Private Equity/Entrepreneurship

Keywords: Private Equity, Private Equity Trends, Regulation, Impact of Regulation on Private Equity Deal Activity

Source: Youtube

Veröffentlicht am 30.04.2013

"Speakers:

Leon Black, Chairman and CEO, Apollo Global Management, LLC

David Bonderman, Founding Partner, TPG Capital

Jonathan Nelson, Founder and CEO, Providence Equity Partners

Jonathan Sokoloff, Managing Partner, Leonard Green & Partners, LP

Scott Sperling, Co-President, Thomas H. Lee Partners, LP
Moderator:

Maria Bartiromo, Anchor, CNBC
After a flat 2012 in the private equity market, competitive deal-making has intensified worldwide. Aging assets requiring exit, restructuring and rebirth are waiting to be sold. The current period of low-cost financing, strong stock markets and accelerating growth bodes well for new directions in the industry. However, recent moves by banking regulators, including a redefinition of highly leveraged transactions, could dampen underwriting by financial institutions that participate in buyouts or refinancing leveraged firms' debt. The costs of fixing companies could rise, and such investments could be deterred. Our panel will discuss how the PE industry is adjusting to change in the regulatory and fiscal environments. What sector and geographic trends are fueling these new directions in private equity?"

Forbes: 5 Reasons the Government Fails at Venture Capital, 2013

Keywords: Government, Venture Capital, Government as Venture Capitalist

constantly updated tech news to flip through:

Intel Free Press

Tech Crunch

Mercury News - Venture Capital

Keywords: Innovation, Future of Work

Keywords: Steve Jobs, Visionary Thinking, Entrepreneurship

no surprise that specific situations have an impact on the valuation of portfolio companies during the holding period. What matters at the end is net cash in after the liquidation of a fund. In this respect, the cash returns of the top players are attractive, at least in the buy out segment.

Jenkinson, Tim, Sousa, Miguel and Stucke, Rüdiger, How Fair are the Valuations of Private Equity Funds? (February 27, 2013). Available at SSRN: http://ssrn.com/abstract=2229547

Abstract:

"The ultimate performance of private equity funds is only known once all investments have been sold, and the cash returned to investors. This typically takes over a decade. In the meantime, the reported performance depends on the valuation of the remaining portfolio companies. Private equity houses market their next fund on the basis of these interim valuations of their current fund. In this paper we analyze whether these valuations are fair, whether the extent of conservative or aggressive valuations differ during the life of the fund, and at what stage interim performance measures predict ultimate performance. This paper is the first to use the quarterly valuations and cash flows for the entire history of 761 fund investments made by Calpers – the largest U.S. investor in private equity. Our main findings are as follows. First, over the entire life of the fund we find evidence that fund valuations are conservative, and tend to be smoothed (relative to movements in public markets): valuations understate subsequent distributions by around 35% on average. We find a significant jump in valuations in the fourth-quarter, when funds are normally audited. Second, the exception to this general conservatism is the period when follow-on funds are being raised. We find that valuations, and reported returns, are inflated during fundraising, with a gradual reversal once the follow-on fund has been closed. Third, we find that the performance figures reported by funds during fund-raising have little power to predict ultimate returns. This is especially true when performance is measured by IRR. Using public market equivalent measures increases predictability significantly. Our results show that investors should be extremely wary of basing investment decisions on the returns - especially IRRs – of the current fund."

Keywords: Private Equity, Private Equity Funds,Valuation

Keywords: Entrepreneurs, Entrepreneurship

Keywords: Private Equity, Value Creation

We like the description that an entrepreneur is somebody who believes in "a yet-to-be-made future".

