Corporate Strategy of Berkshire Partners

- Group 5 Ajit (B10065) Himanshu (B10080) Pinaki (B10095) Shriya (B10110)

PE Industry  Raised money from investors  Invested in portfolio companies  Provided returns on sale of portfolio companies  MDs served as Funds General Partners (GPs) : Active  Outside Investors : Passive .

PE Industry  Early History  Conglomerate business. out of favour in 1970  Pension funds allocate more funds to PE and Hedge funds  New source of funding  1980s Leverage Buyout Revolution  LBOs became popular ‡ Small Equity and high debt (high yield bond market)  Debt financing imposed financial discipline ‡ Not covering debt risked moving to bankruptcy ‡ Robust monitoring tool for each portfolio company ± Value Added boards ± Tranparent financial reporting .

Margin expansion and Synergistic acquisitions ‡ Venture capital in technology and biotechnology  Renaissance and diversification in 2000s     Abundant in expensive debt High involvement in M & A activities (25%) Launch of specialised funds Diversification into hedge funds .PE Industry  1990s Industry Evolution  LBO Regulations  Industry moved to Advisory services ‡ Revenue growth.

5 trillion  Collapse of many big banks stalled the PE fundraising .PE Industry  Emergence of Club Deals  Many PEs joint hands to take on larger targets for portfolio diversification  Founders sell General Partners stakes  Major restructuring in PEs  The PE Industry in 2008  AUM is $ 2.

      Background of Berkshire Partners First fund in 1984 5 Founding MDs divided stakes equally Invested in over 90 companies Capital came from large institutional investors ³Stay small´ philosophy ³Provide constantly superior returns to our investors´ .

25% business service .The Investment Process  Sourcing Deals :  Targeted companies with EV of $200mn to $2bn  Invested $50mn to $500mn of equity in a company and borrowed the rest  Generalist equity investor ± not separated by sector or region  40% in retail. 26% industrial sector.

On POINT initiative Formalize best practices in developing relationships within industry  Developing sector expertise  Staffing across deals remained flexible  Still needed more degree of industry specialization .

Analyzing deals  Highly selective investment process  Consensus method of deal analysis (Monday morning Firm Meetings)  Multiple MDs worked on the same deals to seize it  Majority voting by the staff before acquiring a company  A conservative approach .

 Adding Value:  Its reputation was important in bidding process  Invested sufficient time and resource to help portfolio companies improve performance  Existing Investments  Held portfolio companies for 3-7 yrs  Exited a high proportion through private sales  Exit was dependent on the capital markets which provided financing for buyers .

Economics Fees  Charged annual management fee of 2% of AUM  Carried interest was the principal longterm incentive fee Returns  Annualized net returns after fees were 29% apprx  The market average was 20% .

firms  Period: 3-5 years  Not deep value investors  Not high value. short term .Stockbridge  Recent Diversification: 2005  Internal public securities investment fund  Investment strategy:  Publicly traded securities in 10-20 U.S.

Stockbridge  TEAM  Led by Robert Small  By 2008: ‡ Was a growing team.familiarity with firm¶s culture. strategy & processes ‡ Had solid investment record  FUNDING  Till now Berkshire : sole investor  Future: raising capital from LP¶s .

human resources and capital markets Executive oversight committees Recruitment . legal.    Recent changes at Berkshire Institutionalization of best practices Centralized corporate functions in business development.

The Board room of Berkshire Partners  Issues on the table  Continued evolution of firms governance model  Future challenges regarding professional development  Retaining Berkshire¶s culture amidst expansion  Integration of Stockbridge ‡ Required material investments and new business effort ‡ When and how to begin marketing public securities  Alignment of Berkshire¶s. Stockbridge¶s & fund Investor¶s teams .

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