BUSINESS 9452 – PRIVATE EQUITY

Professor: Wayne Adlam

Winter 2021
What is Private Equity?
• Generally involves a direct ownership investment in a
private company
• More active involvement with the management and
direction of the investee company
• Two forms of investment
• Direct (eg. Canada Pension Plan – 407 Toll Highway)
• Indirect (eg. Investor in a KKR fund)
• Best viewed as a discrete asset class
• Publicly listed stocks
• Bonds and debentures
• Real Estate/Infrastructure
• Private Equity
Why Does Private Equity Exist?
Higher Risk Asset Class
• Early stage ventures
• Restructurings
• Financial Engineering

Meets Investor Requirements for Longer Dated Equity Assets

• Pension funds
• University endowments
• Insurance Companies
• Wealthy individuals

Return Expectations Commensurate with Risk and Liquidity

• Typically 20-30%
• May be lower in current environment
Characteristics of Private Equity
Longer Dated Asset Class
• Usually 10-12 years
• Very irregular cash flows

Illiquid
• Not suited for short term liquidity/redemption requirements
• Investors generally not able to sell their interests

Irregular Cash Flows

• J-curve
• Return can only be calculated at the end of the fund’s life
• Only proper return calculation is IRR

Funds act as a conduit

• Do not hold cash
• Tax transparent (using the LP model)
The Private Equity Universe

Private Equity
Venture
Buyout
Capital

Early/Late
Angel Seed
Stage
Growth Development LBO
What is “Not” Private Equity?
Family owned companies
• Thomson (Woodbridge, Reuters)
• SC Johnson (Windex, Ziploc, etc.)

Hedge Funds

What about:
• Infrastructure?
• Real Estate Funds?
• Natural Resource Funds?
• Sovereign Wealth Funds?
• Distressed/Restructuring Funds?
The Private Equity Lifecycle

Fundraising Investing Exiting

Private Equity Terms
• Vintage Year • TV/PI
• 2x, 3x, 7x, etc. • Cash Sweep
• J curve • A round, B round, etc.
• LBO, MBO • Carry
• Gearing • Drawdown
• Allocated Capital • Home Run
• Cash Call • Kicker
• Hurdle Rate • Roll-up
• Co-invest • Pre-money/Post-money
• Skin • Thin equity
• PI/CC • Dry powder
• RV/PI
Selected Private Equity Firms

United States International Canada

The Carlyle Group Permira CPPIB

Kohlberg Kravis Roberts Apax Partners Ontario Teachers
Berkshire Partners CVC Capital Partners Onex
Silver Lake Cinven Brookfield
The Blackstone Group 3G Capital Birch Hill Capital
TPG Capital Terra Firma Torquest
Bain Capital AXA Imperial Capital
Thoma Bravo
Apollo Group
Warburg Pincus
Selected PE Investee Companies
• Burger King • AMC Theatres
• Chrysler • Linens n’ Things
• Michael’s • Petco
• Sleep Country Canada • Dunkin’ Donuts
• Shoppers Drug Mart • Hertz Rent-A-Car
• Roots • WeWork
• GMAC • Masonite
• Westjet Airlines • Dollarama
• KraftHeinz • Canada Goose
• Uber • Tim Hortons
• Ace Bakeries • Toy’s R Us
• MGM • GNC
• Cineplex Galaxy • Sealy/Simmons Mattress
Business 9452
• Objective: to provide students with an overview of the
private equity sector
• Structure, lifecycle, terminology, return expectations
• How it fits into investors’ portfolios
• Designed for:
• Those planning to work in the industry
• Those who will have extensive interaction with PE firms
(especially IB and consulting)
• Students whose employer is owned by or is seeking PE
funding
• Textbook (Mandatory)
• PRIVATE EQUITY AS AN ASSET CLASS (2nd Edition)
• Authored by Guy Fraser-Sampson
• Assigned chapters are an integral part of the course
Business 9452 – Class Summary
Bus 9452: Workload/Evaluation

• Class Contribution - 30%

• Case Hand In’s – 30%
• Take Home Assignment - 40%
Class Contribution Grading
 Contribution grade of 30 percent broken into 3 parts:
1. Attendance: 14 percent for showing up prepared
• 1 percent deducted for each class missed
2. Participation: up to 7 percent
• Meaningful contribution tracked by peers
• For each class you contribute you receive 0.5 percent
3. Quality Contribution
• Evaluated by me
• Each class you make a very strong contribution you receive
an additional 1 percent (max participation/quality
contribution of 16 percent)
Case Hand-in’s
 Two case hand in’s are randomly assigned (15% each)
 Maximum of approximately 500 words, plus appendices or charts

 Take the case analysis that you have already prepared for the class
and submit it in a typewritten format
 Review the questions on LEARN associated with the case to ensure
you have covered them off
 However, the style of the presentation should follow a traditional case
write-up, written from the point of view of the decision maker to his/her
boss (do not just answer the questions!)
 Remember to complete any numeric or financial analysis required
by the case
 Hand in a hard copy of your assignment prior to the start of class,
PLUS submit it electronically on LEARN (to be reviewed by Turnitin)