By Francesco Marino John Oliver, host of HBO’s “Last Week Tonight” has made a name for himself in late-night television. The British comedian has become a master pot stirrer through his brazen quips, witty antics and refusal to pull punches when addressing current events. This season, his satirical show put private equity under fire, specifically … Continue reading Mobile Home Profiteering – An Investigation
By Alessio Corcelli and Maurizio Parrella Consumer discretionary sector The recovery from the global financial crisis shed light on an evergreen, yet recently white hot, equity group: consumer discretionary. The consumer discretionary industry comprises all companies participating in the value chain to produce a good or provide a service which is deemed as non-essential by … Continue reading Consumer Discretionary: Another Fad?
By Gianluca Sonda Introduction Angel investing is a micro-finance practice which involves affluent individuals providing capital for business start-ups typically in exchange for convertible debt or ownership equity. The term “angel” was actually coined during the 70s describing the investors who financed the Broadway shows and other theatre productions back in the day. Angel investors … Continue reading Windfalls, Pitfalls and Angels
The Buy-and-Build (B&B) method has experienced burgeoning popularity over the last decade which continues into the present. From 20% in 2000, the share of PE deals with add-on acquisitions trended toward 53% in 2012.
Before the 70s, common stock was the only instrument available to GPs in PE and VC when investing in portfolio companies. This rigid capital structure limited minority investors by subordinating them and offering intermediate returns only in the form of dividends or share repurchases. Subsequently, the industry transformed...
A key trend in recent years is the convergence of private equity and shareholder activism. Activist investor tactics – taking a minority position in a public company and trying to achieve change through various means such as proxy contests or stockholder proposals – are increasingly employed by traditional private equity firms. This is a development driven by the need to escape competition via new investment approaches.
Industries with heavy assets requirements, or companies in unappealing areas receive little attention from sponsors. For companies that lack the appeal to raise a PE’s heart rate, the state may step in by offering financial backing. The government does this by creating funds of funds (FoFs) as well as becoming LPs for VC and PE funds. The funds set up by governments in this way are called government-sponsored funds (GSF) or government-sponsored venture capital (GVC)
The professional sports business is gaining both popularity and market value and many private equity experts and venture capitalists are taking the over. Investing in a sports franchise, though, cannot be considered canonical because its economics follow peculiar market drivers. Therefore, in order to evaluate whether sports investments hit like the home run derby or miss more than a hole-in-one contest, one must understand the fundamental traits and intricacies of the segment.
Back in the '80s, some ambitious entrepreneurs designed a miniature model of the typical private equity fund. Forget about pools of cream-of-the-crop professionals: search funds are a businessperson’s stepping stones to achieving their pipe dream position as a CEO. Although it sounds like a solo trip to success, these operating managers are backed by capital from a group of advising investors.
The PE industry has grown continuously over the past 5 years, making it one of the major topics of discussion in the marketplace. Is the PE industry able to maintain its current growth or is it approaching maturity? How will key PE players adjust to new market conditions? If you are interested in these topics, please join our panel “Private Equity Today: Hot or Overheating?” on May the 6th.
The rapid technological developments of the last decades have catalysed a development of a new industry: medtech. This exciting and growing extension of healthcare as we know it has presented an intangible benefit for us in the form of better health outcomes, but also tangible opportunities for entrepreneurs and investors to profit from this burgeoning, high-tech industry.
European PE M&A deal volume has been slightly declining coming into Q1 of 2019 and reported a decline of 8% from the Q1 2018 numbers. Nevertheless, the phenomenon of megadeals is still evident on a volume as well as value basis. The geographic composition of deals changed slightly due to macro-economic pressures.
“Everyone has access to information. We just know how to analyze it better.” This is the mantra of Billions protagonist Bobby Axelrod, a fictional hedge fund manager who’s ethically compromised fund breeds alpha like a wolf pack. Putting aside any insider trading and market manipulation though, is this also the mentality of the PE funds that acquire current portfolio companies from other PE funds?
