12 Feb
12 Feb
FINANCIALS
Forms of ownership…..
Proprietorship Partnership
Limited / Inc
• Forms of funding?
• Equity vs Debt
• Listing, SME Exchanges,
• Private Equity, Venture Capital
• MCA / SEBI / SEC etc.
Terms you might encounter in career options
• Private Equity
• Venture Capital
• Hedge Fund (vs Mutual Fund!)
• Investment Banking
• Consulting / Management Consulting
• Analysts
What drives M&A?
Any guesses what drove these recent chemical divestures?
GHG potential & M&A
GHG emissions for BASF. Millions of metric tons per
year
Private Equity
1. The Principal Agent Problem Owners vs
Management ( e.g. Board of Directors →
CEO)
2. Planning Horizon lengths & public
disclosures due to regulations
3. Paths ( Promoter to PE; Public to PE)
4. Leveraged Buyouts / Management
Buyouts
5. Money source: hedge funds, pension
funds, university endowments, and rich
people
6. Exit Strategies: 3 to 5 years.
7. Close ended funds for investors: max 10
years
8. Leverage / Debt financing
9. Synergies, Better Management,
Incentives, Skin in game
10. Private Equity vs Investment Banking
Various ways to take a company private
Comments
• Publicly Traded Private Equity
• How is it different from a ETF or Mutual Fund?
• Chemical private equity firms often acquire the noncore business units of large
public companies. Under their previous owners, those businesses often
suffered from neglect, unsuitable performance targets, or other constraints.
• As a counterexample: A hedge fund with a significant stake in a public
company can, without having to buy the company outright, pressure the
board into making valuable changes such as selling unnecessary assets or
spinning off a noncore unit.
• All businesses in a private equity portfolio will soon be sold, they remain in the
spotlight and under constant pressure to perform.
• In contrast, a business unit that has been part of a public company’s portfolio
for some time and has performed adequately, if not spectacularly, generally
doesn’t get priority attention from senior management.
Leveraged Buyout Transaction Structure
VC in Chemicals
• Depreciation Schedules
• EBIDTA= Earning before Interest Tax
Depreciation and Amortization