Post on 20-Nov-2014
Private Equity
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Presented By-
Gaurav JoshiDipinder Singh TibLaxman Gupta
PRIVATE EQUITYPrivate equity is money invested in
companies that are not publicly traded on a stock exchange or that is invested as part of buyouts of publicly traded companies in order to make them private companies.
The funds are invested as private equity only for a limited period of time and the companies into which the money is invested are chosen on the basis of really stringent criteria. Usually, these private equity funds last around 10 years.
STAGES OF THE PRIVATE EQUITY FUND MANAGEMENT CYCLE Fund raising for the limited partners Portfolio acquisition search Investment Growth Divestment Dispersal of the funds back to the
limited partners.
STRATEGIES OF PRIVATE EQUITY Leveraged Buyout / Management
Buyout. Venture Capital. Growth capital. Mezzanine Capital. Secondaries.
HOW TO ATTRACT PRIVATE EQUITY FUNDS
Market potential Long term sustainability Growth opportunity Quality of management Exit opportunities. If you want to attract private equity funds, then you
will need to present a details and wise thought out business plan, outlining your idea for the future of your business. Being a strategic investor, they will not only provide you finance but will also take keen interest in your business, as their money has been involved in it.
The limited partnership agreements have the following terms:
Management fees Profits share Hurdle Rate or preferred return Transfer of an interest in the fund Restrictions on the General Partner
“Action is heating up in the PE space and a host of limited partners from the global markets, especially the US, are now looking at India as an investment destination,” said Sri Rajan, partner and head of the PE practice in India at Bain & Company.
After a lull in corporate activity in 2008 and 2009 following the economic downturn, investor interest has once again started looking up in the country with investment firms gearing up to take advantage of the recovery in the world’s second-fastest growing economy.
At this point in time Asia provides the best opportunities and India and China offered the best growth profiles.
The PE industry was one of the biggest casualties in the global financial meltdown. Investors shied away from fresh investments, while crumpled valuations meant companies delayed plans to dilute stake. Last year, deal value in India plunged more than 70%, peak to trough, to just $4.5 billion
According to a survey PE firms will be looking to pick larger stakes stake is expected to rise from 17% at present to 24% to 26 to 51 % by 2013
There are currently around 200 PE firms operating in India. From 2004 to 2008, PE and VC firms have invested nearly $43 billion in the country and have funded around 1,400 companies . Even last year when the going was not so good for PE firms, 231 Indian companies got VC or PE funding.
THE IMPACT AND CONTRIBUTION OF PRIVATE EQUITY FUNDS IN TODAY'S ECONOMY IS UNDENIABLE
BENEFIT THE WHOLE ECONOMY
Continued economic growth depends on maintaining the profitability of business. PE investment has proved itself to be an efficient means of doing this.
In 2002 Doughty Hansen (UK) took over Priory Healthcare group for £116 million and sold it, to ABN Amro for £588 million in July 2005.
Private equity funds seeks to find undervalued and unperforming assets, improve them, and sell them at higher price.
Will help your business or corporation grow.
Usually bring their experience to your business
improving discipline in the market and increasing competition among the companies.
Build your capital
helpful for when you are facilitating acquisitions, and mergers or undertaking more projects
Helps to maintain the value of people pensions
THERE IS THE WEALTH THEY CREATE FOR INVESTORS
Thompson Venture Economies has reported that the average rate of return on private equity funds has been 12.5% over the period 1995-2004. and
23% last year (2004) according to Cambridge Associates research.
CONS---
They Concerned only to secure a high and speedy return on their investment.
There are cases where the private equity firm has taken over a company and then re-sold it to the market within a short time with a mark-up after only some minor cosmetic changes.
Fall in share price.
Interface in management decision making
Dilution of existing shareholders
PE firms display no social responsibility
And there is the political and human fallout when a private equity firm decides to shut the business, strip the assets and invest the cash elsewhere.
E.g.-The MG Rover factory in Long bridge, which was taken over by Phoenix Venture Holdings from BMW and shut down by it.
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