“Ten years ago only a few private-equity houses had dedicated health-care teams,” says Dmitry Podpolny of McKinsey. “Today nearly everyone does.” According to PitchBook, 715 private equity deals in 2018 had closed as of mid-December for a combined value of $103.72 billions, which represent a considerable increase, in terms of overall monetary worth compared to 2017
EDreams flamed out shortly after its IPO, but it shouldn’t have been a surprise for those who had done their due diligence. A business that had grown at triple-digit rates during its early phase when backed by VC, and at a double-digit pace when owned by PE partners, was only growing at single-digit numbers after its merger with GO Voyages and Opodo. This is what the public was buying at the time of the IPO, even if was not priced like that: a slow growth business.
Many are familiar with the story of Bear Stearns’ monumental stock collapse and the sale of the investment bank to JP Morgan in 2008 at $2 per share – almost 1% of the original value of the year before. The notion of purchasing a competitor at such a discount is borderline unfathomable. Unfortunately, the takeover created such a substantial regulatory and legal liability over time that led Jamie Dimon to declare his regret of the acquisition. But is there a way to acquire a failing company cheaply and make a profit: can we buy extremely low and still sell high?
Colateralized Loan Obligations are becoming increasingly popular in the post-crisis era by enabling high yield investing at reduced risk levels. The beauty of the CLO is its malleability: like a bespoke suit, risk/return can be tailored for the squeamish or the aggressive investor. In this article, we explore the characteristics of this peculiar form of structured credit to discover the reasons for its surge and how these CLOs are used in the PE industry.
On Wednesday the 27th of February, Bain & Company published its annual Global Private Equity Report 2019, presenting the main events and trends of the industry in 2018 and giving insights into its future developments. The industry continued its strong growth in 2018, displayed by a high number of deals and a high total amount of invested capital invested in buyouts.
Over the last eleven years we’ve seen many private equity firms go public, among them major names in the industry such as Blackstone in 2007 and KKR in 2010. However, stocks of many PE firms that were listed are still trading below their IPO price. Why are PE firms still going public if their stocks don’t seem to outperform? And what are the possible reasons for such a below expectations stock performance after the IPO?
Venture capital and entrepreneurial hubs like Silicon Valley have been the birthplace of some of the world’s most famous and valuable firms. However, with the access to funding that Silicon Valley startups have, bidding competition and publicity frenzy drive the valuations of these companies higher, putting pressure on the returns of later stage VC investors. There are places beyond Silicon Valley that breed opportunities for Venture Capital firms, and some of the most entrepreneurially teeming areas are in places one wouldn’t first think of, and they may very well become the next chief centers for innovation.
With reputations and capital at stake, Private Equity and Venture Capital firms endeavor to make the best possible investment decisions. However, complete information is often impossible to obtain or takes too long to acquire resulting in opportunity costs from deferring investment. Given these structural challenges, how can decision making processes be structured to optimize outcomes?
In the first half of 2019, the Japanese car components manufacturer Calsonic Kansei Corporation, owned by the U.S. private equity firm KKR, expects to complete the acquisition of Magneti Marelli, an Italian-based high-tech car components manufacturer currently owned by Fiat Chrysler Automobiles. The transaction values Magneti Marelli at €6.2 bn, and it will create a giant in the OEM arena, becoming a supplier of both FCA and Nissan.
The American alternative investment firm Blackstone Group is raising a new real estate fund. The Blackstone Real Estate Partners (BREP) IX could be the biggest real estate fund ever with a volume of $18 billion adding to Blackstone’s massive existing real estate portfolio of $119 billion AUM.
Investors allocate capital with Private Equity Firms in order generate a high rate of return on their invested capital. However, when there are several investors and a separate manager, how much of the profits from investments are investors entitled to? PE firms address this issue by constructing unique and specific payout schemes, called distribution waterfalls, to attract and signal to various types of investors and to accumulate committed capital to enter investments. This article outlines the fee structuring of PE firms and explores the types of distribution waterfalls.
In the early 1980s there was a dramatic increase in private equity activity in the US when pension funds began to invest heavily in them following the clarification of the “prudent man” rule, declaring private equity a sufficiently safe investment. When the 90s tech frenzy came along, pension funds needed the extraordinary returns offered by VC firms to keep pension plans solvent as baby-boomers aged. However, due to structural problems, pension funds were fundamentally unattractive to VC firms as LPs, so they were going to need help to break in.
Financial sponsors tend to create value in LBO transactions in three different ways: operational improvements, debt expansion and multiple expansion.
