Private Equity and Leveraged Transactions
This comprehensive course, as two separately bookable modules, will introduce participants to the essential basics of private equity and venture capital.
Course dates
Course overview
'Private Equity and Leveraged Transactions' is designed to review critical aspects of private equity. Six key concepts will be emphasised:
- The opportunity
- The participants
- Transaction valuation
- Transaction structuring
- Transaction funding
- Transaction risks: identification and mitigation
The course will include the analysis of several private equity deals and leveraged buyouts, including a series of Asian transactions.
Summary of course content
- An analytical "toolbox" for assessing the attractiveness of potential private equity transactions
- A suite of valuation methodologies for assigning values to potential private equity opportunities
- Knowledge of the variety of financing instruments and structures for funding private equity transactions
- Knowledge of the investor types providing debt and equity funding for private equity deals
Methodology
The course will be centered around a series of cases and conceptual notes. A Socratic approach, with active participation and exercises, will be used.
Prerequisites
Participants should have a basic knowledge of accounting, financial analysis, and forecasting. The workshop will require a high level of commitment in terms of class participation and group contribution.
Who should attend this training course?
- Corporate management teams
- Corporate developers
- Investment bankers
- Venture capitalists
- Accountants
- Lawyers
Supporting publications
DAY ONE
Introduction
Fundamental analysis in private equity contexts and valuation
- Transaction types: LBOs, MBOs, "growth equity"
- Target screening
- Key industry
- Sector-level characteristics
- Key firm-level characteristics
- Business strategy assessment
- Business mix, growth goals
- Margin targets
- Capital investment
- Agency problems
- Operating risk management
- Financial performance assessment
- The Troika: growth, margins and capital use
- Financial strategy assessment
- Cash generation and capital use
- Historical capital structure, target capital structure, current capital structure
- Current funding modes and sources: debt vs. equity / fixed vs. floating
- Financial risk management
- Does the financial strategy support the business strategy or vice-versa?
- Post-closure sources of value-added
- Forecasts: debt capacity and future cashflows
- "Topline" revenue growth rate projections
- Forecasting margins
- Forecasting capital expenditures and other capital outlays
- Forecasting debt service burdens
- Levered equity cashflows
- Return requirements and discount rates
- Target IRRs
- Other return measures
- Exit strategies: "harvesting" returns
- Strategic buyers
- Financial buyers
- Public market exit
- Private equity in Europe and Asia
- The role of strategic corporate investors
- Public market funding for highly-leveraged companies
- Private equity operations of diversified public firms
- "Growth equity"
- Sources of value in private equity
- Target valuation
- Valuation methodologies
- "Entry" pricing vs. expected "exit" valuations
- Net asset value
- Price / book value
- Enterprise value / replacement cost
- Comparable transactions
- Operational metrics
- Discounted cashflow approaches
- Debt capacity and debt / EBITDA ratios
Case studies:
- Private equity framework
- A potential LBO: Marks & Spencer PLC
- The first Japanese LBO
- GOME: strategic partnership between GOME and Warburg Pincus
- Equity valuation matrix
- Weiqiao textile: LBO and sum-of-the-parts analysis
DAY TWO
Executing private equity opportunities - transaction structure
- Debt funding
- Bank and other senior debt
- Bridge funding
- Subordinated and other long-term debt finance
- Securitisation and structured finance
- Credit analysis and credit ratings
- Equity-linked debt
- Mezzanine funding
- Convertible securities
- Equity funding
- Private equity, LBO and venture capital managers
- Private market
- Use of funds: capital structure and returns
- Debt / equity mix
- Equity-linked securities and dilution impacts: warrants-with-debt, convertibles, pay-in-kind securities
- Transaction process
- Due diligence, deal documentation and structuring
- Exit strategies: "harvesting" returns
- Strategic buyers
- Financial buyers
- Public market exit
- Risk management in private equity
- Liability management
Case studies:
- Progress power
- Sources of debt financing: leveraged loans and high yield bonds
- Credit analysis and ratings
- Bond ratings systems
- S&P medians
- Mezzanine debt and mezzanine funds
- Stapled financing and other committed financing
- ACAS business loan trust 2004-1
- Due diligence checklist
DAY THREE
Funding private equity investment - investors
- Private equity as an asset class
- Purpose in a portfolio: risk, returns, liquidity, time horizons, taxes
- Private equity strategy types
- Leveraged buy-outs and management buy-outs
- Strategic investments and equity "carve-outs"
- Mezzanine funds: PIK, equity-linked, and coupon instruments
- Secondary and "vintage" funds
- "Growth" equity and "activist" hedge funds
- Sources of funds: debt
- Loans: bilateral loans, syndicated loans, leveraged loans, bridge lenders
- Mezzanine lenders
- The private placement market and public high-yield
- CLOs / CDOs
- Sources of funds: equity managers and equity providers
- Managers of equity funding
- Sources of equity funding
- Alternative sources of funds
- Strategic investors
- "Activist" hedge funds
- Private equity sources of returns / manager value-added
- Timely entry: attractive entry valuations due to market conditions, motivated sellers
- Financial: aggressive substitution of debt for equity, with careful cashflow management
- Operational: post-closure performance improvement due to enhanced managerial resources, more highly-motivated management and workers
- Strategic: growth to critical mass in a consolidating sector
- Timely exit: sale to motivated strategic or financial buyers, or to public market in an environment of multiple expansion
- Private equity managers: organisational structures and associated funds flows
- General vs. limited partners
- Legal: specified life, withdrawal prohibitions, transfer restrictions, liability
- Capital flows: "takedown" schedules, capital calls, distributions
- Manager fees and compensation, reporting and accounting policies
Case studies
- "Growth" private equity: TPG Texas Pacific, General Atlantic, and Newbridge Capital Investment in Lenovo
- DLJ merchant banking partners Stake in Hard Rock Hotels
- An Asia restructuring idea: Korea Tobacco and Ginseng
- Japanese event-driven trades
- Equity sources: Goldman Sachs, Capital Partners
InterContinental Grand Stanford Hotel, Hong Kong, Hong Kong
This programme takes place on a non-residential basis at the InterContinental Grand Stanford Hotel. Non-residential course fees include training facilities, documentation, lunches and refreshements for the duration of the programme. Delegates are responsible for arranging their own accomodation, however, a list of convenient hotels (many at specially negotiated rates) is available upon registration.
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Andrew Regan
Andrew Regan, CFA served as an investment banker at Merrill Lynch and as a securities analyst at Donaldson, Lufkin, and Jenrette, where he counselled large institutional investors on their retail sector holdings.
In addition to these conventional sell-side duties, he was centrally engaged while at DLJ in a number of banking transactions involving retailers, including LBOs, IPOs, primary and secondary equity offerings, and private placements. He also assisted in the successful recapitalisation of a major real estate portfolio in the Silicon Valley area of California.
An experienced training consultant, Andrew provides pedagogical support to organisations in the theory and practice of corporate finance and asset markets.
In his teaching work, he develops overall curricular strategies, prepares case and other instructional materials, delivers programs in the classroom, and offers follow-up evaluation.
He has delivered programs for clients throughout North America as well as Europe, Latin America, Asia, Africa, and the Middle East.
Andrew received his A.B. magna cum laude in Modern European History from Harvard College, his M.Sc., with Distinction, in West European Politics from the London School of Economics, and his M.B.A., with High Honors, from Harvard Business School, where he was a George F. Baker Scholar, Charles M. Williams Fellow, and Dean's Doctoral Award Winner. He holds the CFA Charter.
Courses run by this instructor
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Course dates