional advisors; the most common of which are related to foreign currencies and interest rates.
Deal Contingent Hedging
One type of risk that exists is “contingent” on the purchase or sale being completed. For example an Australian fund intends to buy an NZD 500 million business, but the purchase is subject to governmental approval that may be given in one to six months or not at all. In order to mitigate this risk, the PE Firm could enter into a “Deal Contingent Hedge.”
In this case, the client can enter into a hedge with a bank or banks to hedge the currency with no upfront cash cost. Assuming the transaction closes, the hedge is in place. In the event the transaction does not close, the contract is canceled with no cost to the PE firm.
Rochford is well positioned to be a client’s advocate when analysing alternatives, assisting with documentation and executing the transaction. The client can be assured of an objective view of the entire transaction but in particular pricing.
“The financial instruments available to manage our risk are very complex and are too numerous to count. Rochford stepped us through the pros and cons of each, syndicated the transaction and helped us get the best possible pricing.”