Private Equity
- How do successful firms source deals so that they don’t have to pay top dollar?
- Congratulations, you’ve overpaid. Now how do you create value to deliver an acceptable investment return?
- What are the governance considerations in private equity transactions? Or is governance only relevant to listed companies?
- What are best practices for creating liquidity for your investors?
We begin the course by looking at several cases on finding, evaluating, and closing private equity transactions.
- Summit Partners – The FleetCor Transaction. The FleetCor Transaction. This is a series of cases in which students get to see the unfolding of due diligence on a private equity deal. When the case begins, the deal team has negotiated a letter of intent with FleetCor, a firm that operates a fuel payment network for vehicle fleets. These cases allow us to review the investment thesis and analysis done to date, as well as to discuss what due diligence needs to be done prior to actually writing the check.
- TA – MetroPCS. Hythem El-Nazer, a young investment professional at TA Associates, believes he has found an attractive investment opportunity for the firm, MetroPCS, a wireless telecomm service provider. However, two months earlier, TA had invested considerable resources on MetroPCS before the company decided it could not raise equity capital, due, in part, to some accounting problems. Should El-Nazer bring this deal opportunity to the attention of TA's CEO? Or should he do precisely what the CEO had told him two months earlier: "stop wasting his time on this company"?
- ABRY Partners & F+W Publications. After acquiring F+W Publications from a rival private equity firm, ABRY Partners became increasingly convinced that they had been deceived by the sellers about the profitability of the company. ABRY must determine whether they were deliberately misled or defrauded, what courses of action are available, and which they should pursue. Considerations include a mix of legal, ethical, and business issues.
We turn our attention to the relationships between the private equity firms – the General Partners (GPs) – and their capital providers, the Limited Partners (LPs) of a fund, and explore how this structure may affect the GP’s fundraising and investment decisions. We also turn to the Nurturing and Harvesting phases of the private equity value chain and look at how private equity firms generate superior returns for their investors.
- Artisan Entertainment. Geoff Rehnert and Marc Wolpow have left Bain Capital to launch Audax Group. As part of their separation, they have been granted 90-day options to purchase Bain Capital's stake in a number of portfolio companies at fair market value. As they consider whether to exercise their option to purchase Bain Capital's stake in Artisan Entertainment, the company has an extremely successful launch of "The Blair Witch Project." However, Rehnert and Wolpow have not yet raised Audax Group's first fund and are not able to personally finance the purchase, which would require approximately $30 million. They must decide whether to go through with the purchase and how to finance it, keeping in mind any issues such an investment would raise for prospective investors in their first private equity fund.
- ABRY Fund V. This case describes the dilemma faced by ABRY Partners when raising its fifth media-focused private equity fund. The GP had planned to raise $1 billion and continue with their existing investment strategy. Instead, Limited Partners indicated that they would be willing to commit up to $4 billion. Should ABRY accept the $4 billion? What implications would this have for their business model? Could they handle the rapid expansion that this would entail? How would this rapid growth change the partners’ incentives?
- RJR Nabisco. This case gives students the opportunity to explore issues facing the company and its board of directors in a leveraged buyout. RJR Nabisco is valued under different operating strategies, and the source of gains in leveraged buyouts is stressed. Is the transaction really a value-creation opportunity? Or is it a case of little more than financial engineering?
- Berkshire Partners – Purchase of Rival Company. Berkshire Partners, a private equity firm in Boston, was pleased with their recent investment in the Holmes Group, a home comfort consumer electronics company. The portfolio company was exceeding key financial targets and Berkshire Partners was confident that it would be another successful investment. Holmes' management team then suggested acquiring a kitchen electronics company, the Rival Company. Holmes management believed that Rival would complement their existing portfolio of products and it was the perfect time to buy due to a depressed stock price caused by declining earnings. The investment team at Berkshire now had to decide if the possible returns from an investment in Rival were enough to risk the successful investment in Holmes, or if Rival could be acquired without risking Berkshire's investment in Holmes.
On the final day, we continue to examine how private equity firms create value for their investors. We then explore mechanisms for realizing liquidity and give thought to the question of timing an exit, as well as the tradeoffs that typically accompany this decision. Finally, we will discuss the evolution of the industry and what it might mean for both GPs and LPs in the future.
- Warner Music Group. TH Lee, a leading private equity firm, needs to decide whether to commit to the acquisition of AOL Time Warner's music group, and whether to commit the entire amount needed: $1.4 billion. The music industry has suffered greatly in recent years, largely as a result of music piracy. Can a private equity firm turn around this company, let alone the whole music industry? What would it take? Is TH Lee’s plan feasible?
- Douglas Dynamics. Aurora Capital, a U.S. private equity firm, contemplates whether to acquire Douglas Dynamics, the leading U.S. maker of snowplows. Does a business that is seasonal and highly dependent on the weather make a good LBO candidate? This case provides a good introduction to the LBO business. What are the characteristics of a successful LBO? And how do successful PE firms create value by acquiring such companies?
- Housatonic Partners – Companies. This case describes Housatonic Partners' investment in ArchivesOne, a records management company. The original investment was made in 1998, and subsequent investments are made by Housatonic. In 2005, as the life of the investment fund is coming to an end, Housatonic must work with management to decide when and how to exit.
- Austin, Blakeley & Cambridge, LLC. The founding partners of ABC, one of the leading private equity firms in the world, are trying to understand why some of the other top firms in the business, such as KKR and Apollo, have been tapping the public equity markets for their own funds, and whether they should do the same. They are also pondering how to monetize their own stake in the firm, and whether taking the firm public may be a viable option.