Untitled Quiz

Study Notes

Financing provided to existing businesses who have experienced financial difficulties
Aims to help businesses regain profitability and stability

Management Buyout (MBO): When members of the company's management team acquire some or all of their company's shares from the parent company
- This is often driven by financial, strategic, or other reasons
Leveraged Management Buyout (LBO): Buying a company or its division with a significant amount of borrowed funds

Step 1 (Creation): The initial setup of the LBO transaction
Step 2 (Holding): Holding company acquires the target company using a combination of equity and debt financing
- Subordinated debt is used to finance the acquisition
- Creditors provide the loan financing
Step 3 (Payment): The target company's shareholders are paid with the funds from the LBO
Step 4 (Merger): The holding company merges with the target company, typically leading to operational control

Hands-on Approach: Private equity firm actively involves itself in the company, providing strategic advice and contributing to its growth
- This can include market entry support, overseas expansion, acquisitions, management recruitment, and leveraging business connections
- Private equity firm acts as a business partner, mentor, and coach
- This approach can boost the company's credibility and status in the market
- It's well-suited for companies going through a rapid expansion phase
- However, day-to-day operational control is usually not sought
- The private equity firm will expect to receive detailed financial information, attend board meetings, and participate in important company decisions
Hands-off Approach: The private equity firm takes a less active role, leaving management to run the business with minimal involvement
- This is considered a more passive approach
- While the private equity firm won't be actively involved in daily operations, they will still expect regular financial updates

After a private equity transaction, both the investor and the venture-backed company must work together to manage their partnership
The primary shared goal is to create value
Private equity partners provide financial resources and support
They offer non-financial support, including strategic development assistance, financial/accounting expertise, and business connections
They can help connect companies with other entrepreneurs, facilitating collaboration and market expansion
Private equity investment can improve a company's credibility with banks and the market
It can also attract talented individuals to lead the company

The 1980s: Saw significant growth in the US, driven by the Department of Labor's clarification of the Employee Retirement Income Security Act (ERISA), allowing pension funds to invest in private equity
Early 1990s: Lower levels of debt were used, and institutionalized private equity firms emerged
Mid-1990s: The economic recovery after the 1990-1992 recession, and the increasing interest in information technology, fueled a new boom in private equity
March 2000: The dot-com bubble burst, leading to a significant downturn and write-offs for many private equity funds
2003: The private equity and venture capital industries began to recover
2004-2007: The buyout sector experienced a major boom, with record levels of investment from institutional investors

1945: 3i was founded by the Bank of England and other British banks to provide equity and debt to companies with high-growth potential
- This is one of the earliest examples of private equity investment in Europe
1983: The European Venture Capital Association (EVCA) was established to promote and develop the private equity industry across Europe

Fundraising: Promoting a new equity investment vehicle to investors to secure funds and commitments
Investments: Investing in companies based on their potential for future growth and profitability
Managing and Monitoring: Overseeing the performance of portfolio companies and providing support to management teams
Divestments: Ultimately exiting investments, typically through selling the companies to other investors or through an IPO

Captive Funds: Where a single shareholder contributes the majority of the capital
- Often subsidiaries of banks, financial institutions, insurance companies, or industrial companies
Independent Funds: Where third parties are the primary source of capital and no single shareholder holds a majority stake
- This is the most common type of private equity fund

The process of attracting capital from investors to create a new private equity investment vehicle
This involves marketing the fund's investment strategy and goals to potential investors