Tender Specification

NORTH EAST ACCESS TO FINANCE LIMITED (NEA2F)

PROCUREMENT OF LEGAL SERVICES FOR NORTH EAST JEREMIE2 FUND & NEA2F

Tender Reference: NEA2F/027

January 2015

Level 10

Baltic Place West

South Shore Road

Gateshead

NE8 3AE

1.INTRODUCTION

The purpose of this Invitation to Tender is to appoint a panel of law firms to provide specialist legal advice relating to the establishment of a new, publicly-backed venture capital holding fund which will operate across the North East of England. It will be a successor to the Finance for Business North East fund (see which was established in 2010 as part of the EU/European Investment Fund’s Joint European Resources for Micro to medium Enterprises (JEREMIE) initiative. For that reason, it is referred to as the “JEREMIE2” project or fund.

In their respective Strategic Economic Plans, the two Local Enterprise Partnerships (LEPs) serving the North East of England (the North East Local Enterprise Partnership and Tees Valley Unlimited)gave their support to the use of JEREMIE as a Financial Instrument in the new European Structural Funds programme. The two LEPs have formed a Project Board to develop the JEREMIE2 fund.

The JEREMIE2 fund is expected to be capitalised with up to £160m of contributions from: the European Regional Development Fund 2014-2020 programme; returns generated from previous UK government and ERDF backed venture capital funds and a loan of between £60m and £80m from the European Investment Bank. The JEREMIE2 holding fund is expected to invest in a number of new venture capital and loan funds which are likely to be structured as limited partnerships and managed by independent, FCA-authorised fund management companies which will be appointed following competitive public procurement processes.

Most of the advice to be provided pursuant to this Invitation to Tender will relate to the establishment of the new holding fund (J2 Holdco) and the sub-funds it invests in. The legal form of, and the process by which J2 Holdco will be established have not yet been determined and so the advice provided by the firms appointed to the panel will initially be provided to the JEREMIE2 Project Board and Team and/or to North East Access to Finance Limited – as detailed in the next section. The advice must be given so that it can also be relied on by the J2 Holdco legal entity once it is incorporated.

Given the nature of the JEREMIE2 project and its sources of funding, the areas of law on which the appointed panel members will be required to advise will include those relating to:

  • EU and EU derived law and regulation relating to public procurement, state aid and the utilisation of EU structural funds, in particular European Regional Development Funds;
  • The establishment and operation of venture capital and loan funds, including advice on compliance with the requirements of the FSMA, FCA and applicable EU regulations;
  • Funding agreements – including loan facilities and grant funding agreements;
  • Corporate structures and governance arrangements;
  • General corporate and commercial advice relating to employment law, commercial contracts including consultancy agreements and IT services, commercial property etc.

2.INFORMATION ON CONTRACTING AUTHORITY AND CLIENTS

The Contracting Authority for this Invitation to Tender is North East Access to Finance Limited (NEA2F) acting both for itself and on behalf of the JEREMIE2 Project Board and the JEREMIE 2 Project Team. Any enquiries should be addressed to Estelle Blanks, Deputy Project Director, at .

The JEREMIE2 Project Board(Project Board) has been set up as the body with strategic oversight of the development of a proposed £160m “JEREMIE2” Fund of Funds in North East England: a successor to the current Finance for Business North East fund. The Project Board is made up of representatives from the two Local Enterprise Partnerships in the area served by the Finance for Business North East funds and which the JEREMIE2 fund is likely to cover: Northumberland, Tyne & Wear, CountyDurham and TeesValley. The main funding stakeholders are the Department for Communities & Local Government (DCLG), the Department for Business Innovation & Skills (through British Business Bank) and NEA2F. Each sits as an Observer on the Project Board. DCLG is responsible for ERDF commitments, British Business Bank for UK governmentfunding and NEA2F for legacy funds from predecessor SME finance programmes in the region.

A Project Team has been established to deliver the new programme, pending the creation of the J2 Holdco implementing body. The Project Team reports to the Project Board.

The successful bidders will work with members of the Project Team on a day-to-day basis, and will have access to the Project Board and stakeholders where required and may be asked to deliver presentations to these groups. Most of the work to which this invitation to tender relates will be undertaken on behalf of, and for the benefit of, the JEREMIE2 project and (ultimately) the legal entity which becomes its implementing body (J2 Holdco) – but it will also include the provision of some advice direct to NEA2F relating to redeployment of legacy funds.