Sarasvathy, Saras D., What Makes Entrepreneurs Entrepreneurial?. , Vol. , pp. 1-9, . Available at SSRN: http://ssrn.com/abstract=909038

Abstract:

"What are the characteristics, habits, and behaviors of the species entrepreneur? Is there such a thing as "entrepreneurial thinking"? Is there a learnable and teachable "core" to entrepreneurship? This case examines the problem-solving process of 30 entrepreneurs from a variety of industries whose companies range in value from $200 million to $6.5 billion. Careful analysis reveals a distinct thought process: "effectual reasoning." Using U-Haul as an example, the case delineates the way in which entrepreneurs factor in affordable loss, strategic partnerships, and leveraging contingencies. Thinking entrepreneurially, as opposed to managerially or strategically, means believing in a yet-to-be-made future that can be shaped by human action and realizing that, to the extent that such action can control the future, one need not expend energy trying to predict it. It is much more useful to understand and work with the people who are engaged in the decisions and actions that bring it into existence."

Keywords: Entrepreneur, Entrepreneurship

Keywords: Investment Climate, Investment Strategy, Private Equity, Global Economy, China

Thomas Åstebro, Carlos J. Serrano, Business Partners, Financing, and the Commercialization of Inventions, NBER Working Paper No. 17181, Issued in June 2011

Abstract:

"This paper studies the effect of business partners on the commercialization of invention based ventures, and it assesses the relative importance of partners’ human and social capital on commercialization outcomes. Projects run by partnerships were five times more likely to reach commercialization, and they had mean revenues approximately ten times greater than projects run by solo-entrepreneurs. These gross differences may be due both to business partners’ value added and to selection. After controlling for selection effects and observed/unobserved heterogeneity, our smallest estimate of partner value added approximately doubles the probability of commercialization and increases expected revenues by 29% at the sample mean."

Keywords: Inventions, Entrepreneurial Success Rates, Partnerships

The answer seems to be clearly No, as a new study shows:

Bargeron, Leonce, Schlingemann, Frederik P., Zutter, Chad J. and Stulz, Rene M., Does Target CEO Retention in Acquisitions Involving Private Equity Acquirers Harm Target Shareholders? (December 5, 2012). Charles A. Dice Center Working Paper No. 2012-026. Available at SSRN: http://ssrn.com/abstract=2185574

Abstract:

"While there is widespread concern that target CEO retention by the acquirer harms target shareholders when the acquirer is a private equity firm, CEO retention can also be valuable to private equity acquirers, and hence potentially benefit shareholders. We find that CEO retention does not harm target shareholders when the acquirer is a private equity firm. In fact, we show that, in acquisitions by private equity firms, better performing CEOs are more likely to be retained and target shareholders gain an additional 10% to 23% of pre-acquisition firm value when the CEO is retained compared to when the CEO is not retained. In contrast, shareholders of targets acquired by operating companies do not benefit from CEO retention. Finally, we find no evidence that the target’s value is artificially depressed ahead of a private equity acquisition where the CEO is retained."

Keywords: Private Equity, CEO Retention, Acquisition Premium

Randy Komisar, Partner at Kleiner Perkins, explains that market forces and current opportunities play a big role in whether or not an entrepreneur succeeds.

2009

Keywords: Skills of Entrepreneurs, Taking Advantage of Opportunities

Opp, Christian C., Learning, Active Investors, and the Returns of Financially Distressed Firms (June 14, 2012). Available at SSRN: http://ssrn.com/abstract=2181441 or http://dx.doi.org/10.2139/ssrn.2181441

Abstract:

"I develop a dynamic asset pricing model to analyze expected returns of financially distressed firms in the presence of learning about firm fundamentals and endogenous information acquisition by active investors that acquire large stakes in distressed firms via private investments in public equity. The model reveals that learning and information acquisition critically affect risk exposures close to default and can rationalize low and even negative expected equity returns for firms with high default risk. Similar to Schumpeter's (1934) argument that recessions have a positive, cleansing effect on the economy, the model reveals that equity holders may benefit from the increased speed of learning about insolvent firms in downturns, which increases the value of their abandonment option in these times. Equity holders' option value is further enhanced by the ability to partially free-ride on active investors' acquisition of information on firm fundamentals. Both information channels are shown to affect equity betas, and may account for striking, momentum-type dynamics in risk premia." Source: SSRN

