Private Equity E-Book

Harold Bierman

• Herausgeber: John Wiley & Sons
• Kategorie: Fachliteratur
• Serie: Wiley Finance Editions
• Sprache: Englisch

Seitenzahl: 189

Veröffentlichungsjahr: 2011

Beschreibung

Praise for Private Equity

"Harold Bierman has blended an excellent mix of important principles with real case study examples for a better understanding on a rather sophisticated finance subject."
-Edward M. Dudley, Vice President & General Auditor, ABB Americas

"The role of private equity firms in financing buyouts as well as providing growth capital has expanded significantly in the past decade. In a clear, concise way, Harold Bierman provides a timely and astute analysis of the virtues of private equity as well as creative quantitative methodologies that are applicable to real-life transactions. This book should become essential reading for investors, intermediaries, financial advisors and the management of private, almost private, or soon-to-be private firms."
-James A. Rowan Jr., Managing Director, Investment Banking
Legg Mason Wood Walker, Inc.

"As the private equity asset class has grown to over $300 billion in the last three years, Bierman analyzes the fundamentals behind the investment decisions of this increasingly important sector. Once completing the book, you will understand the fundamental analytical framework underlying private equity investment."
-Peter Nolan, Partner, Leonard Green and Partners

"In looking at the private equity arena, Professor Bierman has brought together a diverse group of metrics and valuation formulas into a single text. The book provides a valuable combination of academic theory and real-life case studies. It provides many insights."
-Peter H. Vogel, Vice President, MeadWestvaco Corporation

Leseprobe

Contents

Preface

Acknowledgments

Chapter 1: The Many Virtues of Private Equity

Simplicity

Alignment of Management and Ownership

Dividend Policy of a Private Equity Firm

Capital Structure

Venture Capital

MBOs

The J.P. Morgan Chase Fund

Conclusions

Questions and Problems

Chapter 2: Valuing the Target Firm

Market Capitalization

Multipliers

Measures of Present Value

Free Cash Flow

Changing the Capital Structure

Earnings Versus Dividends Versus Cash Flows: Present Value Calculations

Estimation Problems

Buying for Liquidation

Conclusions

Questions and Problems

Chapter 3: Structuring and Selling the Deal

Bid for Acquisition

Structuring a Deal

Selling the Deal

A Partial LBO

Conclusions

Questions and Problems

Chapter 4: A Changed Dividend Policy

Dividend Policy

Reasons for Not Paying Dividends

Irrelevance of Dividend Policy

Conclusions

Questions and Problems

Chapter 5: A Changed Capital Structure

The Motivations for Using Debt

Debt Use and Taxes

The Use of the Cash

Costs of Financial Distress

Defining the Determinants of Corporate Borrowing

Reasons for Using Debt

Tax Considerations

Limiting the Use of Debt

How the Firm’s Assets Determine the Maximum Debt

Costs of Financial Distress: A Marginal Analysis

The Preferences of Management

The Costs of Changing Capital Structure

The Tax Advantage of Equity

Conclusions

Questions and Problems

Chapter 6: Merchant Banking

No Stock Price Change

The Investor’s IRR

Factors Contributing to Incremental Value

The Payments to the Originating Fund

Conclusions

Appendix 1

Questions and Problems

Chapter 7: Operations: The Other Factor

Why Can Private Equity Result in Enhanced Profitability?

Conclusions

Chapter 8: The Many Virtues of Going Public

Liquidity

Price

The Market is Impersonal

Family Complexities

Diversification

Capital Raising

Management and Options

Mergers

IRR of the LBO

Conclusions

Questions and Problems

Chapter 9: A Partial LBO: Almost Private Equity

Share Repurchase

Two Other Factors

Conclusions

Questions and Problems

Chapter 10: Metromedia (1984)

Questions and Problems

Chapter 11: LBO of RJR Nabisco (1988)1

Background on RJR Nabisco

Background of the Leveraged Buyout

Questions and Problems

Chapter 12: Marietta Corporation (1994–1996)

Sources and Uses of Funds

Market Prices of Shares

Questions and Problems

Chapter 13: The Managerial Buyout of United States Can Company (2000)

Questions and Problems

Chapter 14: Phillips Petroleum, Mesa, and Icahn (1984–1985)

Questions and Problems

Chapter 15: Owens-Corning Fiberglas Corporation (1986)

The Value of Executive Stock Options

Conclusions

Questions and Problems

Solutions

References

Index

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Copyright © 2003 by Harold Bierman, Jr. All rights reserved.

Published by John Wiley & Sons, Inc., Hoboken, New Jersey.

Published simultaneously in Canada.

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Library of Congress Cataloging-in-Publication Data:

Bierman, Harold.

Private equity : transforming public stock to create value / Harold Bierman, Jr.

p. cm.

ISBN 0-471-39292-8 (cloth : alk. paper)

1. Corporations—Valuation. 2. Private equity. 3. Going private (Securities) 4. Corporations—Finance. 5. Leveraged buyouts. 6. Venture capital. I. Title.

HG4028.V3 B445 2003

338.6'041—dc21

2002013636

Preface

Public corporations have many different types of investors, each type having a different financial objective. The primary objective of private equity is that the stock-holders are likely to have similar financial objectives and it is much easier for the corporation’s financial strategies to be consistent with these objectives.

Private equity frequently is associated with a leveraged buyout. The equity ownership of a public corporation is changed to equity that is not traded in a public market. There are significant financial advantages and there are also operational advantages. For example, management frequently becomes an owner of a significant amount of the equity and thus the interests of management and the owners become more convergent. Most importantly, the common stock-holders can directly and effectively affect the corporate financial decisions.

The concepts of this book are important to investors interested in increasing their rates of return on their investments, without increasing their risk and to management interested in supplementing their wages with a significant share of the firm’s profitability.

Harold Bierman, Jr.

Cornell University

Ithaca, NY

Acknowledgments

Bill Kidd, Jim Hauslein, and Hall Wendel, practitioners of the art of private equity, helped educate me.

Sy Smidt and Jerry Hass, co-authors in other books, developed many of the ideas contained in this book.

I thank Diane Sherman for her typing efforts through many drafts of this book.

CHAPTER 1

The Many Virtues of Private Equity

For purposes of this book the term private equity refers to the common stock of a corporation where that common stock is held by a relatively few investors and is not traded on any of the conventional stock markets. Normally the senior managers of the firm hold a significant percentage of the firm’s stock, and we will assume that is the situation in all the cases discussed in this book.

In practice, the term private equity is used in several different ways. There are private equity investment firms that direct their clients’ funds into mutual funds or to other money managers. There are even private equity funds that invest directly into publicly owned corporations, usually concentrating the investments into a few corporations.