Private Equity Exits

by Povaly, Stefan

• ISBN13: 9783540709534
• ISBN10: 3540709533
• Format: Hardcover
• Copyright: 2007-04-12
• Publisher: Springer Verlag

Summary

Private Equity Exits provides the first comprehensive analysis of private equity divestment processes - so-called 'exits' - for European buyouts. The work is designed as a compendium of current scientific knowledge on portfolio company exits and also provides deeper insights into various aspects of divestment processes, which is underpinned by own extensive empirical analysis and findings. Examining the efficiency of exits, this book offers recommendations and guidelines for an integrated and exit-oriented private equity portfolio management and provides a detailed assessment of exit decision drivers. Findings contribute to a clearer understanding and better predictability of exit behavior. The work highlights the growing need for pro-active as well as thoroughly planned divestment strategies, efficient executions, and the importance and value of paying attention also to other stakeholders' interests when selling stakes in businesses.

Table of Contents

Introduction	p. 1
Framework and intent of the work	p. 2
Research approach	p. 7
Research design framework	p. 7
Research approach and procedure	p. 9
Structure outline	p. 12
Background	p. 15
Private Equity	p. 15
Definition	p. 15
Evolution of the private equity market	p. 18
Stages of private equity financing	p. 27
Private equity market structure	p. 30
Market trends	p. 46
Hedge funds and private equity	p. 47
Corporate governance aspects	p. 53
Performance of private equity as an asset class	p. 65
Leveraged buyouts	p. 82
Definition and reasons	p. 82
The role of the interest rate environment for leveraged buyouts	p. 84
Leveraged buyout principles and consequences	p. 86
Market overview and history	p. 96
Buyout market trends	p. 108
Performance of the leveraged buyout market	p. 114
Divestments of portfolio companies	p. 117
Exit phase in the 'Venture Capital Cycle'	p. 117
Potential divestment routes	p. 118
Theoretical foundation and literature review	p. 127
Agency theory as an overall framework for private equity exits	p. 128
Underlying theoretical approaches - timing of exits	p. 132
Value-add and monitoring cost concept	p. 132
Asymmetric information and certification	p. 135
Grandstanding	p. 136
Resource dependence	p. 137
Underlying theoretical approaches - choice of exit route	p. 138
Agency theory	p. 138
Asymmetric information	p. 139
Grandstanding	p. 140
Existing studies on portfolio company exits	p. 141
Framework literature	p. 142
Studies on IPO exits	p. 147
Other forms of exit	p. 151
Exit timing and process	p. 153
Theoretical approaches relevant for exits	p. 160
Other aspects related to private equity research	p. 164
Tabular summary of existing studies	p. 170
Key studies on the choice of exit routes	p. 170
Key studies on timing of exits	p. 175
Studies on exit process	p. 178
The exit process: Reducing exposure to a portfolio company	p. 181
Exit process overview	p. 182
Process initiation and design	p. 186
'Pro-active' portfolio management	p. 187
Process objectives	p. 194
Role of investment banks and advisers	p. 199
Allocation of roles and tasks - relationship of parties involved	p. 206
Single route or 'multi-track' process	p. 208
Comparative characteristics of exit options	p. 209
Trade sale and secondary buyout - M&A exits	p. 210
Initial Public Offering - stock exchange listing	p. 232
Buy-back	p. 255
Recapitalisation	p. 255
Relative importance of exit options	p. 262
Review of transactions by exit alternative	p. 262
European stock exchange environment for IPOs	p. 264
Evaluation of exit options	p. 267
A note on valuation methods	p. 268
Type of consideration received	p. 272
Post-closing conditions: Warranties and indemnities	p. 274
Other stakeholders' interests	p. 275
The importance of executive management in the exit process	p. 276
Empirical analysis: Exit behaviour and efficiency	p. 279
Research objectives	p. 279
Research methods rationale	p. 280
Data description	p. 283
Survey design and other data sources	p. 283
Target universe	p. 285
Characteristics of participating buyout investors	p. 288
Variables for statistical analysis	p. 291
Timing of portfolio company exits	p. 295
Tested decision factors	p. 297
Hypotheses	p. 301
Empirical results	p. 302
Summary and discussion	p. 305
Choice of exit route	p. 306
Tested decision factors	p. 307
Hypotheses	p. 310
Empirical results	p. 312
Summary and discussion	p. 315
Investor characteristics, exit preferences and process management styles	p. 318
Exit route preferences	p. 320
Exit process duration	p. 322
Consideration of executives' aspirations - the impact of management	p. 324
Relative proportion of exit routes	p. 327
The significance of corporate governance aspects	p. 334
Summary and discussion	p. 337
'Multi-track' exit processes	p. 338
Assessment of multi-track exit processes	p. 339
Tendency to conduct dual- or multi-track exit processes	p. 343
Key determinants underlying decisions for multi-track exits	p. 345
A note on the downsides - the risk of discouraging bidders	p. 348
Summary and discussion	p. 351
Changes in the private equity environment and exit behaviour	p. 353
Research rationale and hypotheses	p. 353
Data sources and procedure	p. 354
Data characteristics	p. 355
Analytical assessment	p. 356
Discussion of findings	p. 359
Specific limitations	p. 360
Exit trends in the context of recent buyout funds performance	p. 361
Limitations of analysis	p. 365
Summary and discussion	p. 366
Conclusion	p. 371
Appendices 377
List of exhibits	p. 377
List of abbreviations	p. 383
Survey questionnaire	p. 385
List of interview partners	p. 389
List of buyout firms participating in survey	p. 390
Bibliography	p. 391
Abstract	p. 413
Biography	p. 415
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