private equity

Presented by:
Bhagyashri shrikhande (32)
Tejashree thorat (46)
Ankita parab (59)
Jatin dalvi (05)
Pritesh manyar (10)
Prathamesh raikar (12)
Makrand sinkar (36)
Amitvikram toraskar (47)
PRIVATE EQUITY
 INVESTMENT STRATEGY
• Primary
 Venture capital
 Growth capital
 Leveraged buyout
 Distressed investment
 Mezzanine capital

• Secondary
 EVOLUTION

• Origin- 1946

• Growth- 1970

• Explosion- 1990
 Advantages of Private Equity
• More efficient and produce higher profit
• Skilled management team used
• Management receives carried interest
• Reform the companies without constrain
• Identify risk involved
• East to attract high caliber
 PRIVATE EQUITY FIRMS
• The Carlyle Group

• Goldman Sachs

• Texas Pacific Group Capital

• Kohlberg Kravis Roberts & Co

• Blackstone Group
 Routes of private investment

• Angel investment

• Venture capital

• Private equity
 Perspective of participants
Private equity players:-

• promoters track record

• expansion plans

• a niche or growing segment

• an exit option or ipo - in next 3-5 years.

Companies :-
 PE’s portfolio & how it compliments you

 what else they bring to the table

 what else they are asking for

 Private Equity Process

• Deal Origination (Deal Sourcing)

• Due Diligence

• Deal Negotiation

• Deal Closing (Acquisition)

 Private Equity Process
(contd.)

• Post Acquisition Monitoring

• Exit (IPO, Trade Sale or Buy back)

• Repeat.
 Venture Capital
“Venture capital is a form of private equity
capital typically provided to early-stage, high-
potential, growth companies in the interest of
generating a return through an eventual
realization event such as an IPO of the
company.”

• Cash in Exchange For shares

 VC +
• Injects long term equity finance

• Sharing of both the risks and rewards

• Adding value to the company

• Providing additional rounds of funding

 How VC works
• Funding of VC
- Financial Institutions, Banks, Funds, etc.
- Period of approx. 10 years
• VC to companies
- Long term commitment
- Lack of Security and Liquidity
- High Returns
 How VC works
• VC Second Round Finance

• VC Exit Options
- IPO / M&A
- Returns through Capital Gains
- Returns through Dividends
- Period of 3 to 5 years
 A Tricky Situation

• Webaroo – SMS Gupshup

• 2004 - Own Funding
• 2006 - $12 million Asian PE Firms
• 2008
- Business Grew tremendously
- Required Funding
 VC To The Rescue
• $11 Million

• Factors:
- High Technical Skills
- High Growth Rate
- Management Involvement
- No Revenue Model
- Low Marketing Strategies
 PE v/s VC

• Type of Investee Company

• Use of Proceeds

• Type of Risk
• Seed Capital

• Start Ups

• Second round Financing

Leverage Buyout
 Leverage Buyout
lev
era
ge

bu
yo
ut
 Features
• Low existing debt loads

• A multi-year history of stable and recurring cash flows

• Hard assets that may be used as collateral for lower

cost Secured Debt

• Market conditions and perceptions that depress the

valuation or stock price.
 Leverage
buyout

Positive

Negative
 Tata Tea – Tetley deal
• Biggest ever cross-border acquisition

• first-ever successful leveraged buy-out by Indian

company

• Deal cost - 271 million pounds. (US $450 m)

• Tata Tea’s benefits

- 2nd biggest tea company in the world.
 LBO in deal
• Tata Tea – US $ 114 m.

• Tetley –271mn pounds(US $450 mn)

• Tata Tea × 4 = Tetley

• Minimise its cash outlay in making the purchase.

• Limited cash transaction

 Deal structure
• Created SPV
- Tata Tea (Great Britain)

• Tata tea contribution

- 45mn pound raised through a GDR issue
- 15mn pound US subsidiary Tata Tea Inc
 Cont…
• Raising of debt - 200mn

• Institutional Investors
- Intermediate Capital Group Plc.
- Rabobank International

• Debt paid
-Tetley’s own cash flows
-Tetley's assets
 Advantage

• Provided high returns

• Reduction in inefficient use of free cash flows.

• Another types of repayment

– Dividend recapitalization
– Selling the acquired firm to other private equity firms
 DISTRESSED BUY-OUT
• Definition

• Two Types:-
Distressed to Control.
Special Situations .

• Distressed v/s Other forms of Private Equity

• Acquisition process duration.

 Two core ingredients of distress
• Operating volatility:-
economic cycles
employee compensation issues etc

• Financial leverage:-
operating volatility
fixed obligations
 ASSESSING THE OPPURTUNITY
• WEAK MANAGEMENT.

• FAILURE TO REACT TO LOST CUSTOMERS.

• EXCESSIVE & UNSUSTAINABLE COST BASE.

• A STRESSED BALANCE SHEET.

 Reasons why distressed are attractive to
private equity

• Investment are pre- leveraged

• In emerging economies, acquisitions serve as

stepping stone
 Economic conditions

• Bearish market suitable.

• Current market situation.

• Investors confidence.
 Other side of the coin

• Loss of employment

• slow increase in wages

• Concerned about short term gains

 Fund managers dilemma

• Managing liquidity

• Premium valuations

• Diversified portfolios
 Destination India
• sustained economic growth
• Burgeoning domestic consumer market
• Well established public equity market
• Human capital competitiveness
• Stable democratic & legal framework
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