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