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Overview of Leveraged Buyouts (LBO)

Wed, 22-Jul-2009

Note on Leveraged Buyouts by the Tuck School of Business at Dartmouth Center for Private Equity and Entrepreneurship provides a good overview of the leveraged buyout (LBO) including the theory, mechanics and terminology.  See the document below or directly download it here.

Key Topics in Note on Leveraged Buyouts

  • Introduction
  • History of the Leveraged Buyout (LBO)
  • The Theory of the LBO
  • Mechanics of the LBO
  • Buyout Firm Structure and Organization Read More »
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Private Equity Primer

Fri, 17-Jul-2009

Private Equity Primer by the Meketa Investment Group, a private market advisory and investment consulting firm with clients representing over $250 billion in aggregate assets, provides an overview of private equity, investors and other stakeholders, terminology, and more. We continue to search for helpful materials to assist in understanding the private equity market and help in its growth in Asia. See a copy of the report below and/or directly download it here.

KEY TOPICS IN PRIVATE EQUITY PRIMER

  1. WHAT IS PRIVATE EQUITY? Private equity investments are investments in privately held companies. Private equity investments are generally structured in the form of partnerships that consist of numerous equity investments in individual companies. Private equity investments come in many forms, including venture capital funds, buyout/leveraged buyout (LBO) funds, mezzanine debt funds, and international private equity funds. All of these strategies produce significantly different returns than traditional investment classes, and exhibit different fundamental characteristics from each other. Read More »
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How Private Equity Works?

Wed, 15-Jul-2009

How Private Equity Works?  The topic of private equity is relatively unknown to the general public, especially in Asia, where it is a rapidly growing investment asset class.  We attempt to find a variety of articles that helps in the understanding and growth of private equity in Asia.  Below is a summary and a diagram of an article from the Financial Times (see article here; see diagram below or directly download it here).

Private equity is attractive to investors because there are numerous empirical studies that  private equity outperforms other asset classes.  In a nutshell, private equity is professionally managed equity investments in the unregistered securities of private and public companies.  Private equity ranges from venture capital, mid-market buyouts to large buyouts and can be further segmented by investment style (e.g., special situations and turnarounds, mezzanine finance, small-, mid- or large-cap buyouts, etc.), geography and industry sector.

How Private Equity Works? Read More »

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The Economics of the Private Equity Market

Mon, 13-Jul-2009

The Board of Governors of the Federal Reserve System has prepared a good overview of the private equity market to understand the various stakeholders and other components of the private equity market (see a copy below or directly download it here).

The key areas covered in the report include: Read More »

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Private Equity 101: What is private equity and how does it work?

Thu, 19-Mar-2009

Public Value: A Primer on Private Equity report by the Private Equity Council in 2007 provides a good overview of private equity.  A copy of the Public Value:  A Primer on Private Equity is below or can be downloaded here.  The report covers the following topics:

  • Private Equity’s Model of Corporate Governance
  • What is Private Equity?
    • Private equity is an asset class that generally invests in unlisted companies. From a practical standpoint, private equity is an ownership structure that enables a private equity firm and its investors to acquire companies – either public or private – that have significant potential for growth, in some cases because they are undervalued or under-performing. Generally, the private equity firm invests time, energy, talent and capital to improve the company’s performance and prospects. After several years, usually between four and five (and up to seven years for some firms), the private equity firm sells the company, hopefully at a premium to the purchase price.
    • In a nutshell, a private equity firm’s goal is to increase the value of the underlying asset for the investors and sell for a capital gain.
  • How Does Private Equity Work?
    • Private equity firms (also known as the general partners – GPs) raise capital from investors (or limited partners – LPs) in a limited partnership legal structure. Key terms of private equity firms:
      • Targeted investor returns: 30% internal rate of return (IRR) (More likely in the mid-20s due to the global financial crisis and intensifying competition in private equity)
      • Investor commitment: 10 years
      • Portfolio company investment horizon: 3 to 5 years (and up to 7 years for some firms; longer investment periods will become more typical especially in light of the global financial crisis) Read More »
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