1 / 31

Ian Armitage Chief Executive Mercury Private Equity

Private Equity. Ian Armitage Chief Executive Mercury Private Equity. Dissecting Private Equity. What is Private Equity? Why Should Your Clients Do It? Why Should Your Clients Not Do It? Investment Routes Have new investors missed the boat?. What is Private Equity?. Venture Capital

diza
Télécharger la présentation

Ian Armitage Chief Executive Mercury Private Equity

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript


  1. Private Equity Ian Armitage Chief Executive Mercury Private Equity

  2. Dissecting Private Equity • What is Private Equity? • Why Should Your Clients Do It? • Why Should Your Clients Not Do It? • Investment Routes • Have new investors missed the boat?

  3. What is Private Equity? • Venture Capital • Leveraged Buy-out (LBO) Business

  4. Description Idea Prototype Pre-operational Business is operational Initial sales encouraging Fundingallows plannedflotation Sells equityto investigatethe idea Sells equityto provethe idea Product development and market testing Hire employees,buy equipment, fund working capital WorkingcapitalDebt-ledfinance forfixed assets Working capital and second-generation product Debt-ledfinance forfixed assets Application Venture Capital Seed R&D Start-up Early Stage Expansion Late Stage Expansion Pre- flotation Risk

  5. €000 Luminar - Venture Capital Operator of theme bars

  6. Receiver Desperate Family Shareholder Regulatory Sale Definitely Not Incumbent The LBO Business Turnaround Replacement capital Institutional buy-out Management buy-in Management buy-out __________ Orphan Assets ___________ __ Business with no Owner Succession __ Seller No No Yes but supplement Management Risk

  7. €000 Dechra - An LBO From Gehe AG The UK’s leading distributary vetenary drugs

  8. Seed Start-Up Expansion Capital Pre-flotation LBOs Private Investors “Angels” Specialist VCs Public Markets* Generalist VCs Public Markets* Generalist VCs Investment Banks Fund Managers Buy-out Firms Investment Banks * Temporary phenomenon Sources of Capital & Risk Profile

  9. The Case For Private Equity • Private equity out performs over the long term Source: WM Company/BVCA Performance Measurement Survey • It is a loosely-correlated asset May be able to increase performance without materially increasing risk

  10. 1999 Private Equity Returns per annum % 3 years 5 years 10 years Private Equity* 31.1 27.2 20.0 FTSE All-Share20.4 20.3 14.9 FTSE 100 22.2 21.8 15.6 FTSE SmallCap 15.5 15.6 10.8 * median return Source: BVCA WM Company

  11. 1999 Private Equity Returns per annum % 3 years 5 years 10 years Total 31.1 27.2 20.0 Early Stage 15.8 16.6 8.7 Expansion Capital 30.3 26.9 12.6 Mid MBOs 19.9 22.1 17.3 Large MBOs 31.0 26.4 22.9 Source: BVCA WM Company

  12. The Case Against Private Equity • High Risk • Low Liquidity

  13. Risk • Single company risk: Leveraged } Young } Moderate to high Smaller } 10 Year Record Loss Ratio 7% Returns 46.8% pa • Portfolio risk: Low

  14. The cash flow for an investor in a private equity funds follows a J-curve Cashflow of investment £ 1 2 3 4 5 6 7 8 9 10 Years Liquidity 50 0

  15. Liquidity • Self-liquidating • Growing secondary market

  16. Other Issues • MFR • Valuations

  17. 5% to 10% of equities Private Equity • All UK pension funds should consider an allocation to private equity

  18. How do you invest in private equity? • Direct • Private Equity Manager • Fund of Funds • Quoted Investment Trust

  19. How do you select a manager In the normal way: • People • Performance • Processes • Philosophy/Strategy

  20. Have Investors Missed The Boat?

  21. Unquoted investment as % of GDP Source: EVCA Europe Is Restructuring

  22. PII Group

  23. E-Commerce Profile Example * Portfolio company of Mercury Private Equity New Channel Fulfilment Infrastructure Dot.com ‘Bricks and mortar’. Suppliers of equipment, software, services etc to Dot.com businesses. Classic internetcompany -usuallyretail or portals. ‘Clicks and mortar’. New secondary on-line revenue streams. ‘Bricks and mortar’. Outsourced back office (e.g. logistics) of Dot.com businesses. Tesco, Dell, Clinphone* MapQuest.com*, 1-800 Batteries*, Trados* Global People Network* Bertrams* Irish Express Cargo Braitrim* Wincanton Amazon.com QXL.com Freeserve IBM CISCO BT, Vitria* Agora*

