Session 03

Class Participation

Abinash Mishra
B23005

1/9/2024
1. What was the topic of discussion?
Instance 01: How do PE firms invest in an entity (either public or private) and generate value? Buy a
publicly listed firm and hold it as a private entity (called PE investment in a general firm – e.g., Dell
computers – the publicly listed form that went through a similar process). Delist the firm and
restructure (because it is easier to restructure). The firm will typically be in a negative cash flow state.
Once restructuring is completed – value is said to start unbundling, and cash flow starts to turn
around. This leads to the formation of J curve, as mentioned below:

The PE firms prepare for harvest/disinvestment when cash flow becomes positive. The ways to exit
are in order of preference :
1. List in an IPO – considered the best option
2. Sell it to a competitor
3. Sell as separate SBU to different interested parties
4. Liquidate and sell
This is done in a concise period.
2. The point raised by me
Instance 01: When the company is not going through a good phase but has been acquired and turned
around by a PE firm, the best option to get maximum returns is to go for a public offer. However,
given that the firm was not performing well in the not-distant pass – how do firms signal recovery and
get the maximum value extracted using the IPO route –in short to, kindly explain how the firms signal
the turnaround using an example
Instance 01 - b: Supplementary follow-up question branched off from the discussion with sir was
raised by Dibyanshu Gautam: can firms in such temporary phases of financial distress actively resist
such attempts to be taken over by PE firm? What strategies are employed by the PE firms to drive the
change?

3. Outcome of discussion further research done by me

Instance 01: Explained the case using an IT firm with lousy leadership and unknown clients with no
international stature. By replacing the CEO with a new prominent face, we can attain international and
reputed clients. Check for news regarding the firm and create good news :
1. acquire firms,
2. goto prominent guy in an IT firm and hire him for some time
3. generate news everywhere – using the potential turnaround story – with enough publicity
Connect with reputed clients, such as the World Bank, IMF, FIFA, etc and publicise this news. After
such activities are done, the firm will have a good market value. It is imperative to find a willing
buyer and sell the company.
This is called a simple transformation. But this process is only possible for businesses that are
retrievable. Therefore, to transform the company using the above method, we need to find firms that
are in good business but have the wrong balance sheets. A temporary phase that has created a bad
situation.

Instance 01 - b: Sir explained that the companies would fight tooth and nail to resist such
manoeuvres. The PE firms must get control by siding with all board members. Such firms' strength is
networking, which the promoter needs to improve. Every banker and investor knows them, which
helps finance the investment. This, coupled with the slow siding of many board members, allows
them to have an upper hand in the company's affairs.