Untitled Quiz

Turnaround Financing

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

Buyout Investments

• 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

Typical LBO Structure

• 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

Distribution of Investments by Stage

• Data source: InvestEurope

Distribution of Investments by Sector

• Data source: InvestEurope

Different Approaches to Private Equity Investment

• 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

Managing and Monitoring

• 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

History of Private Equity

• 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

The Origins of Private Equity in Europe

• 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

The Private Equity Process

• 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

Different Types of Private Equity Players

• 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

Fundraising

• 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