International Private Equity E-Book

Eli Talmor

• Herausgeber: John Wiley & Sons
• Kategorie: Fachliteratur
• Sprache: Englisch

Seitenzahl: 1191

Veröffentlichungsjahr: 2011

Beschreibung

Bringing a unique joint practitioner and academic perspective to the topic, this is the only available text on private equity truly international in focus. Examples are drawn from Europe the Middle East, Africa and America with major case studies from a wide range of business sectors, from the prestigious collection of the London Business School’s Coller Institute of Private Equity. Much more than a simple case book, however, International Private Equity provides a valuable overview of the private equity industry and uses the studies to exemplify all stages of the deal process, and to illustrate such key topics as investing in emerging markets; each chapter guides the reader with an authoritative narrative on the topic treated. Covering all the main aspects of the private equity model, the book includes treatment of fund raising, fund structuring, fund performance measurement, private equity valuation, due diligence, modeling of leveraged buyout transactions, and harvesting of private equity investments.

Leseprobe

Contents

Cover

HalfTitle page

Title page

Copyright page

Preface

Abbreviations

About the authors

Dedication

Part 1: Overview and fund-level analysis

Chapter 1: Introduction and Overview

1.1 Introduction

1.2 Cyclicality of the Private Equity Industry

1.3 Statistics on the Private Equity Industry

1.4 Recent Regulatory Activity

1.5 The Outlook of the Private Equity Industry

1.6 References

Chapter 2: Private Equity Fund Economics

2.1 Overview

2.2 Private Equity Firms or General Partners

2.3 Investors in Private Equity Funds or Limited Partners

2.4 Private Equity Funds or Limited Partnerships

2.5 Advisors and Agents

2.6 References

Chapter 3: Performance Measurement in Private Equity

3.1 Overview

3.2 Measures of Private Equity Fund Performance

3.3 Benchmarking Private Equity Performance

3.4 Academic Findings on the Performance of Private Equity Funds

3.5 Why the Performance Assessment of Private Equity Remains Difficult

3.6 Conclusions

3.7 References

Chapter 4: Private Equity Investing in Emerging Markets

4.1 Introduction

4.2 Investment Landscape

4.3 Drivers for Pe Investments in Emerging Economies

4.4 Risks of Investing in Emerging Economies

4.5 Market Structure and Investment Characteristics

4.6 Comparative Landscape of Emerging Markets

4.7 Summary

4.8 References

Chapter 5: Fund Due Diligence

5.1 What is Fund Due Diligence?

5.2 Lp Investment Process

5.3 Fund Due Diligence in Detail

5.4 Summary

Chapter 6: Private Equity Fund Accounting

6.1 What is Happening in Private Equity Accounting?

6.2 Current Major Issues and Complexities

6.3 Interpreting Fund Accounts

Chapter 7: Gatekeepers

7.1 Introduction

7.2 Main Types of Professional Advisors

7.3 In-House or Outsourcing?

7.4 Outsourcing to a Fund of Funds

7.5 Fund-of-Funds Economics

7.6 Selecting A Fund of Funds

7.7 Outlook

7.8 Bibliography

Chapter 8: Listed Private Equity

8.1 Introduction

8.2 Benefits and Disadvantages of Listed Private Equity

8.3 Economic and Organizational Forms

8.4 Legal Forms

8.5 Estimated Risk Profile of Listed Private Equity

8.6 Lpe Indexes

8.7 References

Chapter 9: Secondary Fund Transactions

9.1 Introduction

9.2 Secondary Market Development

9.3 Parties Involved in Secondary Transactions

9.4 Secondary Transactions

9.5 The Pricing of Secondary Transactions

9.6 Conclusion

9.7 References

Part 2: Deal-level analysis

Chapter 10: Valuation of Private Equity Companies

10.1 Introduction

10.2 Valuation Guidelines

10.3 Implementation of the Main Valuation Methods: Multiples and DCF

10.4 Pitfalls to be Wary of When Valuing Private Companies

10.A Pueblo Clothing SPA

10.A.1 Analysis: What Are the Big Judgments Made in the Valuation?

