Final paper ppt mridul arora banking & finance


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Final paper ppt mridul arora banking & finance

  1. 1. Global Conference on Service Management (GCSM - 2014), Auro University, Surat, India, 4th to 5th January, 2014 MACRO TRENDS AND NEW APPROACHES IN PRICING OF PRIVATE EQUIT Y TRANSACTIONS IN EMERGING MARKETS Presented by Mridul Arora MBA (Finance) Consultant (Deloitte)
  2. 2. Presentation Structure • • • • Abstract Introduction Key Glossary Terms Introduction a) Macro-economic Factors and Newer Trends in PE Markets b) Objectives of the Study c) Hypothesis of the Research Model d) Conclusion e) Limitations and Scope for Improvements • Data Appendices, Charts and Tables
  3. 3. Abstract Purpose – •Investment banking is a very vast area in the field of banking and finance and is a very old industry now. • The present paper examines factors like Growth of Emerging Markets, Capital Market Conditions, Hedging and Diversification Effect, Impact of Real Estate sector and REIT/ETF markets, IPO, LBO and M&A activities, Participation of Hedge Funds and Mutual Funds in PE Transaction and role of Corporate Governance. Findings – Pricing of Private Equity transactions requires a close understanding of the industry being considered for investment, valuation parameters in the capital market and estimating these variables. The methods used to value normal growth companies focus on tangible assets, present value of the future cash flows, PAT, Operating Profit (EBITDA) and Price/Earnings Ratio (for listed companies). Risk in PE Funds can only be diversified by investing in a pool of funds.
  4. 4. Seed (< € 1 mil) Early Stages (€ 1 - 10 mil) Expansion/ (€ 10+ mil) development Angels Incubators Accelerators Venture Capital Private Equity & Merchant Banks
  5. 5. Key Glossary Terms  Private Equity (PE) : Investment vehicles that pool capital for investment in privately owned businesses at different stages of development  PE Fund of Funds (FoF) : A PE FOF is a fund set up to invest in other PE/VC/Hedge funds  REITs: A REIT is an entity, otherwise taxable as a U.S. corporation, that meets certain technical requirements and that elects REIT status for ownership of real estate by small investors Sources:   utm_source=em0nl0explore&utm_medium=email&utm_campaign=gro&utm_term=a3703058896  
  6. 6. Introduction
  7. 7. Macro-economic Factors and Newer Trends in Private Equity Markets: o Global Economic Outlook o Capital Market Conditions o Risk and Diversification o Real Estate Industry Trends o Nature of Transactions ( TP, IPO,LBO, Structured Debt and M&As) o Corporate Governance by PE Fund Managers
  8. 8. The objective of the study: Source: “The Economic Impact of Venture Capital in Europe” (EVCA and Coopers & Lybrand) To analyze the impact of Key Macroeconomic Variables on PE (Global Private Equity Index) In case of emerging market countries like Asia and China for Private Equity Pricing
  9. 9. Hypothesis of the Research Model: Ho: A positive outlook influences investors to pay a higher price for a given investment opportunity and get higher prices at the time of disposal of the investment, encouraging investors to pay a higher price for the PE transactions.
  10. 10. • Conclusion:  The present study focuses on the emerging market countries with Asia and China clearly are at the top for Private Equity investing activity .  A number of other considerations — low private equity penetrations, lack of financing generally in the market, lack of a strong venture capital market — ultimately the combination of all those is a need for capital.  Only LPs have access to the fund’s performance. Therefore, it can be safely concluded that Private equity is still an inefficient market.  GPs have dealt with problems in their portfolios and focused their new investment activity on more defensive sectors (like IT and ITeS)
  11. 11. • Limitations and Scope for Improvement:  Through this paper, we have stressed upon the need to look beyond and evaluate several other measures, and have also briefly discussed the way to analyze and compute a Global Index for Private Equity Funds.  The unexpected turn of events over the recent past, have forced the PE managers to share more information as required by the investors in order to attract investments. So it is up to investors to be more persistent in requesting the required levels of transparency from the managers.  We might need to intend a further study on the paper by building up models from Pool of Funds to the Fund of Funds, which is another sub class of investment banking assets. PE Investors may further develop their research to consider this index as a ready reference: o for efficient fund selection o for investments in specific sectors like Growth Sectors o for shift investment preferences to seek investment alternatives
  12. 12. Data Structures and Figures used in the paper
  13. 13. PE Fund Organisation Chart Insurance company LP GP Portfolio Pension fund Large corporate HNWI The PE fund Company A Company B Company C Company D Manager Company E Company D
  14. 14. PE Fund Investment Structure Source: Capital Line Database
  15. 15. PE Fund Key Statistics Source: Bloomberg Business Week
  16. 16. Data Set – 1999 to 2012 Variables       Year Deals(%) PE Fundraising (%) GDP Growth Rates(%) PE Fund Standard Deviations (%) 1999 6.40 8.45 4.30 7.20 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 7.70 7.50 7.43 7.65 5.65 6.54 5.69 5.09 4.85 6.29 3.63 4.78 4.48 9.35 8.43 7.45 7.89 10.45 13.60 16.02 17.61 15.40 6.91 7.10 5.02 6.34 4.50 5.50 6.65 8.54 7.54 6.75 5.60 6.00 2.10 3.00 4.50 6.20 5.40 6.00 6.50 5.00 7.00 8.00 6.00 6.23 4.00 10.00 9.45 5.00 6.00 5.32 F-stat 11.09 19.41 17.07 12.89 p-value 0 0 0 0 5.01 10.07 6.97 4.97 Joint effect of all the variables Source: Venture Intelligence Database  
  17. 17. Private Equity Funding Facts
  18. 18. Private Equity Fundraising 2(Pool of Funds) Source: Thomson Reuters
  19. 19. Cash Positions – Last 5 Years Source: NSE
  20. 20. Standard Deviation in PE Funds Source: Globalfunddata website
  21. 21. Global Indices used to value Private Equity Funds
  22. 22. Actual GDP Growth Rates from 2007 to 2012 for BRIC Countries
  23. 23. GDP Growth Rates over the last decade
  24. 24. China and Brazil leading the share of PE Investments
  25. 25. Global Comparison of PE Indices
  26. 26. Thanks For Your Attention and Patience
  27. 27. Q&A