Walker Guidelines for Disclosure and Transparency in Private Equity

On 18 December 2024, the Private Equity Reporting Group (“PERG”) published a revised version of Part V of the Walker Guidelines for Disclosure and Transparency in Private Equity (the “Guidelines”). This follows a thorough review of the previous guidelines, which were last updated in 2014, and included a benchmarking exercise to compare and assess the guidelines against the other relevant corporate reporting regimes for the FTSE 250 (the chosen benchmark).

By way of background, the Guidelines are intended for the UK private equity industry to steer them to make disclosures which in turn widen understanding of large private equity backed businesses, their performance, activities and contribution to the U.K. economy, and to demonstrate their commitment to transparency. The Guidelines aim to provide a framework which puts substance over form and prompt disclosures which are proportionate, valuable and relevant. Similar to the UK Corporate Governance Code, the Guidelines are on a comply or explain basis and the information should be published on the company’s website or as part of the annual report and accounts.

Scope

The definition of “private equity firm” has been amended to only apply to firms “whose investment strategy includes the making of control and/or control-oriented private equity investments in operating companies as a primary component”. This ensures that where a firm acquires a controlling stake by circumstance (for example by means of a debt for equity swap) rather than as part of their investment strategy, they are not caught by the definition and do not need to apply the Guidelines.

Further it was clear that the thresholds and tests in the definition of “portfolio company” were not capturing all those entities intended to be caught, being the largest UK portfolio companies and those which would, if listed, qualify for admission to the FTSE 250. On this basis, the thresholds have been adjusted to remove one of the enterprise value tests, to increase the remaining enterprise value test to £500m. and to apply these to both public to private and secondary transactions. Further, the revenue test now includes a threshold for total revenue generated by the company as well as how much revenue is generated in the U.K.

PERG have also committed to introducing an annual review of how this definition is working and how many companies are caught within the thresholds, as well as a new “smoothing mechanism” so that as companies change in size, their eligibility for the Guidelines will change as well. This is subject to further consideration by PERG, which is to follow next year.

Reporting requirements

Additional reporting requirements have also been added in the areas of risk, environment, business stakeholders and diversity, equality and inclusion.

• In relation to risk, companies must continue to provide a description of the principal risks and uncertainties and details of how the company manages those but further information will be needed about the processes put in place to identify, manage and mitigate such risks.
• Environmental related requirements will be expanded to require Streamlined Energy Carbon Reporting, Climate-related Financial Disclosures and collection of Scope 3 emissions data and to introduce transition plan requirements, especially in relation to qualitative disclosure.
• Requirements under the Companies Act 2006 for disclosures about employees and other stakeholders in the business (for example a s.172 statement) have been also incorporated into the Guidelines.
• Companies within the scope of the Guidelines will also need to make additional disclosures relating to diversity, equity and inclusion (“DEI”), confirming if they have any DEI policies in place and whether or not they align with any DEI industry frameworks.

2024 Annual Report

Highlights of the 2024 Report are that 81 of the 90 firms within the scope of the Guidelines were compliant this year and there were only nine firms which did not comply with any of the Guidelines’ components, which is lower than last year (11 out of 81 in 2023). All of those nine companies are backed by private equity owners who are non-BVCA members. Only 43% of the firms who did comply prepared disclosures to at least a good standard which is a significant decrease on last year (60% in 2023). There was also a decrease in compliance with financial key performance indicators compared with last year.

Further information is included in PERG’s press release and the newly published Good Practice Reporting by Portfolio Companies Guide by PwC provides examples of good practice to help companies improve the quality of their disclosures and reporting.

Further information

If you would like to discuss the updated Walker Guidelines please contact Andrew Mills or Charlotte Hamilton at Burges Salmon.