INDEX

SR. NO.
1.

TITLE INTRODUCTION OF THE PROJECT

INTRODUCTION NEED OF THE PROJECT OBJECTIVE OF THE PROJECT SCOPE OF THE PROJECT RESEARCH METHODOLOGY LIMITATIONS OF THE PROJECT

PAGE NO.

2.

LITERATURE REVIEW
COMPANY PROFILE ORGANISATION STRUCTURE SWOT ANALYSIS OF THE COMPANY BENEFIT GIVEN BY THE COMPANY

3. 4. 5. 6. 7.

THE INDIAN BANKING SECTOR DATA ANALYSIS AND INTERPRETATION FINDINGS AND SUGGESTION CONCLUSION BIBLOGRAPHY

FORMAT OF PROJECT; HEAD LINE OF PROJECT 18 FONT MAIN HEAD LINE 16 FONT SUB HEAD LINNE 14 FONNT IN TIMES NEW ROMMAN

What is a Private Equity

Asset class representing the companies not publicly traded (vs. public equity traded on stock exchange) Medium to long term investment Venture capital, growth capital, buyout PE funds are raised from pension funds, insurance companies, large corporate, HNWI, etc Investors in PE funds are called Limited Partners PE funds are managed by the General Partners

Private Equity is a broad term that refers to any type of equity investment in an asset in which the equity is not freely tradable on a public stock market. It includes leveraged buyouts (LBOs), venture capital (VC), mezzanine capital and others. The motive of the PE is to gain control and to be involved in the management of its assets.

Profile of worlds Top PE firm:

Carlyle Since inception in 1987, Carlyle has invested USD 49.4 billion of equity in 836 deals for a total purchase price of USD 220 billion; Over USD 89 billion AUM throughout 64 funds in buyouts (69%), growth capital (4%), real estate (12%) and leveraged finance (15%); Over 525 investment professionals operating in 21 countries; Assets deployed in Americas (59%), Europe (28%) and Asia (13%); Currently: 140 companies, USD 68 billion in revenues and 200,000 workers.

Blackstone Since inception in 1985, it has Global AUM USD 119.4 billion in private equity, real estate, Funds of Hedge Funds, Mutual funds 89 senior MDs and total staff of over 750 investments and advisory professionals in US, Europe and Asia Blackstone is the first major PE firm to become public: IPO was in June 2007 Currently: 47 companies, USD 85 billion in annual revenues and more than 350,000 employees

List of top PE firms

3i Group Plc The Carlyle Group LLC GS Capital Partners Barclays Private Equity Limited Apex Partners AAC Capital Partners (Formerly ABN Amro Capital) Advent International Corporation Blackstone Group Holdings LLC American Capital Strategies Ltd Warburg Pincus LLC Sun Capital Partners Inc Bain Capital LLC Macquarie Group Limited (MGL) CVC Capital Partners Limited Bridgepoint Capital Limited (Formerly NatWest Private Equity Partners) Kohlberg Kravis Roberts & Co (KKR) CCMP Capital Advisors LLC (formerly JPMorgan Partners LLC) The Riverside Company TPG LLP

Private Equity: Advantages

Above average potential returns - Average annual IRR 1986-2005 is 18.3% Access to capital and banking expertise Industry Expertise Low correlation with other asset classes - Adding a risky asset with a low correlation of pricing trends compared to traditional asset classes can reduce the risk of an overall portfolio PEs being usually engaged in the management they focus on the business objectives and provide a stable base for the strategic decision-making PEs use of debt results in tax benefits on interest as well as help in hedging risk

Private Equity: Disadvantages

Higher Risk : PE funds invest in private companies = no public market to help set the valuation; PE funds are hemselves private companies = no market to value them and no public disclosure required. Longer investment - tenurePE funds has a 5-year investment period and a 10-year life; Lack of liquidity - PE funds are closed-end funds (except secondary market) Lack of transparency in valuations - Only LPs have access to the funds performance. Performance more volatile - Risk of inconsistency: quarterly marked-to-market valuation = significant degree of subjectivity; Risk of stale valuation: quarterly valuation can understate the standard deviation and correlation to other asset classes. Disadvantages of taking on excess debt burden

 Inappropriate exit strategy

Acquisition (Buyout) and Exit

Acquisition mode

Exit mode

Institutional buy In (IBI) Institutional Buy out (IBO) Management Buy out (MBO) Management Buy In (MBI) Buy In management Buy Out (BIMBO) Employee Buy out (EBO) Buy & Build

IPO Trade sale Secondary buyout

Acquisition modes
IBI - PE house with another trade buyer or another PE acquires target Co, in which a PE alone is not acquiring 100% stake is IBI IBO - PE House alone acquiring 100% stake in Target is IBO. Another type in this is Take Private, in which a PE acquire a 100% stake in a Public Target company and de-list the company MBO - One or More PE house, together with the Internal Mgmt of target co acquires the target is MBO. Stake acquired could be 100% or less in the target co MBI - One or More PE house, together with the External Mgmt of target co acquires the target is MBI. Stake acquired could be 100% or less in the target co BIMBO - PE house/ VC house in which the management of the acquired company is supplemented by an outside management team brought in by the acquirer EBO - Acquisition of a significant stake in a company by its employees often in conjunction with the management. Buy & Build - PE firm through its portfolio company makes an acquisition which is complementary to it portfolio company and is done for the overall strengthening of its portfolio ranging from market expansion to better quality products to their customers.