10.B Chariot Skates PLC

10.B.1 Analysis: What are the Big Judgments Made in the Valuation?

10.C References

Chapter 11: Deal Analysis and Due Diligence

11.1 Introduction

11.2 The Sale Process

11.3 Circumstances Influence the Due Diligence Process

11.4 Deal Analysis and Due Diligence During the Sale Process

11.5 Motives/Perspectives of Stakeholders

Chapter 12: Leveraged Buyout Transactions

12.1 Introduction

12.2 LBO Execution: The Deal Process

12.3 LBO Stakeholders

12.4 Value Creation in an LBO

12.5 References

Chapter 13: Leveraged Buyout Modeling: An Excel Application

13.1 Overview

13.2 Build A Pre–transaction Structure Model

13.3 Determine Transaction Structure: Uses of Funds

13.4 Determine Transaction Structure: Sources of Funds

13.5 Build A Post–transaction Structure Model

13.6 Determine Exit and Compute Returns

13.7 Optimization and Analysis of the LBO Model

13.8 Analysis of the Toys R us LBO

13.9 Reference

Chapter 14: Post-Deal Operational Improvements

14.1 What Operational Improvements are Made Post Deal?

14.2 Identifying the Opportunity

14.3 Ebitda Growth

14.4 Maximizing Assets—human Capital

14.5 When Things Go Wrong

14.6 Conclusion

14.7 References

Chapter 15: Harvesting Private Equity Investments

15.1 Introduction

15.2 Steps to Exiting A Private Equity Investment

15.3 Exit Strategies

15.4 Summary

15.5 References

Part 3: Early-stage investing

Chapter 16: Angel Investing

16.1 What is Angel Investing?

16.2 What Motivates Business Angels?

16.3 Angel Investment Process

16.4 Recent Developments and Trends

16.5 Summary

16.6 References

Chapter 17: Venture Capital

17.1 Introduction

17.2 What is Venture Capital

17.3 The VC Investment Process

17.4 The VC Contract

17.5 Alternative Sources of VC Financing

17.6 Conclusion

17.7 References

Part 4: Case studies

Chapter 18: Realza Capital

December 2006

December 2008

Chapter 19: Private equity fund economics

Swicorp—a Short History

The Mena Region

The Mena Private Equity Landscape

The Role of Sovereign Wealth Funds (SWFS)

Swicorp’s Intaj Investment Strategy

Deal Selection Process

Step Carpet Group

Jordan Aviation LLC

Chapter 20: Mekong Capital: The importance of corporate culture in emerging market private equity

Founding Mekong Capital

Vietnam and the Private Equity Industry

MEF I and the Initial Investment Philosophy

MEF I Case Study: Aa Corporation

MEF II and A New Investment Philosophy

MEF II Case Study: International Consumer Products

Vietnam Azalea Fund

2007—Searching for Answers from Within

The Corporate Transformation Process

Will it Work?

Chapter 21: Bloomsbury Capital: June 2007

Bloomsbury Capital

Chapter 22: Edcon: Going shopping in South Africa

EDCON: A Leading South African Retailer

Bain Capital: Background

Opportunity Knocks

South Africa

Currency Risk

The Deal

The Bid

Chapter 23: FiberNet Communications

Hungarian History and Economy

Hungarian Television Broadcasting Market

Cable TV Industry

Fibernet’s Key Competitors

Upc Hungary

MatákáBeltv

The Fibernet Opportunity

Chapter 24: Seat SpA

Chronology of Seat Transaction

Bain Capital: Background

The Global and European Directory Market

The Italian Directory Market

Seat Business Description

Market Entry of Pagine Utili

The Internet: Threat or Opportunity?

