international private equity - gbv · international private equity ... build a pre-transaction...

7
INTERNATIONAL PRIVATE EQUITY Eli Talmor and Florin Vasvari ©WILEY A John Wiley and Sons, Ltd, Publication

Upload: trinhngoc

Post on 24-Jul-2018

215 views

Category:

Documents


1 download

TRANSCRIPT

Page 1: INTERNATIONAL PRIVATE EQUITY - GBV · INTERNATIONAL PRIVATE EQUITY ... Build a pre-transaction structure model 285 ... Optimization and analysis of the LBO model 305 13.8 Analysis

INTERNATIONALPRIVATE EQUITY

Eli Talmor and Florin Vasvari

©WILEYA John Wiley and Sons, Ltd, Publication

Page 2: INTERNATIONAL PRIVATE EQUITY - GBV · INTERNATIONAL PRIVATE EQUITY ... Build a pre-transaction structure model 285 ... Optimization and analysis of the LBO model 305 13.8 Analysis

Contents

Preface xi

Abbreviations xiii

About the authors xv

Part 1 Overview and fund-level analysis 1

1 Introduction and overview •. 31.1 Introduction ' 31.2 Cyclicality of the private equity industry 61.3 Statistics on the private equity industry 81.4 Recent regulatory activity 131.5 The outlook of the private equity industry 181.6 References 19

2 Private equity fund economics 212.1 Overview 212.2 Private equity firms or general partners (GPs) / 232.3 Investors in private equity funds or limited partners (LPs) 262.4 Private equity funds or limited partnerships 272.5 Advisors and agents 362.6 References 37

3 Performance measurement in private equity , 393.1 Overview 393.2 Measures of private equity-fund performance 403.3 Benchmarking private equity performance 473.4 Academic findings on the performance of private equity funds 513.5 Why the performance assessment of private equity remains difficult 523.6 Conclusions 543.7 References 54

4 Private equity investing in emerging markets 574.1 Introduction 574.2 Investment landscape 59

Page 3: INTERNATIONAL PRIVATE EQUITY - GBV · INTERNATIONAL PRIVATE EQUITY ... Build a pre-transaction structure model 285 ... Optimization and analysis of the LBO model 305 13.8 Analysis

vi • Contents

4.3 Drivers for PE investments in emerging economies 634.4 Risks of investing in emerging economies 664.5 Market structure and investment characteristics 704.6 Comparative landscape of emerging markets 734.7 Summary 784.7 References 78

5 Fund due diligence 81' 5.1 What is fund due diligence? • 81

5.2 LP investment process - 825.3 Fund due diligence in detail 91

\ 5 . 4 Summary 102

111111

6 Private equity fund accounting6.1 What is happening in private equity accounting? i l l6.2 Current major issues and complexities 1156.3 Interpreting fund accounts 126

7 Gatekeepers 1477.1 Introduction '• 1477.2 Main types of professional advisors 1477.3 In-house or outsourcing? 1517.4 Outsourcing to a fund of funds 1527.5 Fund-of-funds economics 1587.6 Selecting a fund of funds 1657.7 Outlook • 1677.8 Bibliography 168

8 Listed private equity / 1718.1 Introduction " 1718.2 Benefits and disadvantages of listed private equity 1728.3 Economic and organizational forms 1748.4 Legal forms 1798.5 Estimated risk profile of listed private equity 1818.6 LPE indexes , 1838.7 References 185

9 Secondary fund transactions 1879.1 Introduction 1879.2 Secondary market development 1889.3 Parties involved in secondary transactions 1919.4 Secondary transactions 1949.5 The pricing of secondary transactions 1979.6 Conclusion 2029.7 References 203

Page 4: INTERNATIONAL PRIVATE EQUITY - GBV · INTERNATIONAL PRIVATE EQUITY ... Build a pre-transaction structure model 285 ... Optimization and analysis of the LBO model 305 13.8 Analysis

Contents • vii

Part 2 Deal-level analysis 205

10 Valuation of private equity companies 20710.1 Introduction 20710.2 Valuation guidelines 20810.3 Implementation of the main valuation methods: multiples and DCF 21110.4 Pitfalls to be wary of when valuing private companies 22410.A Pueblo Clothing SpA 22610.B Chariot Skates Pic x 230

'lO.C References " 234

11 Deal analysis and due diligence 23511.1 Introduction 23511.2 The sale process 23611.3 Circumstances influence the due diligence process 23811.4 Deal analysis and due diligence during the sale process 23911.5 Motives/Perspectives of stakeholders 251

12 Leveraged buyout transactions 25512.1 Introduction 25512.2 LBO execution: The deal process 25712.3 LBO stakeholders \ 26912.4 Value creation in an LBO 27312.5 References 280

13 Leveraged buyout modeling: An Excel application 28313.1 Overview 28313.2 Build a pre-transaction structure model 28513.3 Determine transaction structure: Uses of funds 28913.4 Determine transaction structure: Sources of funds 29213.5 Build a post-transaction structure model / 29513.6 Determine exit and compute returns 29613.7 Optimization and analysis of the LBO model 30513.8 Analysis of the Toys R Us LBO 30613.9 Reference 308

