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A brief overview of the Private Equity industry and related careers

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  • 1. What is Private Equity? Introduction to the Basics © Copyright Job Search Digest
  • 2. Understanding Private Equity • The Basics – Private equity is an asset class – Private equity is a source of investment capital – Enables those with high net worth to invest in private companies • Overall goal – Achieve attractive rate of return for investors© Copyright Job Search Digest
  • 3. Private Equity (PE) Strategies • Leveraged buyouts • Venture capital • Growth capital • Mezzanine capital • Distressed investing© Copyright Job Search Digest
  • 4. Leveraged Buyout (LBO)• PE firm buys majority stake in mature business – Uses financial leverage• Debt is serviced using operating cash flows from purchase• Popularized by firms in the 1980’s© Copyright Job Search Digest
  • 5. Venture Capital• Subcategory of • Investments can private equity be further divided• High net worth & – Early-stage • Start-up companies institutional – Later stage investors • Company already – Inject capital into generating cash flow start-up & early • May even be profitable growth companies© Copyright Job Search Digest
  • 6. Growth Capital • Injection of cash – Relatively mature companies that are generating revenue – Funds to expand or restructure operations • Can also be used to reduce debt on balance sheet • Often a minority stake vs. controlling share© Copyright Job Search Digest
  • 7. Mezzanine Capital • Subordinated debt or preferred equity shares – Represents most junior portion of company’s capital structure – Senior to company’s common shares • Often used to reduce equity capital needed to finance a LBO • Used by smaller companies when unable to access other capital© Copyright Job Search Digest
  • 8. Distressed Debt • Special situation ‒ Investing in debt of company with serious financial problems • “Distressed-to-control” strategy – Acquiring debt in hopes of taking control after restructuring • “Special situations” or “turnaround” strategies – Provide capital to help rescue restructuring company© Copyright Job Search Digest
  • 9. How Does PE Work? Find prospective investment candidate companies D Analyze business with focus on E EBITDA (earnings before A interest, taxes, depreciation & amortization) L Upon agreement to pursue F acquisition, propose offer L O W Conduct thorough due diligence No major obstacles…transaction proceeds© Copyright Job Search Digest
  • 10. Passive vs. Active Investors• Passive • Active – Rely on existing – Take over company company management after management to purchasing grow business & controlling shares improve profitability • Provide expertise, contact network & operational support© Copyright Job Search Digest
  • 11. Exit Strategies Overall goal: achieve attractive return for investors. How to monetize efforts? 1. Sell business at higher price than paid 2. Sell or merge the business with a strategic buyer 3. Recapitalization: cash distributed to PE investors – Via cash flow or by issuing debt securities 4. Initial public offering (IPO) of stock to the public market© Copyright Job Search Digest
  • 12. Private Equity Firms • Who are the major players? – 1000’s of firms actively managing PE funds – Ranking typically based on amount of capital raised • Private Equity International – Industry publication – Compiles annual ranking of top 300 PE firms in the world • Based on amount of direct-investment capital raised over 5-year window© Copyright Job Search Digest
  • 13. Top 20 PE Firms Source: PEI Media© Copyright Job Search Digest
  • 14. Geographic Distribution % of PE Firms by Geographic Location Asia/Other 20% N. America 53% Europe 27%Source: Prequin (www.prequin.com)© Copyright Job Search Digest
  • 15. PE Jobs Attracting the Best and the Brightest • PE investing has grown in past two decades • Represents 5 – 15% of many high net worth investor & institution portfolios • PE professionals bring unparalleled management experience, resulting in: – Greater productivity, efficiency & profitability© Copyright Job Search Digest
  • 16. Thank You Visit JobSearchDigest.com for more information © Copyright Job Search DigestImages used with permission from Microsoft