Due Diligence

Italian Economic and Political Landscape

Privatization Process in Italy

THE DEAL

Chapter 25: Ducati and Investindustrial:Racing out of the pits and over the finish line

Investindustrial Acquisition of Ducati

Improving the Company (2006–2008)

The World Motorcycle Industry in 2008

Raising A New Fund

A “Wild Ride” for Ducati’s Stock

June 2010

Chapter 26: Styles & Wood: Behind the scenes of retail

Styles & Wood: The History

Gerard Quiligotti and the Turnaround Years

The MBO: The Fall of Wembley Stadium Group

Styles & Wood Since 1996: Managing the Growth Strategy

Project OAK in 2001: Management Incentives and Reapingrewards

Project OVAL in 2004: From 3I To Aberdeen—Secondary Buyout Decision

Market and Competition

Investing Decision

Chapter 27: SunRay Renewable Energy:Private equity in the sunshine

Sunray’s Choice of Solar Technology

The Value Chain of A Solar PV Developer

The European Renewable Market in 2006–2008

Sunray’s Business Model

Building the Management Team

Learning the Solar PV Game the Hard Way

Scaling Up the Business Across Southern Europe

Under the Umbrella of Private Equity

Montalto Di Castro: Building the Largest Solar Power Park in Europe

The Decision to Exit

Sunray’s Spirit Still Alive

Chapter 28: Debenhams

Private Equity Goes Shopping

Post Deal and Going Public Again

Chapter 29: Optos: A sight worth seeing

Douglas Anderson and the Vision

Scottish Business Landscape and Funding for Early-Stage Startups

Product Development

Diseases of the Back of the Eye and Optos’ Target Market

Manufacturing

Competition

Business Model: The “Razor/Razor Blade” Concept

Profit and Loss Implications

Cash Flow Implications

Financing 1995–2001

Geographic Expansion

Financing in 2002

Chapter 30: Capital for Enterprise U.K.: Bridging the SME early-stage finance gap

An “Equity Gap”?

Previous Attempts by the U.K. Government to Tackle the “Equity Gap”

Limits of Previous Programs

Launching Enterprise Capital Funds

Key questions and Options for the ECF Program Design

The First Years of Operation of the ECF Program

A Few Years on: A First Assessment

Where Next?

Glossary

Index

INTERNATIONAL PRIVATE EQUITY

This edition first published 2011Copyright © 2011 Eli Talmor and Florin Vasvari

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Preface

We are ever amazed at the wide range of issues that are covered in private equity. Nearly all business aspects are at the heart of the matter—valuation, accounting and control, strategy, operations, financial structuring, asset allocation, management, entrepreneurship, regulation, and government policy. It is squarely at the crossroads of academia and practice where there is no mercy for just being conceptual or lacking timeliness. This creates challenges—yet great fun—in understanding the subject; in particular, in trying to break down what makes it so effective, fascinating, and perhaps addictive.

The motivation for our book is to provide a comprehensive overview of the main topics in private equity that are relevant to students in graduate programs, investors, other professionals seeking to understand the many facets of private equity, and private equity practitioners wanting a more complete analysis of this asset class.

The book has grown out of our teaching the “Private equity and venture capital” elective course at London Business School. Over the years the focus of the course has broadened internationally and by subject matter, which is reflected both in the text chapters and the case studies. Working closely with the professional private equity community in London proved particularly valuable in generating first-rate material and direct contributions through chapter co-authorships. Much of that was achieved through the Coller Institute of Private Equity and its Advisory Board. Added value came from our students who provided insights both in the classroom and outside it.

Dwight Poler, Head of Bain Capital in Europe, has been a co-instructor of our private equity course and a great supporter. Dwight’s contribution to the book and to private equity education at London Business School has been immeasurable.

Our thanks go to the private equity partners and corporate executives who agreed to graciously share their time and provide case material such as transaction data and detailed internal memoranda which subjected their firms to our close examination process. We are particularly grateful to Yoram Amiga (SunPower), Ted Berk (Bain Capital), Philippe Costeletos (TPG), Chris Freund (Mekong Capital), Anne Glover (Amadeus), Mounir Guen (MVision), Francesco Santinon (Aberdeen), and the partners at Denham Capital, Investindustrial, Realza Capital, and Swicorp. Our academic colleague Josh Lerner (Harvard Business School) also contributed in case sourcing. In writing the case studies we heavily relied on students who shouldered the burden of gathering data on the arduous projects: Jo Coles, Benjamin Dimson, Michael Geary, Edward Gera, Richard Harvey, Enrique Ho-Fernaández, Oriol Juncosa, Ashish Kumar, Norman Lee, Geoff Leffek, Charmian Long, Alberto Pons, Vishal Radhakrishnan, Vijay Sachidanand, Tamara Sakovska, Thibaud Simphal, Andrew Strachan, Richard Turner, Matthias Vandepitte, Lode Van Laere, Adolfo Vinatea, and Ananth Vyas Bhimavarapu.