We had the pleasure to end this academic year by interviewing Mr Lucio Di Ciaccio who undertook quite an amazing journey from Aerospace Engineering to The Carlyle Group, eventually joining SoftBank Vision Fund where he is currently working. #GetInspired
This spring, the Norwegian Finance Ministry decided not to allow the country’s Oil Fund to invest into unlisted equities. This decision sent shockwaves through the institutional investor landscape, because of the sheer size of Norway’s Oil Fund and its status as a model investor.
An emerging market economy (EME) is defined as an economy with low to medium per capita income, which will gradually converge to that of developed countries. Currently, the most prominent regions covering EMEs are Latin America (Brazil, Chile, Colombia, Mexico), Southeast Asia (China, India, Malaysia, Thailand), some countries of Eastern Europe (Hungary, Poland, Russia) and South Africa.
The traditional capital-raising process involves a number of players whose operations are strictly limited by a tightly regulated environment. The last three years have witnessed an increase of a new unconventional way to bypass regulatory restrictions: ICOs.
Artificial Intelligence (AI) is the science concerning the creation of intelligent robots and computer programs capable of learning and solving problems in a way that replicates the complex mechanisms used by the human mind itself. Examples of this sector include virtual voice assistants, image perception programs and pattern recognition.
Special Purpose Acquisition Companies (SPACs) are publicly-traded buyout companies that raise collective investment funds in the form of blind pool money, through an initial public offering (IPO), for the purpose of completing an acquisition (or merger) of an existing private company (target).
BSPEC had the pleasure to unofficially interview the managing director from an American global asset management firm, which is one of the largest credit investors in the world. The firm pursues a value-oriented and risk-controlled approach to investments in distressed debt, corporate debt, private equity, convertible securities, real estate and listed equities. As of December 31, 2016, the company manages more than $100 billion for its clients.
The NPL market is more than ever in the spotlight. Going from the definition to what is changing in the regulatory framework, this article tries to understand the potentiality of this market in terms of risk/return, what is changing and why some of the most important PE funds around the world are raising capital to be invested in this asset class.
No period in history better demonstrates the need for portfolio diversification than the late 90s Tech Bubble and the March 2000 crash. In the public markets and at the height of the bubble, speculators were in such a frenzy to get a hold of technology stocks that any newly listed stock with the word “tech” or “.com” in their name could shoot up over 100% in one day. Many of these companies had yet to properly develop their products and their financial health was often very uncertain, yet they commanded prices at very high price to earnings multiples. In private markets there was also a strong appetite among VC firms to invest in the technology sector and bring the burgeoning amount of tech startups to public markets in IPO exits.
With record amounts of capital raised, around 1200 companies backing (first semester of 2017) high levels of diversified sources of financing, 2017 has been an intense year for private equity in France. What is worth noting is the increased attractiveness of French targets among international investors. This is supported by the four times larger value of inbound private equity (PE) and venture capital (VC) investments in 2017 (graph 3). Also, it is noted that the value of French domestic PE and VC investments doubled in value in 2017.
The target, HSH Nordbank, is a German bank established in 2003 as a result of the merger between the Landesbanks of Hamburg and Schleswig-Holstein. The bank is based out of the German port cities of Hamburg and Kiel and it is an important financing provider for corporate clients involved in the shipping, infrastructure & logistics, trade & food and industrial sectors. Besides offering traditional loans, the bank also offers a huge spectrum of other services including structured finance, risk and investment management solutions. As of 31st Dec 2016, the bank reported total assets of EUR 84 billion and net income before taxes of EUR 121 million.
In July 2017, Private Equity companies CDH and Hillhouse completed the leveraged buyout of China's largest shoe retailer, Belle International for HK$53.1bn (US$6.8bn). It became the largest privatization deal on Hong Kong stock exchange.
KKR, a leading global investment firm acquired a 12.64% stake in Indosari, an Indonesian based consumer goods company, in October 2017. This deal marks the third such deal KKR has made in Indonesia in the preceding 18 months. KKR makes this investment in the wake of major macroeconomic positives for the Indonesian economy including a young and growing middle class, accelerated urbanization trends, and increasing consumption as a percentage of GDP.
On October 17th, 2017 it was announced that $104 millions were raised from a group of private equity firm by Vacasa LLC, an online vacation rental company set to expand internationally and challenge the biggest player of the sector, Airbnb.
