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
Key Glossary Terms
a) Macro-economic Factors and Newer Trends in PE Markets
b) Objectives of the Study
c) Hypothesis of the Research Model
e) Limitations and Scope for Improvements
• Data Appendices, Charts and Tables
•Investment banking is a very vast area in the field of banking and finance and is a very old
• 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.
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.
Seed (< € 1 mil) Early Stages (€ 1 - 10 mil) Expansion/ (€ 10+ mil)
Private Equity &
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
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
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
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
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)
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