The text chapters are divided into three main parts which cover fund-level topics, deal-level topics, and early-stage investing. They discuss a wide variety of subjects and that involved teaming up with leading practitioners on each topic: Jim Strang (Jardine Capital), Anthony Cecil (KPMG), Kay Nemoto and John Maloney (Alix Partners), Brenlen Jinkens (Cogent Partners), and Thomas Meyer (EVCA). For some chapters we collaborated with other academics: Oliver Gottschalg (HEC Paris), Christoph Kaserer (Technical University Munich), and Henry Lahr (University of Cambridge). On other topics we benefited from working with current and past students: Mike Glossop, Sonia Katyal, Anya Kleymenova, Bjoern Koertner, William Lamain, Fardeen Nariman, and Rebecca Zimmerman. Natalie Brawn (Bowmark Capital) provided valuable comments on earlier drafts of chapters.

The Coller Institute of Private Equity provided support in administration and references to industry knowledge. Our colleagues there were a constant source of good advice: Francesca Cornelli who actually proposed the idea of writing the book, Hans Holmen, and Ann Iveson.

The project was most effectively directed by the Wiley team. Jenny McCall cheerfully led the process from its inception, Gemma Valler and Amy Webster were a pleasure to work with and Neil Shuttlewood handled the editorial process professionally and very efficiently. We owe them all a great deal of thanks.

Last but not least, our families coped with us with patience and understanding through the laboring process. The book is dedicated to them.