All advice provided to the JEREMIE2 project and NEA2F pursuant to this Invitation to Tender may be shared with the project stakeholders (including DCLG, BIS/British Business Bank and the EIB) but shall not be relied on by them. Advice provided under one Lot may be relevant and impact on work undertaken under another Lot and therefore all advice may be shared with other law firms providing services pursuant to this Invitation to Tender.

The contracts to which this Invitation to Tender relate are part funded by contributions from the European Regional Development Fund 2007-2013 Programme.

3.NORTH EAST ACCESS TO FINANCE LIMITED

The Project Board has asked NEA2F to act as Contracting Authority for this Tender. NEA2F is a company limited by guarantee, with responsibility for:

  • Stewardship of the legacy from historical investment funds in North East England.
  • Research and strategic planning on future Access to Finance provision in the region.
  • Working with LEPs, stakeholders and policy makers in the development of future Access to Finance provision in North East England.
  • Supervising the deployment of financial returns from historical investment funds in the region into new funds.

4.SUMMARY OF JEREMIE2 PROJECT

As stated in section 1, the JEREMIE2 project is intended to secure a successor suite of venture capital and loan funds to the current Finance for Business North East (FBNE) fund. The FBNE fund was established in 2010 to make venture capital and loans available to start-up and growing SMEs based in the North East of England which were unable to fully fund their development with finance from the private sector. A suite of seven venture capital and loan funds was established to make funding available, on commercial terms, to SMEs across the North East of England. These funds will be fully-invested by the end of 2015 and the JEREMIE2 project has been established to ensure that growth finance will continue to be available to North East SMEs from January 2016 onwards. The FBNE fund is financed partly by ERDF and UK government grant funding and partly by a loan from the European Investment Bank – which is serviced and repaid using the returns from the investments made by the FBNE fund managers.

The working assumption of the Project Board and Project Team is that the JEREMIE2 fund will be funded and structured along broadly similar lines to the FBNE fund – with a holding fund entity (J2 Holdco) being the investor in a number of funds structured as general partnerships and which are managed by FCA-authorised fund managers. The holding fund entity for the FBNE fund is a wholly-owned (but operationally independent) subsidiary of NEA2F. It is expected that J2 Newcowill be a new entity, which may also be created as a subsidiary of NEA2F or which may be completely independent of the NEA2F group. This decision will be made by the stakeholders and JEREMIE2 Project Board in due course – and legal advisors appointed pursuant to this Invitation to Tender may be asked to advise on issues relating to the J2 Holdco structure and to assist in establishing it. Until J2 Holdco is established and resourced, the JEREMIE2 Project Board and Project Team will instruct the solicitors appointed to the panel to undertake the work necessary to ensure a functioning suite of funds are operational by January 2016.

The principal anticipated roles of the participants in the JEREMIE2 fund are summarised as follows:

J2 Holdco

  • Overall responsibility for delivering the programme in accordance with commitments to the project funders. This includes responsibility for compliance with all legal and regulatory requirements (including re ERDF, state aid, public procurement) and for liaising with, and responding to queries from, external auditors appointed by funders;
  • Grant recipient of c. £70m ERDF 2014-2020 programme funding from DCLG;
  • Borrower of £60m to £80m from the European Investment Bank, solely responsible for servicing and repaying it and observing all loan conditions and covenants;
  • Recipient of c. £30m of funding derived from returns on previous publicly-backed investment funds, contributed by NEA2F acting on behalf of both DCLG and the Department for Business, Innovation and Skills, in conjunction with the Local Enterprise Partnerships;
  • Responsible for monitoring and managing the fund managers – to ensure that the funds are delivered in accordance with contractual obligations and regulatory requirements;
  • Responsible for reporting on programme performance to funders, and is directly accountable to and maintains relationships with funders;
  • Responsible for performance management of fund managers, and for adjusting fund specifications and/or sizes in response to market conditions and/or fund manager performance;
  • No involvement in individual investment decision making, except oversight in limited circumstances e.g. to monitor compliance by fund managers with conflict of interest management procedures;
  • Responsible for promotion and marketing of JEREMIE2 programme as a whole;
  • Responsible for treasury management of idle funds – i.e. un-invested capital secured from funders is controlled by J2 Holdco and released to investment funds in response to requirement for individual investments.

