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A step-by-step, comprehensive approach to private equity and private debt


Private Capital Investing: The Handbook of Private Debt and Private Equity is a practical manual on investing in the two of the most common alternative asset classes (private equity and private debt) and provides a unique insight on how principal investors analyze investment opportunities. Unlike other textbooks available in the market, Private Capital Investing covers the various phases that principal investors follow when analyzing a private investment opportunity.


The book combines academic rigor with the practical approach used by leading institutional investors. Chapters are filled with practical examples, Excel workbooks (downloadable from the book website), examples of legal clauses and contracts, and Q&A. Cases are referred at the end of every chapter to test the learning of the reader. Instructors will find referrals to both third-party cases or cases written by the author.


* Covers analytical tools
* Includes the most common methods used to structure a debt facility and a private equity transaction
* Looks at the main legal aspects of a transaction
* Walks readers through the different phases of a transaction from origination to closing


Bridging the gap between academic study and practical application, Private Capital Investing enables the reader to be able to start working in private equity or private debt without the need for any further training. It is intended for undergraduates and MBA students, practitioners in the investment banking, consulting and private equity business with prior academic background in corporate finance and accounting.

Private Capital Investing: The Handbook of Private Debt and Private Equity

About the Author xi





Acknowledgements xiii





About the Companion Site xv





Introduction 1





The Rise of Private Markets (Alternative Assets) in the Investors' Allocation 2





The Rise of Private Markets as a Favoured Alternative Source of Company Financing 4





Private Equity 6





Private Debt 8





Deal Phases and Book Organisation 10





Chapter 1 Closed End Funds 13





A Close Up on Private Equity and Private Debt Partnerships 13





Cash Flows, J Curve, and Returns 16





Financial Returns 19





References and Further Reading 22





Suggested Cases 22





Chapter 2 Debt Products 23





Introduction 23





Definition and Some Useful Classifications 24





Pure Debt Instruments 29





High-yield Bonds 37





Mezzanine 39





Unitranche 43





A Close Up on Syndicated Lending 50





References and Further Reading 52





Suggested Cases 52





Chapter 3 Equity Products 53





Introduction 53





Ordinary Shares 54





Preference Shares 55





Convertibles 57





Other Equity Instruments 64





References and Further Reading 70





Suggested Cases 70





Chapter 4 Business Due Diligence 71





Introduction 71





Macro Factors 71





Industry Risk Analysis 73





Company Analysis 83





Summary Steps for a Strategic Analysis of a Business Plan 90





References and Further Reading 91





Suggested Cases 91





Chapter 5 Accounting Due Diligence 93





Introduction 93





Quality of Earnings 93





Ratio Analysis 101





Cash Flow Analysis 106





Creative Accounting 115





References and Further Reading 123





Suggested Cases 123





Chapter 6 Business Plan 125





Introduction 125





Pro-forma Financials 125





Profit and Loss Projections 126





Balance Sheet Projections 127





Putting it all Together: Modelling Cash, Short-term Debt, Net Income, and Shareholders' Equity 128





Sensitivity Analysis 128





Consistency Checks 129





References and Further Reading 133





Suggested Cases 133





Chapter 7 Valuation 135





Introduction 135





Fundamentals #1: Price and Value 135





Fundamentals #2: Enterprise Value and Equity Value 136





Fundamentals #3: Market Values vs. Book Values 140





Discounted Cash Valuation Method 140





Discounted Cash Valuation: WACC Approach 140





Discounted Cash Flow Valuation: Adjuster Present Value Method 144





Comparables Valuation Method 147





References and Further Reading 156





Suggested Cases 156





Chapter 8 Growth Equity 157





Introduction 157





Differences between Venture Capital, Growth Equity, and LBO 157





Instruments 159





Fundamentals #1: Pre-money and Post-money Valuation 160





Fundamentals #2: Capitalisation Table 165





Fundamentals #3: Dilution and Equity Stake Calculation 165





Fundamentals #4: Anti-dilution Provisions 167





Fundamentals #5: Structuring for Exit (Ordinary Shares vs. Other Instruments) 169





Fundamentals #6: Redemption 172





Fundamentals #7: The Growth Capital Method (Adapted from the Venture Capital Method) 173





Fundamentals #8: Calculation of the Price per Share 176





Fundamentals #9: Put and Call Options 176





References and Further Reading 184





Suggested Cases 184





Chapter 9 Leveraged Buyout 185





Introduction 185





LBO: Key Concepts 187





LBO Analysis 199





References and Further Reading 215





Suggested Cases 215





Chapter 10 Management of the Portfolio Companies and Exit 217





Introduction 217





Reporting 217





Monitoring 218





Value Creation 218





Exit 220





IPO 222





Trade Sale 223





Secondary/Tertiary Sale to Financial Buyers 223





Other Exit Routes (Share Buyback, Options, Recap) 224





References and Further Reading 225





Suggested Cases 225





Chapter 11 Private Debt 227





Introduction 227





Structuring a Credit Facility 227





Sanity Checks 240





Structuring a Loan Facility: A Modelling Example 246





References and Further Reading 246





Suggested Cases 246





Chapter 12 Legal Documentation 247





Introduction 247





Private Debt Legal Documentation 249





Private Equity Legal Documentation 256





References and Further Reading 264





Appendix 12.1: Example of an Equity Term Sheet 265





Appendix 12.2: Example of a Debt Term Sheet 277





Chapter 13 Distress Symptoms and Remedies 287





Early Warning Signals 287





Causes 288





Restructuring Options 290





Financing Solutions 291





Legal Alternatives 294





References and Further Reading 297





Suggested Cases 298





Index 299