14 Post-deal operational improvements 30914.1 What operational improvements are made post deal? 30914.2 Identifying the opportunity 31114.3 EBITDA growth 31414.4 Maximizing assets—human capital 31614.5 When things go wrong 31814.6 Conclusion . 31914.7 References 319

15 Harvesting private equity investments 32115.1 Introduction 32115.2 Steps to exiting a private equity investment 324

Page 5: INTERNATIONAL PRIVATE EQUITY - GBV · INTERNATIONAL PRIVATE EQUITY ... Build a pre-transaction structure model 285 ... Optimization and analysis of the LBO model 305 13.8 Analysis

Vl l l

Part

16

17

• Contents

15.315.415.5

Exit strategiesSummaryReferences

3 Early-stage investing

Ange'16.116.216.316.416.5

J6.6

1 investingWhat is angel investing?What motivates business angels?Angel investment processRecent developments and trendsSummaryReferences

Venture capital17.117.217.317.417.517.617.7

IntroductionWhat is venture capitalThe VC investment processThe VC contractAlternative sources of VC financingConclusionReferences

327337337

339

341341344345353357358

359359360365372377378379

Part 4 Case studies 381

18 Realza Capital 385December 2006 385December 2008 391

19 Swicorp: Private equity in the MEN A region 2009 409Swicorp—A Short History 409The MENA region , 411The MENA Private Equity Landscape 412The role of sovereign wealth funds (SWFs) 413Swicorp's Intaj Investment Strategy 414Deal selection process 415Step Carpet Group 416Jordan Aviation LLC , 419

20 Founding Mekong Capital 436Vietnam and the private equity industry 437MEF I and the initial investment philosophy 438MEF I case study: AA Corporation 439MEF II and a new investment philosophy 440MEF II case study: International Consumer Products 442Vietnam Azalea Fund 4432007—searching for answers from within 443The corporate transformation process 444Will it work? 446

Page 6: INTERNATIONAL PRIVATE EQUITY - GBV · INTERNATIONAL PRIVATE EQUITY ... Build a pre-transaction structure model 285 ... Optimization and analysis of the LBO model 305 13.8 Analysis

Contents • ix

21 Bloomsbury Capital: June 2007 461

22 Edcon: Going shopping in South Africa 487Edcon: A Leading South African Retailer 487Bain Capital: Background 489Opportunity Knocks 490South Africa 491Currency risk 492The deal ^ 494Itie bid '; ' 496

23 FiberNet Communications 507Hungarian history and economy 508Hungarian television broadcasting market 509Cable TV industry 509FiberNet's key competitors 511The FiberNet opportunity 512

24 Seat SpA 527Chronology of Seat transaction 529Bain Capital: background 529The global and European directory market 530The Italian directory market ', 531Seat business description 531Market entry of Pagine Utili 533The Internet: Threat or opportunity? 533Due diligence 534Italian economic and political landscape 534Privatization process in Italy 535The deal 535

25 Ducati and Investindustrial: Racing out of the pits and over the finish line 549Investindustrial acquisition of Ducati • 551Improving the company (2006-2008) 553The world motorcycle industry in 2008 553Raising a new fund 554A "wild ride" for Ducati's stock 554June 2010 556

26 Styles & Wood: Behind the scenes of retail 571Styles & Wood: The history 571Gerard Quiligotti and the turnaround years 572The MBO: The fall of Wembley Stadium Group 574Styles & Wood since 1996: Managing the growth strategy 575Project Oak in 2001: Management incentives and reaping rewards 575Project Oval in 2004: From 3i to Aberdeen—secondary buyout decision 577Market and competition 579Investing decision 580

27 SunRay Renewable Energy: Private equity in the sunshine 593SunRay's choice of solar technology 594

Page 7: INTERNATIONAL PRIVATE EQUITY - GBV · INTERNATIONAL PRIVATE EQUITY ... Build a pre-transaction structure model 285 ... Optimization and analysis of the LBO model 305 13.8 Analysis

x • Contents

The value chain of a solar PV developer 594The European renewable market in 2006-2008 595SunRay's business model 597Building the management team 597Learning the solar PV game the hard way 598Scaling up the business across Southern Europe 599Under the umbrella of private equity 599Montalto di Castro: Building the largest solar power park in Europe 602

':•> The decision to exit \ 605SunRay's spirit still alive '• _ . 606

28v ' Debenhams 617Post deal and going public again 625

29 Optos: A sight worth seeing 641Douglas Anderson and the vision 641Scottish business landscape and funding for early-stage startups 642Product development 643Diseases of the back of the eye and Optos's target market 643Manufacturing 644Competition . 645Business model: The "razor/razor blade" concept \ 645Profit and loss implications 646Cash flow implications ' 646Financing 1995-2001 647Geographic expansion 647Financing in 2002 648

30 Capital for Enterprise U.K.: Bridging the SME early-stage finance gap 663An "equity gap"? 663Previous attempts by the U.K. government to tackle the "equity gap" 664Limits of previous programs 665Launching enterprise capital funds 666Key questions and options for the ECF program design 668The first years of operation of the ECF program 673A few years on: A first assessment 674Where next? 677

Glossary - 709

Index 717