private equity

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6 Δεκ 2012 (πριν από 4 χρόνια και 4 μήνες)

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PRIVATE

EQUITY

CAPITAL MARKETS AND FINANCIAL

INSTITUTIONS



İNGİLİZCE İŞLETME DOKTORA PROGRAMI

ALAATTIN YOLAÇTI


PRESENTATION

LAYOUT


PRIVATE EQUITY


OVERVIEW


1


PRIVATE EQUITY FUNDS


2


KEY ISSUES IN PRIVATE EQUITY APPLICATIONS


3


PRIVATE EQUITY MARKET


4


PRIVATE EQUITY
-

OVERVIEW

1

WHAT IS PRIVATE

EQUITY (PE)?



Financing

is a
critical

key

succes

of a
business




Private

Equity

(
hence

on PE) is
alternative

method

to

that

may

meet

the

needs

of
entrepreneurs




PE is
the

provision

of
equity

capital

by

financial

investors

over

the

medium

or

long

term

on
companies

with

high

growth

potential




Equity

owner

can

join

in

management

of

the

business

or

can

join



by

information

sharing

due

to

reasons

;




The

entreprise

may

have

less

experience

than

the

investor



The

investor

may

want

to

have

a

control

over

the

company

to

lower

risk

WHAT IS PRIVATE

EQUITY (PE)?
-
2

The

system

briefly

works

as

follows

;



Equity

owner

supplies

capital

to

entrepreneur

in

return

for

stocks

of

project

by

participating

risks

of

projects

in

opposition

to

other

financial

associations




After

5
-
10

years

when

the

stocks

come

into

value

at

the

market

,

equity

owner

sells

them

and

gains

revenue

from

this

investment
.



The

expected

profit

rate

for

the

investor

is

annually

%
18
-
%
35

or

more

in

developing

markets


WHAT IS PRIVATE

EQUITY (PE)?
-
3


PE

is

largely

applied

to

the

companies

whose

investments

arenot

quoted

to

the

capital

market



It

is

classified

under

the

title

of



alternative

investments






PE

is

high
-
risk

high

profit

class

as

well

as

an

alternative

finance

type

for

the

small

and

medium

sized

enterprises



PE

can

also

used

for

buyouts

where

investor

take

the

controlof

the

company

,

reconstruct

it

and

finally

sell

it

to

a

strategic

buyer

or

offer

it

to

public


BUYOUT :
The purchase of the entire holdings or interests of an owner or investor.

PRIVATE

EQUITY

VS.

LIS
TED EQUITY

PRIVATE EQUITY




LOW

LIQUIDITY




LONG

INVESTMENT

HORIZON




HIGH

ACTIVE

INVOLMENT





LOW

MARKET

EFFECIENCY




NO

PUBLISHED

INFORMATION




LOW

REGULATORY

OVERSIGHT

LISTED EQUITY




STRONG

LIQUIDITY





SHORT

OR

LONG

TERM




LITTLE

ACTIVE

INVOLVEMENT



HIGHER

MARKET

EFFECIENCY




PUBLISHED

INFORMATION




HIGHLY

REGULATED



WHY

DO
COMPANIES

SEEK PE?

Private

Equity

is

an

alternative

option

for

a

company

on

similiar

cases

listed

as

follows

;



Create

a

business


Improve

and

develop

the

export

performance


Recruit

highly

qualified

personnel



Sell

part

or

all

of

the

company


Change

the

size

of

the

business

and

take

one

over

competition


Launch

a

new

product


Improve

the

management

capacity


Liquidise

some

of

the

assets


WHAT

IS A PE FIRM LOOKING FOR?



High

growth
,

competitive

products

or

services



In

the

case

of

disposal

or

transfer,

a

loan

capacity

and

recurring

profits


A

quality

and

stable

management

team
,

capable

of

turning

the

negotiated

goals

into

reality



A

solid

management

procedures

either

already

in

place

or

able

to

to

be

put

in

place


A

transparent

legal

structure

where

personal

and

professionnal

assets

are

not

entangled


An

agreement

on

the

investor’s

exit

with

or

with

out

the

head

of

company




CONS

&
PROS



CONS




High

Revenues



Increases

portfolio

variety



Able

to

reach

the

information

of

the

enterprise

legally
.

