PRIVATE EQUITY

Presented by :- Rajesh Kumar (2009MB15)

Sushil Sharma(2009MB08)

CONTENT

What is Private Equity. What drive Private Equity. Funding Stages. Leveraged Buyout. Venture Capital. Mezzanine capital. Angel Funding. PE in India. Readings.

WHAT IS PRIVATE EQUITY

Private Equity is a broad term that refers to any

type of equity investment (ownership) in an assetin which the equity is not freely tradable on apublic stock market. Examples include:

Leveraged Buyout / Management Buyout Venture Capital Angel Investing Mezzanine Capital Individuals / Friends & Family

MORE ABOUT PRIVATE EQUITY

PE investors, in contrast to VC, mostly invest in later stage opportunities. They invest in compan- ies which have a substantial operating history in mature industries.

PE investments either involve replacement of an incumbent management team by a superior management team or helping successful incumbent team to improve operational efficiency through restricting.

WHAT DRIVES PE ?

Raising Capital.

Increasing Regulation of Public Markets.

Effect on Public Markets.

Financing the Private Equity Boom.

LEVERAGED BUYOUT

Takeover of a company or controlling interest in a company using a significant amount of borrowed money.

Often the target company's assets serve as collateral for the borrowed money.

Special about LBO is that corporation that is buying the other business borrow a significant amount of money to pay for purchase price.(>70%).

VENTURE CAPITAL Venture capital is a type of private equity capital

typically provided to early -stage, high-potential, growth companies.

VC investment are generally made as cash in exchange for shares in the invested company.

VC is most attractive for new company with limited operating history that are too small to raise capital in the public markets and are too immature to secure a bank loan or complete a debt offering.

In exchanges for the high risk that VC assume by investing in smaller and less mature companies, VC usually get significant control over company decision s , in addition to a significant portion of the company's ownerships

Venture capitalists are expected to bring managerial and technical expertise as well as capital to their investments

VENTURE CAPITAL & PRIVATE EQUITY

Early state businesses expansion.

Innovative product, services ,technology.

Unlisted company. Medium to long

term: 3-8 yrs.

Later stage business, involves operational or financial restructuring.

Mature product ,services

May be listed or unlisted.

Medium term ; 2-5 yrs.

Venture Capital Private Equity

VENTURE CAPITAL & PRIVATE EQUITY

Risk of one or more of technology, product development, market response to product/ services, management, operational &illiquidity of investment.

Structure: Equity or equity –type instruments such as convertible debt or preference shares.

Usually limited to product-market risks & does not involve the other element listed in the case of VC.

Structure: Equity & debt combinations. Debt is usually high risk of speculative grades.

Mezzanine capital

• A hybrid of debt and equity financing that is is typically used to finance the expansion of existing companies

• Mezzanine financing is basically debt capital that gives the lender the rights to convert to an ownership or equity interest in the company if the loan is not paid back in time

• Since mezzanine financing is usually provided to the borrower very quickly with little due diligence on the part of the lender and little or no collateral on the part of the borrower

• This type of financing is aggressively priced with the lender seeking a return in the 20-30% range. 

STRUCTURE

• Mezzanine financings can be completed through a variety of different structures based on the specific objectives of the transaction

• Cash interest • PIK interest• Ownership

USES OF MEZZANINE CAPITAL

• Leveraged buyouts• Real estate finance

ANGEL FUND

• An investor who provides financial backing for small startups or entrepreneurs

• Angel investors are usually found among an entrepreneur’s family and friends.

DESCRIPTION

• Source and extent of funding• Profile of investor

INDIA PRIVATE EQUITY MARKET SET TO MORE THAN TRIPLE TO $7 BILLION BY 2010

PRIVATE EQUITY INVESTMENT IN IN INDIA

Source: http://yourmarketingmonster.

Source: http://yourmarketingmonster.

THE FIRST SPRING

READINGS.

Projects, Prasanna Chadra,6th edition. www.wikinvest.com www.valuebasedmanagement.net