Abbreviations

ABSAsset-Backed SecurityACAAngel Capital AssociationADBAsian Development BankADIAAbu Dhabi Investment AuthorityAICPAAmerican Institute of Certified Public AccountantsAIFMAlternative Investment Fund ManagerAIMAlternative Investment MarketARPUAverage Revenue Per UserASBAccounting Standards BoardASCRIAsociacioán Española de Entidades de Capital Riesgo (Spanish Venture Capital Association)ASEANAssociation of Southeast Asian NationsATNAccess Technology NowBBAABritish Business Angels AssociationBCCBlank Check CompanyBDCBusiness Development CompanyBEEBlack Economic EmpowermentBIMBOBuy-In Management Buy-OutBISBusiness Innovation and SkillsBRICBrazil, Russia, India, and ChinaBVCABritish Private Equity and Venture Capital AssociationCAGRCompound Annual Growth RateCalPERSCalifornia Public Employees’ Retirement SystemCAPMCapital Asset Pricing ModelCalSTRSCalifornia State Teachers’ Retirement SystemCDIFChina Direct Investment FundCDOCollateralized Debt ObligationCEECentral and Eastern EuropeCfE UKCapital for Enterprise UKCFOCollateralized Fund ObligationCICChina Investment CorporationCIPCarried Interest PartnerCISCommonwealth of Independent StatesCLOCollateralized Loan ObligationCNMVComisioán Nacional del Mercado de ValoresCOCCash-On-Cash returnCOGSCost of Goods SoldCPACertified Public AccountantCVCCorporate Venture CapitalDCFDiscounted Cash FlowDDDue DiligenceDFIDevelopment Finance InstitutionDSCRDebt Service Coverage RatioDVPIDistributed Value to Paid-In ratioEBANEuropean Business Angel NetworkEBITEarnings Before Interest and TaxesEBITAEarnings Before Interest, Taxes, and AmortizationEBITDAEarnings Before Interest, Taxes, Depreciation, and AmortizationECBEuropean Central BankECFEnterprise Capital FundEGFPEarly Growth Funding ProgramEIBEuropean Investment BankEISEnterprise Investment SchemeEMPEAEmerging Markets Private Equity AssociationEPCEngineering Procurement and ConstructionERISAEmployee Retirement Income Security ActESOPEmployee Stock Ownership PlanETFExchange-Traded FundsEURIBOREuro Interbank Offered RateEVEnterprise ValueEVCAEuropean Private Equity and Venture Capital AssociationFCFFree Cash FlowFFTFund for Technological FundFMCGFast-Moving Consumer GoodsFPCRFonds de Promotion pour le Capital RisqueFPPFull Potential ProgramFRSSEFinancial Reporting Standards for Smaller EntitiesFSAFinancial Services AuthorityG&AGeneral and AdministrativeG7Group of SevenGAAPGenerally Accepted Accounting PrinciplesGCCGulf Cooperation CouncilGDPGross Domestic ProductGLPEIGlobal Listed Private Equity IndexGPGeneral PartnerGPSGeneral Partner’s ShareHCMCHo Chi Minh CityHNWIHigh-Net-Worth IndividualHoSEHo Chi Minh City Stock ExchangeHPSUHigh-Potential StartUpHRHuman ResourcesIASBInternational Accounting Standards BoardICBIndustry Classification BenchmarkICFCIndustrial and Commercial Finance CorporationICPInternational Consumer ProductsIFInternally FlawlessIFRSInternational Financial Accounting StandardsILPAInstitutional Limited Partners AssociationILPEIInternational Listed Private Equity IndexIPIntellectual PropertyIPEVInternational Private Equity and VentureIPOInitial Public OfferingIRRInternal Rate of ReturnISCRInterest Service Coverage RatioJSEJohannesburg Securities ExchangeKPIKey Performance IndicatorLBOLeveraged BuyoutLCCLow-Cost CountryLIBORLondon Interbank Offered RateLPLimited PartnerLPALimited Partnership AgreementLPEListed Private EquityLPEIListed Private Equity IndexLSIFLabor-Sponsored Investment FundLSVCCLabor-Sponsored Venture Capital CorporationM&AMergers and AcquisitionsMBIManagement Buy-InMBOManagement Buy-OutMENAMiddle East and North AfricaMFOManufacturing Footprint OptimizationMIRRModified Internal Rate of ReturnMMPMinimum Monthly PaymentMPDFMekong Private Sector Development FacilityMSCIMorgan Stanley Capital InternationalNAVNet Asset ValueNOLNet Operating LossNPVNet Present ValueNVCANational Venture Capital AssociationNWCNet Working CapitalOECDOrganization for Economic Co-operation and DevelopmentOFEXOff ExchangeOTECFOxford Technology Enterprise Capital FundP/EPrice to EarningsPBTProfit Before TaxPDIPersonal Disposable IncomePEPrivate EquityPIKPayment In KindPIPEPrivate Investments in Public EquityPMEPublic Market EquivalentPPEProperty Plant and EquipmentPPMPrivate Placement MemorandumPPSPriority Profit SharePSERSPublic School Employees’ Retirement SystemRICRegulated Investment CompanyRMBRenminbiRVCFRegional Venture Capital FundRVPIResidual Value to Paid-In ratioSASociedad AnoánimaSAMASaudi Arabian Monetary AgencySBICSmall Business Investment CompanySBLGSmall Business Loan GuaranteeSBSSmall Business ServiceSECSecurities and Exchange CommissionSG&ASelling, General and AdministrativeSGECRSociedad Gestora de Entidades de Capital RiesgoSMESmall and Medium-sized EnterpriseSOEState-Owned EnterpriseSPAStock Purchase AgreementSPACSpecial Purpose Acquisition CompanySPVSpecial Purpose VehicleSTACStructured Trust Acquisition CompanySUIRSociété Unipersonnelle d’Investissements à RisqueSWFSovereign Wealth FundTCGATaxation of Chargeable Gains Act 1992TMTTelecommunications, Media, and TechnologyTVPITotal Value to Paid-In ratioUNAIDSJoint United Nations Program on HIV/AIDSVAFVietnam Azalea FundVARValue Added ResellerVaRValue-at-RiskVCVenture CapitalVCTVenture Capital TrustWHOWorld Health OrganizationWTOWorld Trade Organization