(
Insider

trading

is

not

legal

in

the

stock

Exchange

market)


more

secure

to

external

economic

fluctations

than

that

stock

exchange

market


PROS



Excessive

levels

of

debt

to

acquire

corporatipns




Long

term

investment

(minimum

3

years
)



Investors

rights

to

exit

is

restricted

within

the

period



High

liqudity

risk






CONS




High

Revenues




Increases

portfolio

variety




Able

to

reach

the

information

of

the

enterprise

legally
.

(
Insider

trading

is

not

legal

in

the

Stock

Exchange

Market)



More

secure

to

external

economic

fluctations

than

that

Stock

Exchange

Market


PROS



Excessive

levels

of

debt

to

acquire

corporatipns





Long

term

investment

(minimum

3

years
)




Investors

rights

to

exit

is

restricted

within

the

period




High

liqudity

risk




PRIVATE EQUITY VS.

VENTURE CAPITAL
-
2


THE

PHILOSPHY

IS

SIMILIAR

IN

NATURE



VENTURE

CAPITAL

IS

THE

SUB
-
BRANCH

OF

PRIVATE

EQUITY

BESIDES

INVESTING

IN

EARLY

STAGES



Definition

of PE
by

NVCA (
Natioanal

Private

Equity

Assosication

) :
Venture

Capital

is
the

capital

provided

by

investing

professionals

who

have

the

potential

to

be a
significant

participant



Definition

by

SPK (
Turkish

Capital

Markets

Board):
Venture

Capital

is a form of
investment

which

enables

dynamic

and

creative

entrepreneurs

who

don’t

have

adequate

financial

power

to

fullfil

their

investment

ideas
.

PRIVATE EQUITY VS.

VENTURE CAPITAL













VENTURE CAPITAL




Venture

capital

investors

invest

companies

at
earlier

stages



Provide

an
initial

capital

to

an
idea
or

1
-
3
years

old

companies
.
(
Deloitte
,2007)



Includes

the

financial

support

in
early

stages


It

has a
particular

emphasis

on
on
entrepreneural

undertakings

rather

than

nature

of
the

business
.


























PRIVATE EQUITY




Investors

of
private

equity

generally

donot

invest

on idea
or

premature

company


require

a background of 3
-
10
years

including

operations
.


Private

equity

not
only

includes

the

financial

support

in
early

stages

but
also

in
the

expansion

stages


More

emphasis

on
business

itself
















Venture

capital

and

private

equity

terms

are

largely

used

as a
substitute


for

one

another

but has
slight

differences

STAGES

OF A
COMPANY

DEVELOPMENT

SEED

:

Seed

financing

is

designed

to

research
,

asses
,

an

develop

an

idea

before

a

company

has

reached

start

up

phase

.

Investors

are

mainly

business

angels

.

START

UP

:

Start

up

financing

is

used

for

product

development

and

initial

marketing

phase

.

Capital

is

mainly

required

for

R&D

of

the

product

and

train

personnel
.

(
Especially

for

electronics
,

life

sciences

sectors
.
)

POST

CREATION

:

Business

has

already

developed

its

product

and

needs

capital

to

begin

manufacturing

and

sell

it
.

Yet

no

profit

has

been

created

EXPANSION

DEVELOPMENT

:

Business

has

approached

or

near

break

even

point
.

High

growth

period
,

capital

is

used

to

increase

capacity

and

sales

power

TRANSFER/SUCCESSION

:

The

total

or

partial

retirement

of

the

head

of

a

company

is

often

an

opportunity

to

implement

a

leveraged

operation
.


EXPECTED

RETURN VS RISK DIAGRAM

PE INVESTMENTS

& FUNDS

2


PE INVESTMENT

METHODS
-
1

I.
DIRECT

INVESTMENT

:



The

investor

himself

finds

the

company

to

invest


Analysis
,

invests

and

terminates

it

when

it

is

time
.


High

revenue

but

has

a

risk

of

loosing

invested

capital


Only

suitable

for

experts

in

PE

/

Less

used

way


II
.

IN

HOUSE

PE

FUND

INVESTMENT

:



Investors

invest

their

extra

funds

to

a

PE

investment

fund


Proffesionals

in

this

fund

are

experts

in

finding

enterprises

which

will

be

invested

in



Analysis
,

investments

,
management

and

time

to

quit

the

investment

are

done

by

these

professionals

III
.