Fund Managers

  • Responsible for promoting and marketing individual funds, and generating applications for investment from across the territory covered by the JEREMIE2 fund;
  • Evaluate and decide whether to accept or reject applications, negotiate terms of investment with SMEs and complete investments by drawing funds from J2 Holdco;
  • Responsible for all dealings with successful and unsuccessful applicants, including managing post-investment relationship with and monitoring of investees;
  • Responsible for managing the fund in accordance with the investment policy established by J2 Holdco / the JEREMIE2 Project, and so it achieves the targets relating to financial returns and economic development and other outputs mandated within the investment policy;
  • Responsible for all aspects of fund management, including valuation and financial reporting;
  • Report directly to J2 Holdco and have no direct relationship with or contractual obligations to funders.

Funders & Stakeholders

  • The nature and anticipated extent of commitments from funders is summarised in bullets 2 to 4 under the heading J2 Holdco, above;
  • Current expectation is that the JEREMIE2 structure will, like the FBNE fund, be required to maintain private sector classification – which has implications for the nature of involvement of funders, as any ability of public sector funders to exercise control over J2 Holdco is likely to prejudice private sector classification;
  • European Investment Bank will take a first-ranking, senior lender position, with security over most of the JEREMIE2 fund structure;
  • The terms of the contributions of ‘new’ ERDF funding from DCLG and of ‘recycled’ ERDF and UK government funding (returns from previous investment funds) are to be confirmed. NEA2F is likely to seek advice from solicitors appointed pursuant to this ITT in relation to the latter, in its capacity as ‘trustee’ of those funds. This advice will be shared with funders and stakeholders;
  • In relation to the new, 2014-2020 ERDF programme funding, DCLGwill act in conjunction with the Local Enterprise Partnerships but the funding agreement(s) are expected to be direct between DCLGand J2 Holdco. Parties to the ‘legacy’ funding agreements are to be confirmed and advice will be sought by NEA2F pursuant to this Invitation to Tender regarding the appropriate terms of, and parties to, legacy funding agreements.

A high level (and non-exhaustive) summary of the principal tasks and related legal work, and indicative timetable, to for the project is as follows:

TASK / TIMELINE / LEGAL ADVICE LIKELY TO INCLUDE
1 / Develop fund structures and investment policies / MAR / APR 15 / - state aid advice re structures and investment policies
- advice on, and drafting of, sub-fund structures, likely to include limited partnership and fund management agreements
- advice on interpretation of EU regulations applying to Structural Funds, in particular to the ERDF, and UK implementation of these
- advice on regulatory compliance, including FSMA, FCA requirements
2 / Develop and finalise the procurement strategy for the procurement of the fund managers / MAR / APR 15 / - advice on procurement options and on approach to implementing strategy, including re the Competitive Procedure with Negotiation available under the Public Contracts Regulations 2015
3 / Establish the J2 Holdco corporate entity and structure / MAR Onwards / - liaising with stakeholders and their legal advisors regarding their requirements and interpretation of EU regulations and UK law and guidance
- providing advice on, and assisting with implementation of, agreed corporate structure and governance arrangements
- required advice also likely to include: commercial contracts, employment law
4 / OJEU Procurement Process to Appoint Fund Managers / Commence APR / - advice on and assistance with drafting of OJEU / Invitation to Tender documents etc
- ongoing assistance during OJEU process, providing advice to those involved in managing the process and evaluating tenders to ensure compliance with regulations
- assisting with the Project requirement to maintain records and document the process for audit purposes
5 / Negotiate Agreements between J2 Holdco and funders, including DCLG, EIB and BIS / NEA2F / MAR Onwards / - advice on all aspects of the Finance Contract with EIB and associated security structure
- advice on funding agreements with DCLG, BIS / NEA2F
6 / Finalise Appointment of Fund Managers / JUN/JUL Onwards / - following conclusion of OJEU process, finalise all contractual documentation with fund managers
-assist with the requirement to maintain records and document the process for audit purposes
7 / JEREMIE2 Portfolio Fully Operational / BY DEC 2015

The time when the J2 Holdco entity will be established is not yet known and, due to the emerging regulatory regime applicable to the new EU Structural Funds regulations, may not be until the second half of 2015. The JEREMIE2 Project Board and Project Team will act on behalf of J2 Holdco prior to its incorporation and will (if it is not incorporated before the fund manager procurement begins) undertake the procurement of the fund managers. In that circumstance, it is anticipated that NEA2F would act as contracting authority on behalf of the as-yet-unincorporated J2 Holdco.

