Contents:

Foreword Preface Acknowledgements Author biographies Introduction Purpose of the book The nature of value in private equity Scope of the book Structure of the book Key themes Part I The nature of private equity 1 The stages and types of private equity financing Stages of financing in private equity The special case of start-up risk Types of private equity 2 Organisational forms Introduction Hedge funds Business development companies Market organisation and models Private equity and hedge fund convergence Part II Value and valuation in private equity 3 Necessary adjustments to the market-based theory of finance Shortening horizons Expected value framework 4 The concept of value Classifying types of value Premises of value Measuring additional value Value ‘worlds’ Increasing a company’s value New value paradigms 5 Valuation models: The general tools Introduction Intrinsic value Extrinsic value (using relatives) Acquisition value Contingent value and the value of flexibility Contingencies and real options Decision/event trees Conclusion 6 Valuation in private equity and special situations Private equity Emerging market Banks and financial institutions Technology/new economy sectors Part III Globalisation and value addition in a strategic context 7 Globalisation, strategy and management The need to think globally Strategy formulation and review in a global context Strategy execution Logistics and supply chain management Part IV Pre-investment value addition: Managing risk and uncertainty 8 Goals, screening, due diligence, timing and phasing Goals Screening Due diligence Managing risk by timing investment Managing risk by controlling disbursement (phasing) 9 Deal structuring Introduction Elements of a deal Structuring a new venture Structuring a leveraged buyout Conclusion Part V Post-investment value addition 10 Portfolio supervision Monitoring for opportunities and threats Functional areas for value addition Operational risk management Recommended private equity portfolio practices 11 Corporate governance Privately held versus publicly held companies The changing business environment Corporate governance and control Duties and responsibilities of board directors Rendering advice Board committees Caveats 12 The exit Introduction Going public Selling (transferring ownership) to family members Selling to employees Selling the company to another company Finding a new investor Liquidation Implementing exit strategies Part VI A value-addition framework 13 An expected value framework Introduction Scenario writing Contextual mapping Monte Carlo simulation Rate of return rankings and decision rules Conclusion Bibliography

Summary:

Summary Adding Value in Private Equity: Lessons from Mature and Emerging Markets Structure of the book The book is divided into six parts. Part I: The nature of private equity It begins in the first part with a description of the range of activities and types of investment that comprise PE investing. As in other parts of the book, the temptation is resisted to provide formal definitions in favour of what might be called working definitions based on descriptions; this approach, hopefully, is less presumptuous and accommodating of alternative definitions. As in any system of classification, we very often find that the distinguishing features of an asset or investment that determine the category in which it is placed are rarely crisp and unique. In this connection, similarities in the opportunities for value addition and even in the appropriate responses to these opportunities often transcend the boundaries between different types of PE. For example, such similar opportunities arise regardless of whether it is in connection with venture capital investing, investing in leveraged and management buyouts (LBOs and MBOs) or distressed asset investing. Consequently, although the characteristics of each type of investment will likely call for some modification in the details of approach among types, in the interest of maintaining our practical focus, the discussion of value addition unfolds instead in terms of knowing what to look for and ways to seize opportunity at different stages of the investment process. These stages are (a) pre-investment, which includes the proposal, due diligence, deal structuring and negotiation stages, and (b) post-investment, which includes monitoring and supervision, corporate governance and exit. As appropriate, where significant variations in either opportunity or response (resulting from the nature of the particular PE investment class) are noteworthy, these are presented, and in some cases elaborated further with real examples. Part II: Value and valuation in private equity In the second part of the book there is a review of the working definitions and analytical concepts concerning the measurement of value and the tools applied in the valuation of corporate assets as they are in use today. This part is not intended to be a comprehensive treatment of company valuation but rather serves as a referential framework in order to provide a basis for making comparisons of value before and after certain decisions are made and associated activities are undertaken. This allows one to determine the extent to which value has been, or prospectively can be, added. In this part also, the various ways are examined in which value, valuation and measuring value addition are challenged by a special set of conditions in, and attributes of, less liquid markets. It includes the special case of emerging markets. While the task of suitably modifying the value framework is presented, in keeping with the main purpose of the book, the idea is not to focus exclusively or even primarily on valuation per se. Instead we identify how the particular features of the value framework in less liquid (emerging) markets carry important implications for the more practical task of adding value to PE investments, while recognising many common considerations which apply in both the mature and the emerging markets. Part III: Globalisation and value addition in a strategic context The third part examines the rapidly changing environment with which all businesses must contend, caused by globalisation and accelerating technological change. This has important consequences for business and corporate strategies, strategy execution and the challenge of managing within this highly dynamic context. Part IV: Pre-investment value addition – managing risk and uncertainty The fourth part opens with a chapter examining the types of opportunity that can arise for adding value and the possible responses on the part of the PE investor to add value at the preinvestment stage. This is followed by a chapter on deal structuring and its potential for value addition. Managing risk and uncertainty features prominently in this part. Part V: Post-investment value addition The fifth part, focusing on post-investment value addition, begins with a chapter that examines the main elements of value addition through the process of portfolio supervision and investment monitoring. Particular attention is paid to the role the PE investor can play by participating in the investee company’s corporate governance bodies, in a separate chapter on corporate governance, while a third chapter examines in detail the enormous scope for value addition in connection with planning and executing the investment exit. Part VI: A value-addition framework The sixth part contains a single concluding chapter that integrates the various facets of value addition within a proposed expected value framework. The analytical ensemble presented combines many of the tools currently available in the finance sector, but which often tend to be used as substitutes for one another instead of as a package characterised by components with strong complementarities. This framework is what we term the expected value framework (EVF), which aims at improving the focus of PE investing to be more ‘oddsbased’, while recognising the need for highly practical approaches in a world that tends to be fast moving. It also recognises the limitations of modelling sophistication for an asset class where information is more difficult to obtain and is often highly approximate if not, at times, suspect.