INVESTING

IN

FUNDS

OF

FUNDS

:



A

fund

manager

evaluates

various

private

equity

funds

and

chooses

among

them

and

distributes

the

selected

funds


Investors

have

to

pay

extra

expenses

to

the

manager

as

a

consultancy

service

fee




PE INVESTMENT

METHODS
-
2

TYPES OF PE INVESTMENTS

Source

:
M.Yardım
,
Private

Equity

as an
alternative

financial

method

that

support

Entrepreneurship
:
Turkey

mcıoğlu
, N.Demirel, 2008,

Case


KMU İİBF Dergisi Yıl: 10 Sayı14 Haziran/2008


HOW DO PE FUNDS WORK?

Source

:
Guide

on
Private

Equity

and

Venture

Capital

for

Enterpreneurs
,
European

Venture

Capital

Assosiation

Publications
,
November

2007


LIFECYCLE

OF PE FUND :
UNDERWRITINGS
-
1

1.
CREATION OF A FUND AND UNDERWRITING BY PROFFESSIONAL
INVESTORS :




PE
management

companies

(General
partners
)
after

obtaining

the

agreement

of
controlling

authorities

establish

investment

funds

that

collect

capital

from

investors

known

as
Limited

partners




This

capital

is
used

to

buy
high

potential

companies

known

as
the

portfolio

or

investee

companies




PE
fund

managers

invite

the

institutional

investors

to

subscribe

an
investment

fund

for

a
period

(
usually

10
years
)




The

fund

raising

period

lasts

for

6
months

to

one

year

LIFECYCLE

OF PE FUND :
UNDERWRITINGS
-
1



Usually

institutional

investors

cannot

leave

the

funs

before

their

terms

completed



Investors

get

prenegotiated

stake

in
the

equity

of
the

investment

and

they

become

fully

fledged

shared

holders
,
sharing

the

risks



The

investors

aim

usually

is not
to

take

the

control

of
the

company

(
there

are

exceptions
) but
to

help

create

value

to

realise

a
capital

gain
.

LIFECYCLE

OF PE FUND : INVESTING

2. INVESTING THE FUND :




Once

the

target

amount

of
capital

has
been

raised
,
the

subscription

is
closed




In

some

cases

(in
Europe

%30) PE
funds

come

together

to

form a

financial

syndicate

to

make

an
investment

in
case

of
large

size
capital

needs

and

high

risk.




One

of
the

investment

company

represents

the

group

in
the

syndicate

dealing

with

the

enterpreneur



The

private

equity

team

usually

makes

the

investments

in
the

first

five

years

of
the

fund


LIFECYCLE

OF PE FUND :
MANAGING


3. MANAGING THE INVESTMENT




The

fund

manager

on
behalf

of
the

investors

is
concerned

with

creating

value

in
the

company
,




He
will

follow

the

investment

over

long

time
period

and

prepare

exit

conditions
.



LIFECYCLE

OF PE FUND :
EXIT


4. REDISTRIBUTION :



When

the

fund

manager

decides

to

exit

their

investment
,
the

capital

recovered

from

the

exit

is
redistributed

to

the

original

investors

on a
pro
-
rata

basis

depending

on
their

initial

investment


EXIT ROUTES :



Trade

Sales

(
Merger

&
Acquisition

trade

sales
,
more

common

way
)


Enterpreneur

or

management

team

repurchase



Sale

of
the

investment

to

another

financial

purchaser

(
Secondary

Market
Investor
)



IPO (
Initial

public

offering
) :
Flotation

on a
public

stock

market


Liquidation





TYPES OF PE FUNDS

PE FUNDS CAN BE CLASSIFIED ACCORDING TO THE SHAREHOLDER

PERCENTAGES AS FOLLOWS


INDEPENDENT

FUNDS

:

funds

which

the

third

parties

are

the

main

source

of

capital

and

in

which

no

one

shareholder

holds

a

majority

stake
.

An

independent

fund

is

the

most

common

type

.


CAPTIVE PE FUNDS :
Funds

which

one

shareholder

contributes

the

most

of
the

capital
.