The grim reality of venture capitalism is that most startups fail. Even with an innovative idea, a motivated team can easily fail to make a product or service that customers can find value in. Yet the romanticised stories of young and creative entrepreneurs building radically successful businesses from scratch persists.
The Harvard MBA indicator was started and maintained by Roy Soifer, consultant and former HBS student. It represents a long-term stock market indicator that evaluates the percentage of Harvard Business School graduates that accept "market sensitive" jobs in fields such as investment banking, securities sales & trading, private equity and venture capital. If more than 30% of a year's graduating class take jobs in these areas, the Harvard MBA Indicator creates a sell signal for stocks. Conversely, if less than 10% of graduates take jobs in this sector, it represents a long-term buy signal for stocks. In addition, it is also useful to analyse the attractiveness of jobs in finance. Indeed, during the last decade, the indicator has been heavily skewed towards jobs in sectors such as Venture Capital and Private Equity and, in particular after the crisis, Harvard MBA alumni have even further shunned IB and IM.
On October 14, 2016, SoftBank Group’s CEO and founder, tech-visionary and billionaire Masayoshi Son, announced the establishment of a record-breaking $100bn Private Equity tech investment fund. Along the way, he promised $50bn of investments and the creation of 50.000 new jobs in the U.S. to President Donald Trump. SoftBank Group and Saudi Arabia’s Public Investment Fund (PIF) committed to invest in the fund $25bn and $45bn, respectively. The remaining $30bn will come from major international investors such as Apple, Foxconn, Qualcomm, and Oracle’s founder Larry Ellison. A $15bn contribution will also come from Abu Dhabi’s sovereign wealth fund, Mubadala. The SoftBank conglomerate, already having operations in broadband, fixed-line telecommunications, internet, technology services, finance, media and marketing, semiconductor design, and other tech-related businesses, has also brought a team of professionals with Private Equity, Investment Banking and Consulting experience on board to manage the so-called Vision Fund. Indeed, financial analysts have recognized the Fund as a powerful financial tool for Son and SoftBank to drive technology development particularly in the U.S. and deliver on their long-term strategic vision.
he aim of this article is to briefly describe a principal transaction document for a Private Equity deal: the Sale and Purchase Contract. This is an extremely complex topic to which many articles would be needed to give a full understanding to the reader so rather the intention is to provide a brief introduction to an aspect which is irregularly discussed.
At the beginning of this academic year we had the pleasure to interview Edoardo Lanzavecchia. Since 2007, he has been a senior partner at Alpha, a pan-European mid-cap private equity firm with €2 billions under management. He is considered one of the veterans of the Italian Private Equity industry. In 1998 he founded and was head of The Carlyle Group in Italy, and then also founded Magenta SGR.
The European bond market is still under the effect of ECB’s quantitative easing lowering yields to sub-zero levels and, on the stock market side of things, valuations are at all times high making the quest for an index-beating return even harder. This translates many investors to allot their funds towards junk bonds.
JAB Holding Co. is a private equity firm domiciled in Luxembourg. The company is focused on acquiring premium brands in the consumer goods industry, particularly, the coffee industry; it is a global player in the coffee industry with a 41% market share in the prepackaged-coffee segment. The company owns (wholly and partially) several premium brands including Keurig Green Mountain, and Jimmy Choo.
In 1949 Benjamin Graham published the first edition of “The Intelligent Investor”, an essay concerning the technicalities of financial investments, formalizing for the first time the basics of Value Investing. Graham’s bold and sometimes controversial mindset was very critical about Mr. Market (M.M). This “individual” is the personification of a market which provides investors with prices that should reflect the true value of the underlying business. If on the one hand M.M quotations look fair and rational, on the other hand it can happen that they are driven by the emotional sphere, so that prices result to be biased and distant from the fundamental value of the business in question. In such a contest, The Intelligent Investor is the one who knows when to trust M.M. and when to reach her conclusions independently, disregarding market’s excesses. Graham’s theories have sparked a debate at the preferability between value and growth stocks, and the empirical evidence has, in fact, confirmed the existence of a long-term value-growth spread called: “Value Premium”.
Tech visionary and billionaire Masayoshi Son, head of the Japanese multinational telecommunications and Internet corporation SoftBank Group, has announced his company is creating a $100bn Private Equity fund devoted to tech investments – the largest of its kind so far. With high-profile investors joining the effort, the fund already has a first deal lined up: A 25% stake in chip designer ARM Holdings is set to change hands.
