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In this Knowledge@Wharton interview, Antoine Dréan, founder, chairman and CEO of Triago, a private equity firm, discusses the future of the industry. The topics covered include where the big opportunities will arise, how returns are evolving, shifting fee structures and … Continue reading
Private equity, like many industries, suffered major setbacks during the Great Recession. And while PE will continue to be profitable over the long run for well-managed firms, many others will find it difficult to hang on, according to Antoine Dréan, … Continue reading
What is private equity (“PE”)? What kinds of investors does it attract? What kinds of strategies do PE firms use to add value to their acquisitions? Professor Gultekin provides a survey of the industry, its history and current issues in a wide-ranging interview with Knowledge@Wharton.
The first session from N. Bulent Gultekin’s Advanced Seminar in Private Equity relives the intense bidding for RJR Nabisco in 1988, a multibillion-dollar battle that gave birth to big-time leveraged buyouts. The lesson at hand: how do you value a target company?
Some private equity firms in emerging markets find it’s best to take a minority stake and work diplomatically with the management and owners that are already in place. Lopes explains why GP Investments takes the opposite approach when it acquires family-run companies in Brazil, a fast-growing country that blends the features of emerging and developed markets.
The “B” in BRIC is a big country that is getting much bigger — its middle class alone grew by about 20 million from 2002 through 2008 and during the next two decades more people overall will be added in Brazil than in Europe and the United States combined. GP Investments, the country’s largest private equity firm, has positioned itself to grow in tandem. In GP’s view, the problems of Brazil’s past — notably hyperinflation and political turmoil — have been tamed. A stable democracy has been in place for about 20 years, inflation is way down, interest rates are relatively low and government debt levels are relatively healthy. The formula is just right, says GP: Brazil combines the growth rate of an emerging market with the stability of a more developed country.
Private equity deals in emerging markets can be derailed by problems that are rare in developed countries: financial and economic crisis, political instability and government intervention. Sun explains the critical role that timing plays in making a PE deal succeed in a volatile environment.
One of the oldest private equity firms in the world, Warburg Pincus has seen its share of good and bad deals in emerging markets. Chang Sun, managing director of the firm’s Chinese business, has plenty of war stories to tell to illustrate the critical issues that determine whether a PE firm can successfully develop a company in its portfolio. In Sun’s view, there are four such hurdles: deciding whether a company is a good buy, figuring out the right structure and terms, dealing with the firm’s management and making the right call on when to exit.
In the Middle East and North Africa, culture and business tradition preclude some common private equity practices, such funding acquisitions with borrowed money and taking a majority stake. Arbid discusses the light touch a PE firm must employ when it tries to improve a family-owned company.
The business elements of private equity can vary, sometimes depending on the culture in which deals are being struck. For Amwal AlKhaleej, a firm based in Saudi Arabia, leverage is not an option and only a minority stake is sought. The firm operates in the Middle East and North Africa, where debt is frowned upon and most businesses are family-owned. Those twin realities put the pressure on Amwal to negotiate the right deal up front and to clearly understand what life will be like working with the existing management and majority owners.