WBS -Private Equity talk - Bharat Shah - 14 November 2011
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WBS -Private Equity talk - Bharat Shah - 14 November 2011

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Seminar on Private Equity:

Seminar on Private Equity:
Is private equity good or bad?

Is the private equity business model sustainable?

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    WBS -Private Equity talk - Bharat Shah - 14 November 2011 WBS -Private Equity talk - Bharat Shah - 14 November 2011 Presentation Transcript

    • The Ins and Outs of Private Equity Transactions Warwick Business School Alumni 14 th November 2011 Bharat Shah
    • Introduction of Bharat Shah
      • Current portfolio includes:
        • Chairman, Nijjar Holdings (T/A Freshways)
        • Deputy Chairman, Audit Commission
        • Chairman, West Bromwich Building Society Staff Retirement Scheme
        • NED, The Places for People Group
        • Trustee, Paul Strickland Scanner Centre
        • CEO, ABS Business Consultants (Business Mentoring & Consultancy)
    • Introduction of Bharat Shah (Cont.)
      • Previous roles include:
        • Chairman, Picdar Group (a 3i backed business)
        • Chairman, Sure Group (a Graphite Capital backed business)
        • NED, West Bromwich Building Society
        • Trustee, 21 st Century Legacy
        • Independent member of the Rem Com, ACCA
        • VP EAMER & Asia, SVP (a Kohlberg & Co backed business)
        • VP Eastman Kodak & CEO EAMER, Kodak Consumer Imaging
    • Agenda
      • Overall objectives of a transaction
      • Uniqueness of Private Equity Deals
      • Forms of Private Equity Participation
      • Key Steps for Private Equity Transactions
      • Management Terms: The Future Equity Package
      • Funding and distribution of sale proceeds
      • Current state of market
      • Discussion plus Q&As
    • Overall Objectives of a Transaction
      • Winning the deal
      • Minimising price
      • Maximising vendor’s ongoing liabilities
      • Being certain about what you are buying
      • Prompt execution
      • Negotiating the best deal for management
    • Uniqueness of PE Deals
      • High leverage
      • Alignment of stakeholder interest
      • Ability to ‘wash dirty linen in private’
      • Take a longer term view
      • Prepare for exit from day 1
    • Forms of PE Participation
      • Management Buy Out (MBO)
      • Management Buy In (MBI)
      • Buy In of Management Buy Out (BIMBO)
    • Key Steps for PE Transactions
      • Identifying & Sourcing Transaction
        • Auction (Information Memorandum)
        • Off market
      • Preparing a Business Case
        • Background & description of the opportunity
        • Your strategy
        • Management team credentials
        • Financial outcomes (P&L, B/Sheet, C/Flows)
        • Potential exit routes
    • Key Steps for PE Transactions (Cont.)
      • Choosing & Securing Funding (incl. terms)
        • Private Equity
        • Bank
        • Mezzanine Finance, if appropriate
      • Initial Due Diligence
        • Data room
      • First Round Offers & Conditions
      • Further Due Diligence
        • Vendor Due Diligence ( Financial , Commercial, Legal)
        • Chaperoned Management presentations & visits
    • Key Steps for PE Transactions (Cont.)
      • Second Round Offers – usually with SPA mark-up and outline offers of financing
      • Exclusivity or possibly a contract race
      • Detail/Final Due Diligence
        • Commercial
        • Financial
        • Legal
        • Management
        • HS & E
        • Confirmatory
      • Negotiating & Signing
    • Management Terms: The Future Equity Package
      • Revised service agreement
      • Shareholder agreement
      • Leaver provisions
      • Dividends
      • Minority protections
      • Transfer of shares
      • Drag along rights
      • Tag along rights
      • Restrictive covenants
      • Obligations on exit
    • PE Deal Funding Requirement £ Millions Enterprise Value (EBITDA £12M x Multiple of 6) 72.0 Transaction Cost 5.0 Total Funding Required 77.0
    • PE Deal Source of Funding £ Millions Senior Debt 45.0 Mezzanine Finance 0.0 Private Equity – Loan stock 29.0 Private Equity – Equity (90%) 2.7 Total Private Equity 31.7 Management Team Equity (10%) 0.3 Total Source of Funding 77.0
    • Net Sale Proceeds on Exit £ Millions Enterprise Value (EBITDA £16M x Earnings Multiple of 7) 112.0 Transaction Cost (6.0) Net Sale Proceeds 106.0
    • Distribution of Net Sale Proceeds on Exit Original £ Millions Distribution £ Millions Senior Debt 45.0 45.0 Private Equity – Loan stock 29.0 29.0 Private Equity – Equity (90%) 2.7 28.8 Total Private Equity 31.7 57.8 Management Equity (10%) 0.3 3.2 Total Source of Funding 77.0 106.0
    • Current State of Market
      • Extremely difficult market due to:
        • Depressed/volatile equity market
        • Lack of availability of debt due to Credit Crunch
        • Higher cost/premium for borrowing
        • Uncertain economic outlook
    • Discussion plus Q&As