1. An Introduction to Private EquityPrivate Equity OBN SBS MBAClass of 2012

2. What is Private Equity An asset class consisting of securitiesinvested in operating companies witha view to generating value Investment typically lasts between 3-7years depending on the investmentfocus of the company. 3. History and Development Originated in the US in the 40s with thefounding of two Venture Capital firmsAmerican Research and DevelopmentCorporation (ARDC) and J.H. Whitney &Company. First Leveraged Buyout in 1955. LBO boomin the 80s with the emergence of KKR. Purchase of RJR Nabisco for $31.1 billionin 1989 standout LBO deal and subject of abook (Barbarians at the Gates) 4. Industry Structure Institutional InvestorsFund ofFunds DirectInvestment PE Fund PE FundPE Fund PE Fund Operating Companies 5. Industry Players Fund of Funds (Limited Partners) Pool funds together on behalf of institutional investorsto invest in PE funds Institutional Investors (Limited Partners) Insurance companies, Pension Funds, Family Officesseeking portfolio diversification General Partners Private Equity Fund ManagersComprehensive list of PE funds (including websites) can be found here http://www.venturechoice.com/vcdir.htm 6. Forms of Private Equity Leveraged Buyouts Growth / Expansion Capital Venture Capital Others Distressed Investments Management Buyouts 7. Leveraged Buyouts Companies are acquired usingFinancial Leverage Leverage can account for between50% and 90% of total transaction cost Target companies usually mature withstrong cash flows Cash flows generated by companyused to pay down debt. Value generated when debt portion ispaid down 8. Growth/Expansion Capital Company seeking expansion Typically profitable and able togenerate cash, but not enough tofinance expansion PE company approach is typicallymore hands on. Value is generated via Good entry price Operational/Margin improvements Growth due to expansion 9. Venture Capital Funds buy partial stake in an early stagecompany Early stage companies go through variousrounds of funding Stage A, B, C, D, E, etc. Funds typically exit their investment with IPOor buyout from subsequent funding rounds Funds usually go public after scaling Riskier than typical PE investment due tobusiness failure High return potentials e.g Google, Microsoft,Facebook 10. Others Management Buyouts PE fund supports existing management to take overcompany Reliance on management to derive value Inherent alignment of interest is invaluable Distressed Investments Investment in equity or debt securities of financiallystressed companies. Value is generated by turning around the business inaddition to the typically undervalued entry price PE funds typically have relevant industry experience 11. Sources of Value Creation inPEFinancialEarnings ExternalEngineeringEnhancementFactors Cheap Debt Change in Rising stock Varied sources management marketsof funding Disposal of Mergers & unprofitable Acquisitions businesses Cost cutting New products 12. Exit Routes in PE Sale via equity markets Self liquidating instruments(redeemable preference shares,convertible debt) Put option (Sale of shares tomanagement) Leveraged refinancing Secondary sale (To other PE firms) 13. Fund Economics Two major models GP/LP Model Bank Subsidiary Model Limited Partnerships usually last for 10 years* Successful PE firms (with GP/LP model) stay in business byraising a fund every 3 to 5 years* Management Fees and Carried Interest are primary sourcesof revenue* (Metrick Yasuda 2010) 14. Fund EconomicsFamilyKKR - Investor Base By Type* Office/HNI 3% Corporate Pension Financial 3%Institution5% Endownment/ Foundation 5% PublicInsurancePension/Sover 8% eign Wealth Funds62%Fund of Funds14%*Official KKR Data 15. Roles within PE firms*Job TitleYrs of Compensation Partner Comments Post MBATrack? expAssociate0-1Salary, Bonus, Sometimes(Carry)**Senior Associate 2+ Salary, Bonus, Yes(Carry)**VP 3+ Salary, Bonus, YesCarryCFO/COO5+ Salary, Bonus, Yes Often have aCarryCPAPartner5+ Salary, Bonus, -CarryGeneral Partner7+ Salary, Bonus, - ReceiveCarrysignificant carried interest * Note on Private Equity Careers Tuck (2003) ** Carried interest Share of profits 16. What roles do Associates playwithin the Investment Cycle? Liaise with fundraising consultantsFund Participate in road shows Raising Help define Investment Strategy Review submitted business plansDeal Work on Pitch books for prospective dealsSourcing Work with Due Diligence Consultants (Financial, Legal, Commercial, Technical) Work on Transaction Documents (Investment Proposal, Financial Model, Offer Letters, TermSheets, Legal Agreements)Deal Make presentations to Investment CommitteeExecutionManage disbursement process Review weekly/monthly/quarterly performance reports Work with management to redefine business and corporate strategy Act as consultant where necessary. E.g 2 month on-site placement to help resolve working capitalDealmanagement issuesMonitoring Work with investment bankers to handle IPOs/Trade Sales/Rights Issues etc 17. Company Profiles General PartnersNameWebsite AUM*TPG http://tpg.com$48 billionKKR www.kkr.com $40 billionThe Carlyle http://www.carlyle.com$40 billionGroupBlackstonehttp://www.blackstone.c $36 billionomApollowww.agm.com $33 billionManagementBain Capitalwww.baincapital.com $29 billion* Assets under management - Wikipedia 18. Company Profiles BankFundsName Website Investment FocusStandard http://www.standardcharte Emerging MarketsCharteredred.com/careers/associat es/mba/oxford_said_busi ness_school/roles.htmlBarclays Capital http://www.bpe.com/ EuropeCitibank https://www.citicapitaladvi Europe/North sors.com/metalmarkOverAmerica/Asia view.doHSBC http://www.hsbcnet.com/pNorth America / Middle i East 19. Additional Resources A note on Private Equity Careershttp://mba.tuck.dartmouth.edu/pages/clubs/peclub/pdfs/Private_Equity_Careers.pdf Private Equity as an Asset Class (The Wiley Finance Series) by Guy Fraser-Sampson http://www.amazon.co.uk/Private-Equity-Asset-Class-Finance/dp/0470661380/ref=sr_1_1?s=books&ie=UTF8&qid=1317551407&sr=1-1 Getting a Job in Private Equity: Behind the Scenes Insight into How PrivateEquity Funds Hire http://www.amazon.co.uk/Getting-Job-Private-Equity-Insight/dp/0470292628/ref=sr_1_6?s=books&ie=UTF8&qid=1317551407&sr=1-6 King of Capital: The Remarkable Rise, Fall, and Rise Again of SteveSchwarzman and Blackstone http://www.amazon.co.uk/King-Capital-Remarkable-Schwarzman-Blackstone/dp/0307452999/ref=sr_1_13?s=books&ie=UTF8&qid=1317551696&sr=1-13 The British Private Equity and Venture Capital Association (BVCA)http://www.bvca.co.uk/PEVCExplained Emerging Markets Private Equity Associationhttp://www.empea.net/ 20. Additional Resources Barbarians At The Gate: The Fall of RJR Nabiscohttp://www.amazon.co.uk/Barbarians-At-Gate-Fall-Nabisco/dp/0099469154/ref=sr_1_2?s=books&ie=UTF8&qid=1317551848&sr=1-2 National Venture Capital Associationhttp://www.nvca.org/ European Venture Capital Associationhttp://www.evca.eu/default.aspx Guide to Private Equity Fund of Fund Managershttp://www.privateequityonline.com/books/productimages/Media/000/165/752/Sample-3.pdf 21. Thank You..