5.TENDER SPECIFICATION

The JEREMIE2 project is a publicly funded venture capital programme which will be delivered by an independent, private organisation which will be accountable to its public funders and responsible for repaying a loan of £60m+ to the European Investment Bank. The programme will have to comply with EU state aid and ERDF regulations, involves the public procurement of fund management services and the creation of several standalone investment fund structures and an overall corporate structure. The JEREMIE Project therefore wants to appoint appropriately qualified and experienced solicitors to provide advice and assistance in relation to the following areas of law – which are the Lots into which this Invitation to Tender is divided:

LOT 1 / LOT 2 / LOT 3 / LOT 4
State Aid, Public Procurement and
EU Law / Investment Funds & Related Financial Services Regulatory Compliance / Corporate Advice – Re Corporate Finance, Structures & Governance / General Commercial Advice

Bidders may submit tenders in respect one or more Lots – i.e. can tender for any one Lot, all Lots or any combination of Lots. The highest, and second-highest, scoring firms for each Lot will be appointed to the panel, which will be operated in accordance with the principles set out at Appendix 2. The panel will therefore comprise between 2 and 8 firms. For purposes of illustration only, the following represents possible compositions of the panel:

Example 1:

Rank of Firm: / LOT 1 / LOT 2 / LOT 3 / LOT 4
1 / Firm A / Firm C / Firm E / Firm G
2 / Firm B / Firm D / Firm F / Firm H

Example 2:

Rank of Firm: / LOT 1 / LOT 2 / LOT 3 / LOT 4
1 / Firm A / Firm B / Firm B / Firm A
2 / Firm B / Firm A / Firm A / Firm B

Example 3:

Rank of Firm: / LOT 1 / LOT 2 / LOT 3 / LOT 4
1 / Firm A / Firm A / Firm B / Firm D
2 / Firm B / Firm C / Firm D / Firm C

Please refer to Appendix 2 for details of how the panel will operate and the basis on which work will be instructed. In summary, the first-ranked firm appointed to each Lot will usually be instructed by the JEREMIE2 Project without further competition. NEA2F expects to utilise the panel to secure independent advice on its own behalf regarding its participation in the JEREMIE2 project as a funder and it may instruct the second-ranked firm from a Lot if the first-ranked firm is advising the JEREMIE2 project.

The award criteria and evaluation weightings for each Lot are set out in section 6, below. The same award criteria apply to each Lot but the weightings are slightly different. The specific requirements applicable to each Lot are as follows:

Lot 1: State Aid, Public Procurement and EU Regulation

The ability to structure investment funds which fully comply with the EU state aid and ERDF regulations while still affording the fund managers maximum flexibility and commerciality in delivering the funds will be critical to the success of the JEREMIE2 project. The specific requirements relating to the state aid component of this Lot are therefore for lawyers with:

  • experience of advising on state aid compliance for publicly-backed venture capital and loans funds;
  • familiarity with both the old and new General Block Exemption Regulations (GBER) and Risk Capital Guidelines, (RCG) and a detailed knowledge of their practical application;
  • an understanding of the issues relating to constraints on: publicly-backed venture capital funds investing in MBO type transactions and, under the new GBER, on investing in businesses over 7 years old;
  • experience of advising both at the level of fund structures and also in relation to individual investments in SMEs – in relation to compliance with the Market Operator Principle, EU reference rate and De Minimis regulation;
  • the ability to advise on the inter-relationship between state aid law as it relates to schemes such as the EIS, SEIS and VCTs and GBER and RCG based financial instruments;
  • experience of advising on and assisting with the submission of the notification of aid schemes to DG Competition, in particular for venture capital or other SME finance schemes;
  • ideally, demonstrable experience of having engaged directly with relevant departments within DG Competition.

At this time, the JEREMIE2 Project does not anticipate notifying the JEREMIE2 programme to DG Competition and hopes to be able to structure it to operate in accordance with the Risk Capital provisions of the new GBER. However, if the ultimate requirements of the JEREMIE2 programme cannot be effectively delivered within the new GBER then notification will be considered and the advisors appointed under Lot 1 may be asked to advise on the issue of notification and, if it is pursued, to assist with the notification process.