The document summarizes a presentation on macro trends and approaches to pricing private equity transactions in emerging markets. It discusses factors influencing private equity pricing like economic outlook, capital market conditions, and risk diversification. It analyzes how these factors impact deal pricing in Asia and China. The presentation covers private equity terminology, investment stages, and provides statistics on deals, fundraising, GDP growth and standard deviations for various countries from 1999-2012. It concludes that emerging markets like Asia and China are attractive for private equity investments.

1. Global Conference on Service Management (GCSM - 2014),
Auro University, Surat, India,
4th to 5th January, 2014
MACRO TRENDS AND NEW APPROACHES IN PRICING OF
PRIVATE EQUIT Y TRANSACTIONS IN EMERGING MARKETS
Presented by Mridul Arora
MBA (Finance)
Consultant (Deloitte)

2. Presentation Structure
•
•
•
•
Abstract
Introduction
Key Glossary Terms
Introduction
a) Macro-economic Factors and Newer Trends in PE Markets
b) Objectives of the Study
c) Hypothesis of the Research Model
d) Conclusion
e) Limitations and Scope for Improvements
• Data Appendices, Charts and Tables

3. Abstract
Purpose –
•Investment banking is a very vast area in the field of banking and finance and is a very old
industry now.
• The present paper examines factors like Growth of Emerging Markets, Capital Market
Conditions, Hedging and Diversification Effect, Impact of Real Estate sector and REIT/ETF
markets, IPO, LBO and M&A activities, Participation of Hedge Funds and Mutual Funds in PE
Transaction and role of Corporate Governance.
Findings –
Pricing of Private Equity transactions requires a close understanding of the industry being
considered for investment, valuation parameters in the capital market and estimating these
variables. The methods used to value normal growth companies focus on tangible assets,
present value of the future cash flows, PAT, Operating Profit (EBITDA) and Price/Earnings
Ratio (for listed companies).
Risk in PE Funds can only be diversified by investing in a pool of funds.

4. Seed (< € 1 mil) Early Stages (€ 1 - 10 mil) Expansion/ (€ 10+ mil)
development
Angels
Incubators Accelerators
Venture Capital
Private Equity &
Merchant Banks

5. Key Glossary Terms
 Private Equity (PE) : Investment vehicles that pool capital for investment in privately owned
businesses at different stages of development
 PE Fund of Funds (FoF) : A PE FOF is a fund set up to invest in other PE/VC/Hedge funds
 REITs: A REIT is an entity, otherwise taxable as a U.S. corporation, that meets certain
technical requirements and that elects REIT status for ownership of real estate by small
investors
Sources:
http://www.equirus.com/Pages/services_private.aspx
http://prezi.com/booipc_alx74/the-influence-of-social-media-on-governance/?
utm_source=em0nl0explore&utm_medium=email&utm_campaign=gro&utm_term=a3703058896
http://readme.lk/searcc-international-conference-2013-colombo/


6. Introduction

7. Macro-economic Factors and Newer Trends in
Private Equity Markets:
o Global Economic Outlook
o Capital Market Conditions
o Risk and Diversification
o Real Estate Industry Trends
o Nature of Transactions ( TP, IPO,LBO, Structured Debt and M&As)
o Corporate Governance by PE Fund Managers

8. The objective of the study:
Source: “The Economic Impact of Venture
Capital in Europe”
(EVCA and Coopers & Lybrand)
To analyze the impact of Key Macroeconomic
Variables on PE (Global Private Equity Index)
In case of emerging market countries like
Asia and China for Private Equity Pricing

9. Hypothesis of the Research Model:
Ho: A positive outlook influences investors to pay a higher
price for a given investment opportunity and get higher
prices at the time of disposal of the investment,
encouraging investors to pay a higher price for the PE
transactions.

10. •
Conclusion:
 The present study focuses on the emerging market countries with Asia and China
clearly are at the top for Private Equity investing activity .
 A number of other considerations — low private equity penetrations, lack of financing
generally in the market, lack of a strong venture capital market — ultimately the
combination of all those is a need for capital.
 Only LPs have access to the fund’s performance. Therefore, it can be safely concluded
that Private equity is still an inefficient market.
 GPs have dealt with problems in their portfolios and focused their new investment
activity on more defensive sectors (like IT and ITeS)

11. •
Limitations and Scope for Improvement:
 Through this paper, we have stressed upon the need to look beyond and evaluate
several other measures, and have also briefly discussed the way to analyze and
compute a Global Index for Private Equity Funds.
 The unexpected turn of events over the recent past, have forced the PE managers to share more
information as required by the investors in order to attract investments. So it is up to investors to be
more persistent in requesting the required levels of transparency from the managers.
 We might need to intend a further study on the paper by building up models from Pool of Funds to
the Fund of Funds, which is another sub class of investment banking assets.
PE Investors may further develop their research to consider this index as a ready reference:
o for efficient fund selection
o for investments in specific sectors like Growth Sectors
o for shift investment preferences to seek investment alternatives

12. Data Structures and Figures
used in the paper

13. PE Fund Organisation Chart
Insurance
company
LP
GP
Portfolio
Pension
fund
Large
corporate
HNWI
The PE fund
Company A
Company B
Company C
Company D
Manager
Company E
Company D

14. PE Fund Investment Structure
Source: Capital Line Database

15. PE Fund Key Statistics
Source: Bloomberg Business Week

16. Data Set – 1999 to 2012
Variables
Year
Deals(%)
PE Fundraising (%)
GDP Growth Rates(%)
PE Fund Standard Deviations (%)
1999
6.40
8.45
4.30
7.20
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
7.70
7.50
7.43
7.65
5.65
6.54
5.69
5.09
4.85
6.29
3.63
4.78
4.48
9.35
8.43
7.45
7.89
10.45
13.60
16.02
17.61
15.40
6.91
7.10
5.02
6.34
4.50
5.50
6.65
8.54
7.54
6.75
5.60
6.00
2.10
3.00
4.50
6.20
5.40
6.00
6.50
5.00
7.00
8.00
6.00
6.23
4.00
10.00
9.45
5.00
6.00
5.32
F-stat
11.09
19.41
17.07
12.89
p-value
0
0
0
0
5.01
10.07
6.97
4.97
Joint effect of all the
variables
Source: Venture Intelligence Database

17. Private Equity Funding Facts

18. Private Equity Fundraising 2(Pool of Funds)
Source: Thomson Reuters

19. Cash Positions – Last 5 Years
Source: NSE

20. Standard Deviation in PE Funds
Source: Globalfunddata website

21. Global Indices used to value Private
Equity Funds

22. Actual GDP Growth Rates from
2007 to 2012 for BRIC Countries

23. GDP Growth Rates over the last
decade

24. China and Brazil leading the share of
PE Investments

25. Global Comparison of PE Indices

26. Thanks
For
Your
Attention
and
Patience
https://mridul.shutterfly.com/
jdb.mridul@gmail.com

27. Q&A