Exit mode
IPO a PE conducts a public listing of its portfolio company a PE sells the portfolio company to a trade buyer

Trade sale

Secondary Buyout When a PE sells the portfolio company to another PE or VC

What company makes a good target for a buyout?

Mature Industry Mature Company Strong Management Team Low Leverage Low Capital Expenditure Requirements Strong Cash Flows Good Exit Options

Main Components of a Buyout

Valuation Structuring Funding

Valuation
Represents the valuation of the target company to the bidder Illustration: A has acquired B for an enterprise value of USD 100m

A has acquired 60% stake in B for USD 600m, including assumed debt A has acquired 30% equity of B for USD 150m

Structuring
Represents the form in which the bidder is paying for or assuming the assets of the target Illustration: A has acquired B for an enterprise value of USD 100m, assuming net debt of USD 15m In this structure A will pay B (actual outflow) USD 85m to the shareholders of A. The outstanding net debt of USD 15m will continue to remain in bs books and will be paid off as per the terms of debt

Funding
Represents the funds arranged by the acquirer to pay off the consideration Types of funds used: Line of Credit: An arrangement between a financial institution (usually a bank) and a borrower establishing a maximum loan balance that the bank will permit the borrower to maintain. The advantage here is no interest is charged for unused portion of the limit. This has the lowest financing cost as it is usually secured by highly liquid assets Senior Debt: gas second lowest financing cost and usually secured by highly liquid assets Subordinated Debt: is low priority (poorly secured) with a very high financing cost Mezzanine Debt: is a hybrid debt and equity financing. It is actually closer to equity than debt and may incorporate equity based options with a low priority

debt. Such financing is usually easily available to the borrower with little due diligence on the part of the lender and has a very high rate of interest Illustration: 1. A has acquired B for an enterprise value of USD 100m, assuming net debt of USD 15m A has borrowed USD 60m from its bankers and its existing resources to finance the consideration In this case shareholders of B (vendors) will receive cash in satisfaction of its claims and not a loan

How do PEs make money?

Anatomy of Private Equity

Information on Bidder and target

Bidder Astorg Partners Over 1 billion of funds under management It invests in mid size companies (EV between EUR 100m to EUR 800m) with strong and protected competitive positions and international exposure which are led by managers who act like entrepreneurs Astorg concluded 27 transactions since its inception in 1998, yielding a 31% IRR from the 17 investments sold. Below is the ownership structure of the Astorg

Target Gras Savoye & Cie It was the first Insurance broker in France since its incorporation 27 years back. It is a leading Insurance broker with around 30 offices in France and 40 offices overseas In 2009, it recorded a turnover of 547 million euros and had 3 670 employees over the world. A resilient market protected by strong barriers to entry based on technical know-how and commercial network A primary LBO with strong improvement potential in terms of organization, operational efficiency and cash management

Equity stake re-structuring

Willis is selling 16.8% stake for USD 343m, reducing it from 48.6% to 31.8%. It will roll over an approximately USD 135m in equity and convertible debt and lend approximately USD 48m at a rate of 6% per annum. Remaining USD 160m will be used to pay off its existing debt The Family shareholders sold 19.6% stake, reducing it from 51.4% to 31.8%. So out of 36.4% (16.8% + 19.6%), Astorg is acquiring 31.8% and the Management is acquiring 4.6% stake

Funding

The 48.6% stake of Willis valued Gras Savoye at USD 706m Willis and the Families have reinvested USD 135m Astorg has bought in USD 135m and the Management has contributed USD 19m Willis and the Families have provided vendor financing to the extent of USD 98 Senior Debt financed to the extent of USD 215m The entire recapitalization has resulted into transactions cost of approximately USD 31m

Bibliography
Websites of Willis Group Holdings, Gras Savoye & Cie and Astorg Partners http://www.willis.com http://www.grassavoye.com http://www.astorg-partners.com Willis Group Holdings press release: http://www.willis.com/Investor_Relations/Financial_Press_Releases_(Browse_All)/2 009/20091119_wsh_gras_savoye_release_-_FINAL/default.aspx Willis Group Holdings SEC filing:

http://www.sec.gov/Archives/edgar/data/1140536/000095012309064030/y80525e8vk.htm Carlyle and Blackstone websites http://www.carlyle.com http://www.blackstone.com

Notes on Leveraged Buyout from Tuck School of Business at Dartmouth