The Ins and Outs of Private Equity Transactions Warwick Business School Alumni  14 th  November 2011 Bharat Shah
Introduction of Bharat Shah <ul><li>Current portfolio includes: </li></ul><ul><ul><li>Chairman, Nijjar Holdings (T/A Fresh...
Introduction of Bharat Shah (Cont.) <ul><li>Previous roles include: </li></ul><ul><ul><li>Chairman, Picdar Group (a 3i bac...
Agenda <ul><li>Overall objectives of a transaction </li></ul><ul><li>Uniqueness of Private Equity Deals </li></ul><ul><li>...
Overall Objectives of a Transaction <ul><li>Winning the deal  </li></ul><ul><li>Minimising price </li></ul><ul><li>Maximis...
Uniqueness of PE Deals <ul><li>High leverage </li></ul><ul><li>Alignment of stakeholder interest </li></ul><ul><li>Ability...
Forms of PE Participation <ul><li>Management Buy Out (MBO) </li></ul><ul><li>Management Buy In (MBI) </li></ul><ul><li>Buy...
Key Steps for PE Transactions <ul><li>Identifying & Sourcing Transaction </li></ul><ul><ul><li>Auction (Information Memora...
Key Steps for PE Transactions (Cont.) <ul><li>Choosing & Securing Funding (incl. terms) </li></ul><ul><ul><li>Private Equi...
Key Steps for PE Transactions (Cont.) <ul><li>Second Round Offers – usually with SPA mark-up and outline offers of financi...
Management Terms: The Future Equity Package <ul><li>Revised service agreement </li></ul><ul><li>Shareholder agreement </li...
PE Deal Funding Requirement £ Millions Enterprise Value (EBITDA £12M x Multiple of 6) 72.0 Transaction Cost 5.0 Total Fund...
PE Deal Source of Funding £ Millions Senior Debt 45.0 Mezzanine Finance 0.0 Private Equity – Loan stock 29.0 Private Equit...
Net Sale Proceeds on Exit £ Millions Enterprise Value (EBITDA £16M x Earnings Multiple of 7) 112.0 Transaction Cost (6.0) ...
Distribution of Net Sale Proceeds on Exit Original  £ Millions  Distribution £ Millions Senior Debt 45.0 45.0 Private Equi...
Current State of Market <ul><li>Extremely difficult market due to: </li></ul><ul><ul><li>Depressed/volatile equity market ...
Discussion plus Q&As
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WBS -Private Equity talk - Bharat Shah - 14 November 2011

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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

  1. 1. The Ins and Outs of Private Equity Transactions Warwick Business School Alumni 14 th November 2011 Bharat Shah
  2. 2. Introduction of Bharat Shah <ul><li>Current portfolio includes: </li></ul><ul><ul><li>Chairman, Nijjar Holdings (T/A Freshways) </li></ul></ul><ul><ul><li>Deputy Chairman, Audit Commission </li></ul></ul><ul><ul><li>Chairman, West Bromwich Building Society Staff Retirement Scheme </li></ul></ul><ul><ul><li>NED, The Places for People Group </li></ul></ul><ul><ul><li>Trustee, Paul Strickland Scanner Centre </li></ul></ul><ul><ul><li>CEO, ABS Business Consultants (Business Mentoring & Consultancy) </li></ul></ul>
  3. 3. Introduction of Bharat Shah (Cont.) <ul><li>Previous roles include: </li></ul><ul><ul><li>Chairman, Picdar Group (a 3i backed business) </li></ul></ul><ul><ul><li>Chairman, Sure Group (a Graphite Capital backed business) </li></ul></ul><ul><ul><li>NED, West Bromwich Building Society </li></ul></ul><ul><ul><li>Trustee, 21 st Century Legacy </li></ul></ul><ul><ul><li>Independent member of the Rem Com, ACCA </li></ul></ul><ul><ul><li>VP EAMER & Asia, SVP (a Kohlberg & Co backed business) </li></ul></ul><ul><ul><li>VP Eastman Kodak & CEO EAMER, Kodak Consumer Imaging </li></ul></ul>
  4. 4. Agenda <ul><li>Overall objectives of a transaction </li></ul><ul><li>Uniqueness of Private Equity Deals </li></ul><ul><li>Forms of Private Equity Participation </li></ul><ul><li>Key Steps for Private Equity Transactions </li></ul><ul><li>Management Terms: The Future Equity Package </li></ul><ul><li>Funding and distribution of sale proceeds </li></ul><ul><li>Current state of market </li></ul><ul><li>Discussion plus Q&As </li></ul>
