Table of Contents
Foreword xi
Acknowledgements xiii
About the Author xv
Introduction xvii
A moving target xviii
A consubstantial lack of information xviii
Benign neglect, malign consequences xix
Knowing the devil to circumvent it xx
Part I What is Private Equity? 1
1 Private Equity as an Economic Driver: An Historical Perspective 3
1 Polling interests to identify and exploit sources of wealth 5
a Identify, control and exploit resources 6
b Leverage public policies and a favourable business environment 8
2 Championing entrepreneurship 9
a No private equity without entrepreneurs 10
b Convert ventures into business successes 12
c Entrepreneurship and private equity form a specific ecosystem 14
Conclusion: an attempt at definition 15
a A negotiated investment in equity or quasi-equity 15
b A fixed maximum term 16
c Implying specific risks 16
d With high expected returns 16
e Undertaken on behalf of qualified investors 16
2 Modern Private Equity - A French Invention? 19
1 USA: the foundry of modern private equity 20
The strict separation of public policies and public financing 20
The separation of public endeavours and private efforts; the subsequent support of the former for the latter 20
a Governmental input: SBA, DARPA and ERISA 21
b Universities, defence and disruptive innovation 22
c Challenges 23
2 Europe: adapting a successful model or creating its own? 24
a Governmental input: legal changes, tax rebates, infrastructures and EU market 25
b National champions, information technologies and incremental innovation 28
c Challenges 33
Conclusion: Emerging markets, building castles on sand? 38
Part II The Private Equity Ecosystem 41
3 Private Equity: A Business System Perspective 43
1 We are all investors in private equity 43
a Sources of capital 43
b Private equity investment rationale 47
2 Organisation and governance of private equity funds 53
a Private equity fund managers are financial intermediaries 53
b Incentives and fees 54
c Conflicts of interest 57
d Power, checks and balances 60
3 Measuring performance, managing risks and optimising returns 61
a Measuring performance in an uncertain context 61
b Managing risks and optimising returns 66
4 Pitfalls and challenges 71
Conclusion 74
4 The Universe of Investment 75
1 Venture capital: financing company creation 77
a Venture capital investment targets 78
b Actors and structures 78
c Operational activities 80
d Challenges 81
e Limits 84
2 Growth capital: financing companies' expansion 84
a Growth capital investment targets 84
b Actors and structures 85
c Operational activities 86
d Challenges 86
e Limits 87
3 Leveraged buy-out: financing companies' transmissions 87
a LBO investment targets 87
b Actors 87
c Operational activities 89
d Challenges 90
e Limits 92
4 Other interventions in private equity 95
a Targeting the stock exchange 96
b Turn-around capital and special situations 99
c Distressed debt 99
d Quasi-equity instruments (mezzanine) and second lien debt 105
e Merchant banking, investment banking and private equity house intervention 117
f Secondary market 118
g Real estate, infrastructure and exotic assets 120
Conclusion 122
5 The Process of Investment: A Matter of Trust and Mutual Interest 125
1 Step 1: Preliminary analysis 126
2 Step 2: Valuation 126
3 Step 3: Negotiating 127
4 Step 4: Structuring 129
5 Step 5: Complementary due diligences 131
6 Step 6: Transaction 131
7 Step 7: Monitoring and exit 132
Conclusion 133
Part III Private Equity in Teenage Time: Trend Setting, Fads and Responsibilities 135
6 Private Equity Evolution: Trends or Buzzes? 137
1 Is private equity going mainstream? 137
2 Is private equity (still) creating value? 140
3 Private equity: between bubbles and crashes 144
Conclusion 148
There is no such thing as 'capital overhang' 149
7 Private Equity and Ethics: A Culture Clash 153
1 Greed 153
2 Destruction 157
3 Philanthropy 162
4 Transparency 163
5 Confidentiality and self-regulation 164
Conclusion 167
General Conclusion - Private Equity Today and Tomorrow 169
1 Core target: manage the volatility of performance 169
2 The only valid leitmotiv: long-term thinking 172
3 The impact of the fair market value 174
4 A long-term trend: the attractiveness of private equity 176
5 Private equity: future victim of its own success? 179
6 The impact of a better knowledge of private equity 184
a Understanding the risk and managing the J-Curve 184
b Innovating through structuring 185
c Private equity and universal owners 186
d Change or die: the pressure on general partners 188
e Regulation: Damocles' sword looming over private equity 189
Glossary 193
Bibliography 203
Index 207
