http:www.jobsearchdigest.com A brief overview of the Private Equity industry and related careers

1. What is Private Equity?
Introduction to the Basics
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2. Understanding Private Equity
• The Basics
– Private equity is an asset class
– Private equity is a source of investment
capital
– Enables those with high net worth to invest in
private companies
• Overall goal
– Achieve attractive rate of return for investors
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3. Private Equity (PE) Strategies
• Leveraged buyouts
• Venture capital
• Growth capital
• Mezzanine capital
• Distressed investing
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4. Leveraged Buyout (LBO)
• PE firm buys majority stake in mature
business
– Uses financial leverage
• Debt is serviced using operating cash
flows from purchase
• Popularized by firms in the 1980’s
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5. Venture Capital
• Subcategory of • Investments can
private equity be further divided
• High net worth & – Early-stage
• Start-up companies
institutional
– Later stage
investors
• Company already
– Inject capital into generating cash flow
start-up & early • May even be
profitable
growth companies
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6. Growth Capital
• Injection of cash
– Relatively mature companies
that are generating revenue
– Funds to expand or restructure operations
• Can also be used to reduce debt on
balance sheet
• Often a minority stake vs. controlling
share
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7. Mezzanine Capital
• Subordinated debt or preferred equity
shares
– Represents most junior portion of company’s
capital structure
– Senior to company’s common shares
• Often used to reduce equity capital
needed to finance a LBO
• Used by smaller companies when
unable to access other capital
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8. Distressed Debt
• Special situation
‒ Investing in debt of company with serious
financial problems
• “Distressed-to-control” strategy
– Acquiring debt in hopes of taking control
after restructuring
• “Special situations” or
“turnaround” strategies
– Provide capital to help rescue
restructuring company
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9. How Does PE Work?
Find prospective investment
candidate companies
D
Analyze business with focus on
E
EBITDA (earnings before
A interest, taxes, depreciation & amortization)
L
Upon agreement to pursue
F acquisition, propose offer
L
O
W Conduct thorough due diligence
No major obstacles…transaction
proceeds
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10. Passive vs. Active Investors
• Passive • Active
– Rely on existing – Take over company
company management after
management to purchasing
grow business & controlling shares
improve profitability • Provide
expertise, contact
network &
operational support
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11. Exit Strategies
Overall goal: achieve attractive return for
investors. How to monetize efforts?
1. Sell business at higher price than paid
2. Sell or merge the business with a
strategic buyer
3. Recapitalization: cash distributed to
PE investors
– Via cash flow or by issuing debt securities
4. Initial public offering (IPO) of stock to
the public market
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12. Private Equity Firms
• Who are the major players?
– 1000’s of firms actively managing PE funds
– Ranking typically based on amount of capital
raised
• Private Equity International
– Industry publication
– Compiles annual ranking of top 300 PE firms
in the world
• Based on amount of direct-investment capital
raised over 5-year window
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13. Top 20 PE Firms
Source: PEI Media
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14. Geographic Distribution
% of PE Firms
by Geographic Location
Asia/Other
20%
N. America
53%
Europe
27%
Source: Prequin (www.prequin.com)
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15. PE Jobs
Attracting the Best and the Brightest
• PE investing has grown in past two
decades
• Represents 5 – 15% of many high net
worth investor & institution portfolios
• PE professionals bring unparalleled
management experience, resulting in:
– Greater productivity, efficiency & profitability
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16. Thank You
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