1. Introduction to Private Equity James G. Clarke Director Private Equity Investments Kauffman Foundation
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5. Definition Private Equity: Private equities are equity securities of unlisted companies . Private equities are illiquid and usually long-term investments . Private equity investments are not subject to the same regulations as securities sold to the general public. Private equity includes two broad classes: Buyouts involve the purchase of an existing company using a combination of debt and equity . Returns are primarily a function of purchasing cheaply/dearly, growing and/or improving the company, the use of leverage and selling cheaply/dearly. Venture capital involves making an equity investment in an immature company in the expectation that the company can grow quickly. Returns are primarily a function of its growth rate, size of its market and the exit environment.
18. Leverage alone is not the answer Caribbean Restaurants, LLC Sources: All data from public sources including The Lookout from Miradero Capital (Q2 2004) and The Deal , April 18, 2005 1991 Sold 86 stores for $70 million 1994 ~5x return 1996 4x return 1999 2.5x return 2004 Paid $340 million for 165 stores, 174 stores today
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24. Buyouts raised record $’s in 2005, 2006 & 2007 $ in billions Source: Dow Jones Private Equity Analyst as of August 2008
25. 9 of 10 Largest Deals Ever Occurred in 2005-07 Source: Andrew Ross Sorkin, New York Times Dealbook, February 26, 2007 citing Dealogic data
32. Emerging market fundraising 2007 2006 2004 2003 2005 Emerging Asia ($Bn) 2005 2004 2003 2006 2007 C. & E. Europe / Russia ($Bn) 2006 2003 2004 2005 2007 Latin America ($Bn) 2003 2004 2005 2006 2007 Middle East & Africa ($Bn) 11.4 Source: EMPEA
Competition on the Street during the buyout boom lead to historically forceful lending standards. Deferred / PIK notes increased as percentage share of PIK toggles/ Alternative High Yield Structures during the 2005 to 2007 period. The distribution by number of covenants has decreased considerably since the late 90s. With this number peaking in the 4Q of 2007 with over 60% of the Covenant numbers being two or less. Additionally, there is a marked increase in the volume of Covenant-Lite Loans, with a volume of $100b in 2007.