  5. 5. Overall Objectives of a Transaction <ul><li>Winning the deal </li></ul><ul><li>Minimising price </li></ul><ul><li>Maximising vendor’s ongoing liabilities </li></ul><ul><li>Being certain about what you are buying </li></ul><ul><li>Prompt execution </li></ul><ul><li>Negotiating the best deal for management </li></ul>
  6. 6. Uniqueness of PE Deals <ul><li>High leverage </li></ul><ul><li>Alignment of stakeholder interest </li></ul><ul><li>Ability to ‘wash dirty linen in private’ </li></ul><ul><li>Take a longer term view </li></ul><ul><li>Prepare for exit from day 1 </li></ul>
  7. 7. Forms of PE Participation <ul><li>Management Buy Out (MBO) </li></ul><ul><li>Management Buy In (MBI) </li></ul><ul><li>Buy In of Management Buy Out (BIMBO) </li></ul>
  8. 8. Key Steps for PE Transactions <ul><li>Identifying & Sourcing Transaction </li></ul><ul><ul><li>Auction (Information Memorandum) </li></ul></ul><ul><ul><li>Off market </li></ul></ul><ul><li>Preparing a Business Case </li></ul><ul><ul><li>Background & description of the opportunity </li></ul></ul><ul><ul><li>Your strategy </li></ul></ul><ul><ul><li>Management team credentials </li></ul></ul><ul><ul><li>Financial outcomes (P&L, B/Sheet, C/Flows) </li></ul></ul><ul><ul><li>Potential exit routes </li></ul></ul>
  9. 9. Key Steps for PE Transactions (Cont.) <ul><li>Choosing & Securing Funding (incl. terms) </li></ul><ul><ul><li>Private Equity </li></ul></ul><ul><ul><li>Bank </li></ul></ul><ul><ul><li>Mezzanine Finance, if appropriate </li></ul></ul><ul><li>Initial Due Diligence </li></ul><ul><ul><li>Data room </li></ul></ul><ul><li>First Round Offers & Conditions </li></ul><ul><li>Further Due Diligence </li></ul><ul><ul><li>Vendor Due Diligence ( Financial , Commercial, Legal) </li></ul></ul><ul><ul><li>Chaperoned Management presentations & visits </li></ul></ul>
  10. 10. Key Steps for PE Transactions (Cont.) <ul><li>Second Round Offers – usually with SPA mark-up and outline offers of financing </li></ul><ul><li>Exclusivity or possibly a contract race </li></ul><ul><li>Detail/Final Due Diligence </li></ul><ul><ul><li>Commercial </li></ul></ul><ul><ul><li>Financial </li></ul></ul><ul><ul><li>Legal </li></ul></ul><ul><ul><li>Management </li></ul></ul><ul><ul><li>HS & E </li></ul></ul><ul><ul><li>Confirmatory </li></ul></ul><ul><li>Negotiating & Signing </li></ul>
  11. 11. Management Terms: The Future Equity Package <ul><li>Revised service agreement </li></ul><ul><li>Shareholder agreement </li></ul><ul><li>Leaver provisions </li></ul><ul><li>Dividends </li></ul><ul><li>Minority protections </li></ul><ul><li>Transfer of shares </li></ul><ul><li>Drag along rights </li></ul><ul><li>Tag along rights </li></ul><ul><li>Restrictive covenants </li></ul><ul><li>Obligations on exit </li></ul>
  12. 12. PE Deal Funding Requirement £ Millions Enterprise Value (EBITDA £12M x Multiple of 6) 72.0 Transaction Cost 5.0 Total Funding Required 77.0
  13. 13. 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
  14. 14. 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
  15. 15. 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
  16. 16. Current State of Market <ul><li>Extremely difficult market due to: </li></ul><ul><ul><li>Depressed/volatile equity market </li></ul></ul><ul><ul><li>Lack of availability of debt due to Credit Crunch </li></ul></ul><ul><ul><li>Higher cost/premium for borrowing </li></ul></ul><ul><ul><li>Uncertain economic outlook </li></ul></ul>
  17. 17. Discussion plus Q&As
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