Private Equity

Private Equity- An Introduction

Private equity funds are investment companies that, do not hold publiclytraded securities. Instead, they normally seek equity stakes (that is, partial ownership) in private companies..
Structure of PE Funds

Institutional Investors
Fund 1

PE firm

High Net worth Individual

Fund 2

Company A

Company B

Company c

What Private Equity offers ???

To the Company Strong capital base for future expansion Accelerated growth possible because of PEs value addition Viable alternative to expensive debt Good for small size companies looking to access capital Helps improves corporate image & profile Useful for companies which have long gestation projects as PE investors can often take a long term (3-6+ years view)

Provides a valuation benchmark for future fund raise events

Funds may bring expert financial / capital structuring advise To the Investors Ability to realize High growth & High Returns

Identify potentially high value companies at an early stage

Ability to acquire meaningful stakes (10-100%) in companies which is typically difficult in listed companies Option of having multiple exit routes such as IPO, secondary sale, strategic sale, sale back to promoters, etc.

Key Ingredients of a PE Deal

Which Investor?

What valuation?
What deal structure?

What investor rights?

What exit terms? What due diligence?

What PE Investors Look For?

Overall sector attractiveness potential for strong future growth Reasonable valuation

Companys ability to deliver consistent earnings growth

High return ratios high return on capital employed and return on equity are the most significant parameters for investors

Enunciation of clear exit opportunity

Reputed promoters, strong franchise and a top class management team Clear enunciation of a business strategy/future plans