SEMI

CAPTIVE

FUNDS

:

Funds

in

which

again

the

large

part

of

the

company

belongs

to

one

share

holder
,

but

a

significant

share

of

the

capital

is

raised

from

third

parties
.


KEY ISSUES IN PE

APPLICATIONS

3

PROCESS

CHART


BUSINESS PLAN



The

process

of
attracting

a
private

equity

company

starts

with

a
Business

Plan


It

is
the

main

tool

used

by

financial

investor

to

evaluate

business



CONTENTS OF BUSINESS PLAN :


Executive

Summary



Company

History



Managemet

Team



Products

&
Services



Analysis

of
the

market &
competitors



Commercialisation


Operational

management


Financial

Projections




Capital

Required


Exit

Possibilities


DUE

DILLIGENCE


Avabiality

of
the

market


Management

quality


Geographical

situation


Proximity

to

the

market


Financial

Force


SWOT
analysis


Effeciency

of
the

Project


owner


Advantage

over

rivals


Sharing

of
stocks


Patent
rights


Legal
infrastructure

COMPANY

VALUATION








Valuation

between

PE
Firm

and

the

target

company

should

be
covered

in
the

agreement



No
pure

quantitative

methods
,
usually

based

on
hypothesis

that

may

be
subjective



Diffucult

to

apply

especially

for

start
up

companies


GENERAL METHODS USED IN VALUATION


1.
Discounted

Cash

Flow

-

If

company

has
already

has a
positive

cash

flow

2.
Comparative

Methods



Using

similiar

price
/
earning

ratios

for

a
similiar

company
,
have

wide

application

areas

3.
Opportunity

Cost

-

Opportunity

Costs

of
the

inves
tors

if

they

invest

in
different

tools





WHAT

DO
THE

PE

FUND

MANAGERS

DO?

Fund

Managers

have

four

principal

roles

:


1.
Fund

Raising

:

Funds

are

raised

from

international

investments
,

many

of

which

are

pension

funds
,

banks
,

insurance

companies

and

high

networth

individuals
.

The

investments

are

usually

as

limited

partnership
.


2.

Sourcing

investments
:

A

PE

found

must

source

and

complete

succesful

transactions

to

generate

profit
.

3.
Active

Management

of

Investments

:

PE

managers

have

become

hands
-
on

managers

of

their

investments
.

They

don’t

involve

day

to

day

control
,

instead

actively

involved

in

setting

and

implementation

of

the

strategy
.

4.
Releasing

Capital

Gains

:

The

academic

evidence

shows

that

there

is

a

wide

variation

in

the

length

of

time

of

the

PE

investment
.






HOW

ARE

PE

FUND

MANAGERS

REWARDED
?


SALARY






FEE INCOME
:



Receive

management

fees

that

are

expressed

as a
percentage

of
the

funds

raised
.



Larger

the

funds

greater

the

income

although

3 % in
smaller

funds
, 1
-
1.5% in
larger

funds

for

operating

costs

(
sometimes

cause

principal

agent

problems

between

fund

management

and

investors
)



CARRIED INTERESTS :

ƒ

Share

in
the

profits

of
the

of
the

fund

known

as
carried

interest




Once

the

investors

have

achieved

the

a
certain

pre
-
agreed

rate of
return

(
hurdle

rate) ,
the

fund

managers

shared

in
the

excess

(
usually

the

%20 of
the

excess

amount
)



The

hurdle

rate is
around

%8
per

annum






HOW

ARE

PE

FUND

MANAGERS

REWARDED
?
-
2

HOW IS
PE

COMPANY’S

SUCCES

MEASURED?

SUCCESS



PRIVATE EQUITY MARKET IN THE
WORLD AND IN TURKEY

4

PE APPLICATIONS

IN THE WORLD



PE has
been

a
major

driving

force

in
technological

advance

in
the

USA,
Japan
,
Germany
,
Canada

and

England




Historically

Digital

company

was

the

first

one

constructed

with

venture

capital
.