Keywords: Learning, Financial Distress

Keywords: Venture Capital, Entrepreneurship

Startup Genome Report Version 2.1

Braegger, Stefan, Private Equity - Accessing China Through Private Markets (July 16, 2012). Available at SSRN: http://ssrn.com/abstract=2132623 or http://dx.doi.org/10.2139/ssrn.2132623

Abstract:

"The re-balancing of China's economy will offer opportunities in various sectors and benefit small-and medium-sized enterprises. However, direct access to SMEs for international investors is often difficult. Private equity is well placed to benefit from this opportunity, and provides access to small companies (70% of deals were done were < usd 50mn in the last 5 years) not available through public equity markets." Source: SSRN

Keywords: Private Equity, China, Chinese Private Equity Market

Further China PE market information:

Homepage of the China Venture Capital Association

Businessweek: Chinese Private Equity Firms Flex Their Muscles, by Kathy Chan, May 31,2012

The Economist: Private equity in China, Hony ahoy, Hony Capital wants to help Chinese firms go global, Sept.1, 2012

Ernst & Young: Private Equity in China

China Europe Mergers & Acquisitions:

PWC: China Deals, a fresh perspective, October 2012

A prominent transaction example:

The Corporate Finance Group AG: Sale of Eterna to China Haidian

Steven J. Davis, John C. Haltiwanger, Ron S. Jarmin, Josh Lerner, Javier Miranda, Private Equity and Employment, NBER Working Paper No. 17399, September 2011

Abstract:

"Private equity critics claim that leveraged buyouts bring huge job losses. To investigate this claim, we construct and analyze a new dataset that covers U.S. private equity transactions from 1980 to 2005. We track 3,200 target firms and their 150,000 establishments before and after acquisition, comparing outcomes to controls similar in terms of industry, size, age, and prior growth. Relative to controls, employment at target establishments declines 3 percent over two years post buyout and 6 percent over five years. The job losses are concentrated among public-to-private buyouts, and transactions involving firms in the service and retail sectors. But target firms also create more new jobs at new establishments, and they acquire and divest establishments more rapidly. When we consider these additional adjustment margins, net relative job losses at target firms are less than 1 percent of initial employment. In contrast, the sum of gross job creation and destruction at target firms exceeds that of controls by 13 percent of employment over two years. In short, private equity buyouts catalyze the creative destruction process in the labor market, with only a modest net impact on employment. The creative destruction response mainly involves a more rapid reallocation of jobs across establishments within target firms." Source: NBER

Keywords: Private Equity, Employment

Related:

Adveq: Research shows significant employment increase at private equity-backed companies based in Europe; Biggest employment increase at companies owned by small buyout funds

Achleitner, Ann-Kristin Klöckner, Oliver, Employment contribution of private equity and venture capital in Europe, CEFS working paper series 2005-05

Keywords: Technology, Entrepreneurship

A 2009 survey (see below) showed that "building wealth" is an important objective for entrepreneurs. Private equity offers an excellent opportunity for entrepreneurial managers to achieve such goal.

Wadhwa, Vivek, Holly, Krisztina, Aggarwal, Raj and Salkever, Alex, Anatomy of an Entrepreneur: Family Background and Motivation (July 7, 2009). Kauffman Foundation Small Research Projects Research. Available at SSRN: http://ssrn.com/abstract=1431263 or http://dx.doi.org/10.2139/ssrn.1431263

Abstract:

"Entrepreneurs are among the most celebrated people in our culture. Celebrity entrepreneurs such as Steve Jobs, Bill Gates, Sergey Brin and Larry Page, often grace the covers of prominent publications. These company founders and innovators fuel economic growth and give the nation its competitive edge.

Keywords: Entrepreneur, Entrepreneurship