Private Equity

Prof. Paul Knight
Spring - 0.5 credit

Private equity is controversial; back in 1988 the USD 25bn leveraged buy-out of RJR Nabisco by Kohlberg Kravis Roberts shook corporate America and gave rise to a best selling book and a film entitled Barbarians at the Gate.  More recently in Europe the German Vice-Chancellor compared foreign private equity investors with an invasion of locusts, stripping companies bare.  This course will look at the realities of an increasingly influential industry.

The growth in Private Equity in recent years has been nothing short of spectacular.  Investors who were backing the industry to the tune of USD 5 bn in 1980 last year committed USD 280bn to private equity funds worldwide.  In Europe more than 25% of all merger and acquisition activity involves private equity and the trend and the size of the deals are increasing rapidly.  In the first six months of 2006 the total deals in Europe have exceeded €77bn, driven by the increase in large buy-outs.

Private Equity refers to a broad asset class, including the sub group known as venture capital, and ranges from tiny amounts of seed capital provided for company formation right up to the largest multi-billion dollar corporate restructuring deal.  This course will concentrate on management buy-outs and buy-ins and public to private transactions, or non-venture private equity.

The aim of private equity funds is to buy undervalued assets, manage them for growth and their eventual realization.  The course will therefore look at the life cycle of private equity from initial opportunity identification, through the investment approval process, acquisition management and realization or sale.  In addition the role of private equity in the economy, its structure, the participants and what shapes its development, its analytical techniques and the various deal structures will be considered.

The course will progress through:
- An overview of private equity in different economies
- How private equity funds are raised and structured
- The investment appraisal process, how to identify investment opportunities
- How to structure a transaction
- The investor / company relationship and managing the portfolio
- Development and implementation of an exit strategy
- Measuring the performance of funds

The aim is to make the course relevant to business managers by reference to recent transactions that have taken place and by including input from industry practitioners.
Rather than recommend a single text book the course will use a number of reports and articles that will be provided or referenced.