Constructed

with

70,000 $
and

in
five

years

time
reached

a
value

of 3,5
billion

$
sold

to

Compaq

for

10
billion

$ in 1998



PE
houses

announced

more than 2,000 deals globally worth a
total of over

$236
billion

in 2010




PE
FUNDS

RAISING

2005
-
2010

PE
ACQUISITIONS BY REGIONS

PE
ACQUISITIONS BY SECTORS IN 2010

PE APPLICATIONS

IN TURKEY







In

Turkey
,

financial

system

mostly

depends

on

banking

sector



Especially

the

SME

(KOBİ)

cannot

benefit

from

traditionally

recognised

banking

system

adequately

due

to

Mc

Millan

Gap




According

to

a

survey

made

by

ITO

and

piar

among

4671

small

enterprises

%
78

of

their

capital

is

provided

by

themselves
,

only

%
7

by

short

time

banking

credits



First

legal

regulations

are

made

by

CMB

(SPK),

after

that

the

first

found

was

constructed

by

Vakıf

Risk

Capital

established

in

1996









MC MILLAN GAP :
The

name
for

the

research

which

succeded

in
detecting

the

fact

that

traditional

banking

system

is
largely

divirted

to

large

well

known

corporations

therefore

hindering

SMEs



PE INVESTMENTS

IN TURKEY

(
BETWEEN

1996
-
2007)


CONT
.


YEAR

BUYER

TARGET COMPANY

SECTOR

OWNERSHIP

ESTIMATED
INVESTMENT
AMOUNT (million
USD )

1995

Nomura (Sparx Group)

Ünal Tarım

䙯oT

M楮o物瑹

2

1995

Nomura (Sparx Group)

Arat Tekstil

Textile

Minority

2

1995

Vakıf Risk

Teknoplasma

Production

Minority

1

1996

Nomura

(
Sparx

Group
)

Eka Elektronik

Elektronics

Minority

2

1996

Nomura

(
Sparx

Group
)

Aba Ambalaj

Packaging

Minority

6

1997

Nomura

(
Sparx

Group
)

Rant Leasing

Leasing

Minority

2

1997

Nomura

(
Sparx

Group
)

GSD Holding

Textile

Minority

8

1997

Nomura

(
Sparx

Group
)

Biomar

Biotech

Minority

1

1998

Merrill Lynch Investment

Termoteknik

Radiator Panel Producer

Minority

5

1998

FMO

Tüyap

Arts&Entertainment

Minority

7

1999

Vakıf Risk

Innova

Biotechnology

Medical

Minority

2

1999

Merrill Lynch Investment

BIM

Retail

Minority

15

1999

Citicorp Inv. Services

Merko

Food

Minority

2

1999

Safron Advisors Ltd.

Alfa Menkul

Brokerage

Houes

Minority

5

2000

Commercial Capital

Işıklar Ambalaj

P慣歡杩ng

M楮o物瑹

10

2000

Safron Advisors Ltd.

Net One

ISP



4

2000

AIG Blue Voyage Fund

Galatasaray Sportif

Soccer Marketing

Minority

21

2000

AIG Blue Voyage Fund

AFM

Arts&Entertainment

Minority

7

2000

Vakıf Risk

Ortadoğu Yazılım

䥮瑥牮整Ⱐ䥓P

M楮o物瑹

1

2000

EFG Hermes Group

Probil

System Integrator

Minority

21

2000

EFG Hermes Group

Gorbon Işıl

呡扬敷敡e

M楮o物瑹

1

2000

Taurus/Bank of America

BIM

Retail

Minority

19

PE INVESTMENTS

IN TURKEY

(
BETWEEN

1996
-
2007)


CONT
.


YEAR

BUYER

TARGET COMPANY

SECTOR

OWNERSHIP

ESTIMATED INVESTMENT
AMOUNT (million USD )

