Successfully reported this slideshow.
We use your LinkedIn profile and activity data to personalize ads and to show you more relevant ads. You can change your ad preferences anytime.

What is Private Equity


Published on
A brief overview of the Private Equity industry and related careers

  • Be the first to comment

What is Private Equity

  1. 1. What is Private Equity? Introduction to the Basics © Copyright Job Search Digest
  2. 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. 3. Private Equity (PE) Strategies • Leveraged buyouts • Venture capital • Growth capital • Mezzanine capital • Distressed investing© Copyright Job Search Digest
  4. 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. 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. 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. 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. 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. 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. 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. 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. 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. 13. Top 20 PE Firms Source: PEI Media© Copyright Job Search Digest
  14. 14. Geographic Distribution % of PE Firms by Geographic Location Asia/Other 20% N. America 53% Europe 27%Source: Prequin (© Copyright Job Search Digest
  15. 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. 16. Thank You Visit for more information © Copyright Job Search DigestImages used with permission from Microsoft