Heinz-Kraft’s bid of $143 billion for Unilever was set to become the largest ever acquisition in the Consumer Products industry. The acquisition would have been the next step of 3G capital’s strategy to sway the industry subsequent to the acquisition of Heinz in 2013 and Kraft in 2015 and branch out into other industries. This article intends to understand why such a bid was made and what made Unilever a potential target? We will answer this question by introducing the main players in the bid, summarising the timeline of the bid and listing the pros and cons that Unilever has as a target.
Buy-and-build strategies are acquiring an increasing role in the private equity market, principally in Italy where they accounted for 25%, on average, of private equity investments made between 2011 and 2015.
On October 3rd 2016, Onex Corporation (“Onex”), one of the oldest and most successful private equity firms founded in Toronto, CA, and Baring Private Equity Asia (“Baring Asia”), a well-established independent and alternative asset management firm in Asia, concluded the two months’ negation for the acquisition of the Intellectual Property and Science division of Thomson Reuters, the world’s leading source of news and information for professional markets.
The complexity of LBO transactions determines the necessity of multiple players, each one of which carries out a specific role. The main players of an LBO transaction are financial sponsors, investment banks, banks, institutional lenders and target management.
The second edition of the Italian Private Equity Conference took place in Milan on 22nd September and it became one of the most important events of the year for the industry, attracting more than 70 LPs, 70 GPs, and 50 CxOs. The ITPEC gathered all the titans of the private equity sector and provided a very fruitful environment for discussions, networking opportunities and the exchange of ideas. More importantly, the value of the event was determined not only by its important guest list, but also by the 10 panels, which provided an insight into a number of interesting topics, ranging from Italian PE performance to CEOs’ perspectives.
The Venture Capital (VC) industry in 2015 has deployed a total of USD 78 billion in the US (according to PitchBook), marking the second highest full year total amount invested in the last 20 years.
Financial sponsors tend to create value in LBO transactions in three different ways: Operational improvements, Debt and Multiple Expansion. The first two forms assume improvements of the target financial and operational performance. The last value creation option refers to the sponsor features instead of the target. Indeed, it does not modify the financial and operational performance of the target and comes from sponsors’ broader knowledge and expertise. The literature tends to focus on the first to ways since future valuations are too uncertain. Indeed, even sponsors' financial models tend to concentrate on value enhancement coming from developments in the target operations and a better capital structure.
The conventional LBO transaction includes several steps, starting with "The Sourcing" and continuing with "The Screening". During the Screening, financial sponsors make research on potential targets trying to understand the one that deserves the investment. The goal is to find the ideal candidate.
The seven publicly listed U.S. alternative asset managers are facing a complex decision: how to put their cash to use. The news is that, in addition to the usual buyout picking process, some firms are now considering investing in their own stock through a buyback. With global markets flailing, the share prices of the big buyout firms have underperformed the S&P over the past 12 months by 31%. Indeed, while the S&P 500 declined 13% since its May 2015 peak, Blackstone fell 43%, Carlyle 61%, Apollo 39%, KKR 45% and Fortress 47% in the same timeframe. The repurchase plans of KKR, Apollo, Carlyle, and Fortress total more than $1bn, while Blackstone and Oaktree decided to avoid the stock buyback for now.
Over the last few years, investors and business got accustomed to see China as a major foreign investment destination but now the situation seems to be turning around. In 2015, the level of Chinese outbound investment almost reached the amount of inbound foreign investments ($118bn compared with $126.3bn).
Starting from last year, capital allocation schemes that are hybrids of direct investment and limited partnership, namely “Shadow Capital”, have become increasingly appealing among participants of the Private Equity industry. This way of investing allows the Limited Partners to employ their resources benefiting from the expertise and experience of PE funds and to gain a direct foothold in the private firms’ capital. Most notably, Shadow Capital accounted for 25.6% of total capital committed in PE investments in 2015, surging from the 17.5% average it accounted for in the period 2009-2014 (see table below).
On January 5th, Catterton, the leading consumer-focused private equity firm, together with LVMH and Groupe Arnault, respectively, the largest luxury conglomerate in the world and the family holding company of the founder, announced they have entered into an agreement to merge part of their business to create a new entity, named L Catterton.