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What is Private Equity?


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What is Private Equity?

Present the basic of Private Equity, its strategies, the way it works, the difference between passive versus active investors, exit strategies, its big players and highlight its difference versus other options. Finally, it presents the private equity jobs.

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What is Private Equity?

  1. 1. What is Private Equity? © Copyrighted Material – All Rights Reserved
  2. 2. Private Equity – The Basics <ul><li>Private Equity: </li></ul><ul><ul><li>an asset class </li></ul></ul><ul><ul><li>a source of investment capital </li></ul></ul><ul><li>Many investors work with private equity firms, who manage the investment on behalf of their investors </li></ul><ul><li>The goal is to achieve an attractive rate of return for investors </li></ul><ul><li>Typical timeframe: 5 - 7 years </li></ul>© Copyrighted Material – All Rights Reserved
  3. 3. Private Equity Strategies <ul><li>Leveraged Buyout (LBO) </li></ul><ul><ul><li>buys a majority stake in a mature business, using financial leverage </li></ul></ul><ul><li>Venture Capital </li></ul><ul><ul><li>raise funds from investors to inject capital into start-up companies </li></ul></ul><ul><li>Growth Capital </li></ul><ul><ul><li>an injection of cash into companies which are looking for funds </li></ul></ul><ul><li>Mezzanine Capital </li></ul><ul><ul><li>subordinated debt or preferred equity shares that represents the most junior portion of a company’s capital structure </li></ul></ul><ul><li>Distressed Debt </li></ul><ul><ul><li>invests in the debt of a company that has serious financial problems </li></ul></ul>© Copyrighted Material – All Rights Reserved
  4. 4. How Does Private Equity Work? <ul><li>Find prospective companies to be good candidates for investment </li></ul><ul><ul><li>requires an extensive network of contacts and other high level executives </li></ul></ul><ul><li>The investment committee will analyze the business </li></ul><ul><ul><li>important metric: EBITDA — earnings before interest, taxes, depreciation and amortization </li></ul></ul><ul><li>Propose an offer to the seller </li></ul><ul><li>Assemble a team to conduct thorough due diligence </li></ul>© Copyrighted Material – All Rights Reserved
  5. 5. Passive versus Active Investors <ul><li>Passive Investors </li></ul><ul><ul><li>remain financiers who rely on the existing management of a target company </li></ul></ul><ul><li>Active Investors </li></ul><ul><ul><li>take over the management after purchasing a controlling share </li></ul></ul><ul><ul><li>have an extensive network of senior level talent, whom they bring on board to achieve operational efficiencies </li></ul></ul>© Copyrighted Material – All Rights Reserved
  6. 6. Exit Strategies <ul><li>Sell at a higher price </li></ul><ul><li>Sell or merge the business with a strategic buyer </li></ul><ul><li>Recapitalization: cash is distributed to the shareholders </li></ul><ul><li>Initial Public Offering (IPO) of stock to the public market </li></ul>© Copyrighted Material – All Rights Reserved
  7. 7. The Major Private Equity Firms <ul><li>Some Top Private Equity Firms </li></ul>© Copyrighted Material – All Rights Reserved
  8. 8. Private Equity vs. Other Options <ul><li>Private equity owned companies are often better managed and more profitable than companies with other ownership structures </li></ul><ul><li>Private equity owned companies outperform comparable publicly traded companies in sales growth, cash flow, profitability and productivity </li></ul>© Copyrighted Material – All Rights Reserved
  9. 9. Private Equity Jobs <ul><li>Private equity investing has grown </li></ul><ul><ul><li>now represents 5 – 15% of the portfolios of many high net worth investors and institutions </li></ul></ul><ul><ul><li>Attracted the best and brightest financial professionals into private equity jobs from investment banking, consulting and accounting </li></ul></ul><ul><li>The results: </li></ul><ul><ul><li>private equity professionals bring unparalleled management experience </li></ul></ul><ul><ul><li>often results in greater productivity, efficiency and profitability </li></ul></ul>© Copyrighted Material – All Rights Reserved
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