2002

İş Risk Sermayesi

Probil

System Integrator

Minority

6

2003

İş Risk Sermayesi

N敶潴敫



M楮潲楴y

3

㈰〳

卯r潳

䥮v敳t浥湴

Unikom Gıda

F潯T

M楮潲楴y



㈰〳

İş Risk Sermayesi

M慲猠卩S敭e

䅲A猦䕮t敲t慩a浥Üt

M楮潲楴y

5

㈰〳

Tu牫v敮

偲楶ate

Equ楴y
I
䅤v敮t

啎U

F潯T

M楮潲楴y



㈰〳

İş Risk Sermayesi

䥔I



M楮潲楴y

4

㈰〴

İş Risk Sermayesi

Step Halıcılık

䙵牮楴ur攠

M楮潲楴y

3

2004

MT Invest

Karyateks

Textile

Minority

1

2005

İş Risk Sermayesi & FMO

Tüyap

Arts&Entertainment

Minority

36

2005

Turkven Private
Equity/Pound Capital

Trendtech

and

Retomedia

IT

Minority

25

2005

The International Investors
KCSC

Docar Filo Kiralama

Real
Estate

& Leasing

Minority

29

2005

Turkven Private Equity

Intercity

Real
Estate

& Leasing

Minority

15

2006

Providence Equity Partners

Digiturk

Broadcasting

Minority

150

2006

Texas Pasific Group

Mey İçki

T潢慣ao

偲潤uct

M慮
.

M慪a物ry

㠱8

㈰〶

P慲an敲猠楮 䱩L攠獣楥ic敳e☠
C楴楧i潵p

Biofarma İlaç

偨慲浡ce祴楣慬a

M慪a物ry

㈴2

㈰〶

Tu牫v敮 ☠䅤v敮t
䥮t敲nat楯湡氠䝲潵p

R潭愠偬PVt楣V

偬PVt楣V

M慪a物ry



㈰〶

䅉䜠C慰楴慬

F潲 y潵

Ret慩a

M楮潲楴y



㈰〶

䝬潢慬a䙩F慮c攬e䥄BⰠ
䝯汤浡Ü 卡捨V

TAV

䅩牰潲t 佰敲at楯iV

M楮潲楴y

㘵6

2006

Turkven and FMO

Pronet Güvenlik



50
-
50

10

2006

Bancroft PE

Standart Profil

Automative

Majority

90

PE INVESTMENTS

IN TURKEY

(
BETWEEN

1996
-
2007)


CONT
.


YEAR

BUYER

TARGET COMPANY

SECTOR

OWNERSHIP

ESTIMATED
INVESTMENT
AMOUNT (million
USD )

2006

İş risk Sermayesi

Beyaz Oto Kirlama

Rental



10

2006

Ottoman Fund

riva (GS)

Real Estate &
Leasing



110

2006

GEM Global equities

Deva Holding

Pharmaceuticals

Majority

162

2007

Citicorp Inv. Services

Boyner

Retail

Minority

46

2007

Citicorp Inv. Services

Beymen

Retail

50
-
50

143

2007

İş Risk Sermayesi

Ode Yalıtım

M楮敲慬eP牯Tu捴c

M楮o物瑹

5

㈰〷

N慴楯n慬a䉡B欠o晋畷慩f

奵YuÜ

佩O

M慪a物瑹

un歮k睮

Source
:
Resource: Deloitte, “Private Equity in Turkey


A mrac瑩捡氠
Guide for Turkish Companies and Investors”, 2007, pp.16
-
NTK

PE INVESTMENTS

IN TURKEY

(
BETWEEN

1996
-
2007)


CONT
.


CONCLUDING

REMARKS


Researches

show

that

the

countries

that

have

high

entrepreneurial

activities

had

provided

a

growth

above

avarages




KOBI’s

which

are

supposed

to

vitalize

economy

and



Industry

life

has

to

work

out

alternative

financial

methods





Private

Equity

Applications

should

be

improved

to

s
upport



e
ntrepreneurship

in

Turkey


THANK

YOU

FOR


YOUR

ATTENTION


REFERANCES

1.
M.Yardımcıoğlu
, N.Demirel, 2008,
Private

Equity

as an
alternative

financial

method

that

support

Entrepreneurship
:
Turkey


Case


KMU İİBF Dergisi Yıl:
10 Sayı14 Haziran/2008

2.
Akkaya

G.C., İçerli, M.Y., 2001,

Kobilerin

Finansman çözümünde risk
sermayesi finansman modeli”
, Dokuz Eylül Üniversitesi Sosyal Bilimler Dergisi,
Cilt 3, Sayı 3,2001

3.
Guide

on
Private

Equity

and

Venture

Capital

for

Enterpreneurs
,
European

venture

capital

Assosiation

Publications
,
November

2007

4.
Private

Equity

Demistified
, An
Explanatory

Guide
, J.
Gillian
, M. Wright, 2
nd
edition
,
Corporate

Finance

Faculty

Publications

5.
Global
Private

Equity

Watch
,
Ernst

Young

Yearly

Report
, 2011