About the authors

Eli Talmor is a professor at London Business School and founding Chairman of its Coller Institute of Private Equity. He was previously a professor of finance at the University of California (UCLA and Irvine), Tel Aviv University, and the Wharton School (University of Pennsylvania). Professor Talmor is a seasoned private equity practitioner and has been a director of European and American corporations. He served on the advisory board of the African Venture Capital Association and the Board of Governors of London Business School. He has frequently been invited to deliver keynote speeches to business executives worldwide and interviews to the international media on timely private equity matters. In recent years he has been asked by the U.K. Parliament to provide leading testimony at its high-profile hearings on private equity and to advise the U.K. Prime Minister’s office. Professor Talmor holds a Ph.D. from the University of North Carolina at Chapel Hill and a B.Sc. from the Technion Israel Institute of Technology.

Florin Vasvari is an Assistant Professor of Accounting at London Business School and a fellow of the Coller Institute for Private Equity. He co-teaches the Private Equity and Venture Capital elective at London Business School with Professor Talmor, and consults with several organizations. Professor Vasvari is actively pursuing research on private equity topics and debt markets. He has published several articles in top-tier academic journals such as the Journal of Accounting Research and Review of Accounting Studies and has been invited to present his research at top business schools such as Chicago GSB, Columbia Business School, Wharton School, MIT Sloan School of Management, Harvard Business School, INSEAD, and others. He is on the editorial board of Contemporary Accounting Research and the advisory board of the Center for Accounting Research and Education. Professor Vasvari holds a Ph.D. from the University of Toronto, Rotman School of Management and an M.A. from the University of Toronto, Department of Economics.

To Zippy, Dahlia, Yael, and LaurenTo Albert and Mirela

PART 1

Overview and fund-level analysis

Chapter 1

Introduction and overviewa

1.1 INTRODUCTION

In recent years the profile of the private equity industry has increased dramatically. While the industry has been actively investing in companies across a wide range of industries for several decades, the combination of astute buying by private equity funds focused on buyouts in the early part of the last decade and the extremely liquid credit markets of 2004–2007 fueled some impressive exits. Similarly, private equity funds focused on venture investments had very successful exits in the late 1990s. These exits helped to substantially increase the profile of the industry.

Over the last 20 years or so private equity has grown to become a sizable asset class at its peak, responsible for up to a quarter of global M&A activity and as much as half of the leveraged loan issues in the capital markets. At the top of the last cycle, private equity funds found themselves able to acquire very public assets and seemed to be able to deliver extraordinary returns, both for their investors and for their managers. This “institutionalization” of private equity saw its profile rise substantially with a number of commentators focusing on this “new” industry.

Towards the end of this decade the industry, like every other, had to weather the financial crisis. During the crisis a number of new private equity investments fell dramatically, despite the historically high level of capital commitments made to private equity funds. The prevailing economic uncertainty combined with a very significant reduction in the amount of leverage available to dealmakers combined to severely restrict new-deal activity. The global financial crisis and associated recession also led to a sharp slowdown in fundraising.

Despite the considerable challenges, the economic environment produced a surprisingly small number of private equity–backed business failures. Many portfolio companies benefited from the active, hands-on involvement of their private equity owners. As a result, private equity portfolio companies managed to weather the economic downturn through a combination of revenue protection, production efficiencies, cost cutting, and careful working capital management. Also, lower commodity prices, lenders willing to restructure the debt, and new opportunities to refinance the debt due to a strong high-yield bond market have helped to mitigate financial pressures.

Indeed today it may be that the private equity industry has become a victim of its own success. The exceptional performance of the early part of the last decade certainly attracted ever more capital into the industry and some of it has been deployed to acquire large and visible companies. Thus, for the first time, private equity has been brought into the public arena and, now that it is there, it is likely to remain. In the future it seems clear that the industry will have to communicate more effectively with the various stakeholders and will be subject to increasing levels of external scrutiny and regulation. The calls to regulate the industry have increased, mainly due to the perception that the industry has contributed to the severity of the credit crisis. Such initiatives as the Alternative Investment Fund Manager (AIFM) regulations may prove to be the beginning of an increasingly onerous regulatory process.