  24. Bertram Group

  25. Private Equity • Long-term out-performance • Risk & liquidity concerns are overplayed • Use to increase returns without materially affecting risk • Expert funders of change at a time of restructuring

  26. Appendices • Definition of Terms • Investment Return • Detailed Schematic of MPE Investment Process • MPE Organisation Structure • Extract from MPE Business Planning Process

  27. Appendices - Definition of Terms • Venture Capital: • Early Stage (“Seed to Start-up”): Capital for businesses in the conceptual stage or where products are not developed and revenues and/or profits may not have been achieved • Expansion Late Stage (“First stage to Mezzanine”): Growth or expansion capital for mature “businesses in need of product extension and/or market expansion. Sometimes referred to as development” capital • Buy-out Capital: Equity capital for acquisition or refinancing of a larger company • Restructuring Capital: New equity capital for financially/operationally distressed companies • Mezzanine (/subordinated) debt: • Intermediate debt capital between equity and senior debt for acquisition or refinancing transactions • The debtholder participates in equity appreciation through conversation features such as rights, warrants or options • Carried Interest (“carry”): This represents the share of a private equity fund’s profit that will accrue to the general partners • Fund of funds: Private equity funds whose principal activity consists of investing in other private equity funds. Investors in fund of funds can thereby increase their level of diversification • General Partner (“GP”) /Sponsor: Managing partner of a Limited Partnership, who is responsible for the operations of the partnership and, ultimately any debts taken on by the partnership • Hurdle Rate (or Preferred Return): A hurdle return allows investors to get preferential access to the profits of the partnership. In absence of reaching the hurdle return, the general partners will not receive a share of the profits • Limited Partnership: Most private equity firms structure their funds as limited partnerships. Investors are the limited partners and private equity managers the general partners

  28. Harvesting Illustrative data only Value creation Portfolio construction Year IRR Appendices - Investment Return Private equity investment return in a partnership typically follows a “J-curve” e.g. in the early years while investments are being made a Private Equity fund will show negative returns.

  29. Appendices - Detailed schematic of MPE Investment Process: PII Growth buy-out £105m Support Services Sector Deal introduced by ‘primary contact’ Initial Appraisal: Market and technology leader, under managed, requiring first class CEO Conversion: British Gas wanted speedy and comprehensive response - certainty Diligence: 3 month exercise: key issues were long term contracts, intellectual property and R & D Negotiation & Structure: Transneft contract Exit: 1) Sale to leading oil-services group: Dresser, Schlumberger Baker Oil & Tool 2) IPO Business Plan Core business - improve utilisation Acquisition - acquire Pipetronix/Rosen New Products - fitness for purpose services Organisation - make market facing, change culture Financials - double EBIT in 3 years

  30. Appendices - MPE Organisation Structure

  31. Deal Sourcing Initial Analysis Appraisal Diligence Negotiation Structuring Exit Planning Operations Completion Strategy SELL! Appendices - MPE Business Planning Process Process: The investment process is different to that employed by public security investors. The best is data driven, disciplined and designed to minimise judgement calls with the intent to add value. Here is the MPE process: Deals do not flow Requires consistent marketing Normal disciplines Get the first call Key skill Decision to allocate resource Win confidence of counterparties Combine internal resources People Accounting system & controls Market position dynamics Technology Facilities Environmental Insurance Legal An important skill. Not all value items measured in £££’S agreement Legal completion output is: Shareholders Employment contracts Banking documents Sale & Purchase agreement Warranties & Indemnities Other contracts e.g. supply contracts Management incentives Complete through strategy review and business plan Identify and effect improvements in operations Detailed exercise for exit, c.2 years ahead of time Either float, trade sale or recapitalisation

More Related