Private Equity: History, Governance, and Operations

by Harry Cendrowski; James P. Martin; Louis W. Petro; Adam A. Wadecki

• ISBN13: 9780470369128
• ISBN10: 0470369124
• Format: eBook
• Copyright: 2008-09-01
• Publisher: Wiley

Summary

Praise for Private Equity "Private Equity: History, Governance, and Operations is an invaluable guide to understanding the world of private equity investing. Harry Cendrowski and his colleagues have drawn on their extensive experience and expertise to produce a book that is remarkably comprehensive and authoritative." -Robert Larson, Chairman, Lazard Real Estate Partners LLC and Larson Realty Group Managing Director, Lazard Alternative Investments "Private Equity: History, Governance, and Operations is an essential text for any business/finance professional's library. Applicable to both seasoned private equity gurus and students of the industry, its in-depth analysis of 'Best Practices' is well researched and clearly written." -William Campbell, Managing Director, W.Y. Campbell & Company "This is an interesting and very well-written book. It not only clearly describes the history and techniques of private equity investing, it also provides a thorough examination of the rarely appreciated relationships among internal control design and operation, corporate governance and sound investment decision-making and management. It is an important contribution to the literature of finance." -Barry Epstein, PhD, CPA, Partner, Russell Novak & Company, LLP, and author of Wiley GAAP 2008, The Handbook of Accounting and Auditing, and Wiley IFRS 2008 "Harry Cendrowski really hits a homerun with his newest book about the private equity (PE) industry. A definitive, authoritative text on the subject, it answered all my questions, plus some, and gave me a complete frame of reference where I now feel well informed on PE. I would recommend this book to anyone connected to the PE industry, business advisors, academics, and business owners." - Parnell Black, MBA, CPA, CVA, Chief Executive Officer, National Association of Certified Valuation Analysts (NACVA) "The timing could not be better to learn more about the current best practices and governance in the world of private equity. What was once an exclusive asset class reserved for the largest, most sophisticated investors has now become a mainstream alternative investment option for investors of all sizes. Still, many investors do not fully understand how the business works. Private Equity: History, Governance, and Operations endows its readers with an A-to-Z education on this emerging asset class, irrespective of their previous experiences." -Maribeth S. Rahe, President and Chief Executive Officer, Fort Washington Investment Advisors, Inc. & Fort Washington Capital Partners "As a private equity practitioner in the financial services space, I found this book to be a comprehensive-and comprehendible-resource covering all relevant aspects of the business of private equity. This book provides valuable 'how-to's' for improving the likelihood of having successful portfolio companies, with successful exits. Furthermore, both veteran and prospective PE investors now have a resource available to help them screen PE opportunities that best fit with their risk and return objectives." -Scott B. McCallum, Principal, Resource Financial Institutions Group, Inc. "For years, private equity has been a misunderstood asset class. Harry Cendrowski's book defines private equity in clear, concise terms. Anyone in the financial world will benefit from the insights, guidelines, and experiences detailed in Private Equity: History, Governance, and Operations." -Bob Clone, Senior Portfolio Manager, Alternative Investments Division, Michigan Department of Treasury

Table of Contents

Preface

Acknowledgements

The History of Private Equity

The Private Equity Process

Introduction

General Terms And Brief Overview

Understanding Private Equity

Private Equity Fund-Raising

Characteristics of the Private Equity Arena

A Brief History Of Private Equity

Geographical Distribution Of Private Equity Investments

Historical Private Equity Investment Levels

Historical Private Equity Returns

A Nonmainstream Security?

Summary

Trends in Private Equity

Introduction

Overall Industry Trends

The Buyout Arena

The Venture Capital Arena

Harvesting Private Equity Investments through IPO

Initial Public Offerings

Harvesting Investments through Mergers and Acquisitions M&A Basics

Types of Takeovers

Reverse Takeovers

The Takeover Process and Financial Advisor Selection

Analyzing Potential Buyers

The Sale Process

The Bidding Process

Reaching an Agreement

Historical M&A Trends

Governance Structures in Private Equity

The Private Equity Governance Model

Introduction

A New Model for Corporate Governance

Conclusion

Value of Internal Control

Introduction

Introduction To COSO and Internal Control

Components Of Internal Control

Control Objectives and Control Components

Internal Control And The PE Firm

Conclusion

Internal Control Evaluation

Introduction

PCAOB Auditing Standard No. 5

Planning the Audit

Using a Top-Down Approach

Testing Controls

Evaluating Identified Deficiencies

TWrapping Up

Reporting on Internal Controls

Financial Statement Fraud and the Investment Decision

Money Laundering

Catergories of Fraud

What is Fraud?

The Required Elements of Fraud

Financial Statement Attestation

Recommendations

Fraud and Due Diligence Procedures

Conclusions

Professional Standards

Introduction

Federal Trade Commission (FTC)

Securities and Exchange Commission (SEC)

"Private" Equity Going Public

PCAOB Standards

AICPA Auditing Standards

AICPA Accounting and Review Standards

Institute of Internal Auditors (IIA) Standards

Information Systems Audit and Control Association

Contemporary Business and Competitive Intelligence

Introduction

Contemporary Business Intelligence

Competitive Intelligence amd The External Environment

Normalizing Performance

Cost of Capital and the Option to Invest

Developing "Idiosyncratic Acumen"

An Economic View of Quality

Developing Relationships and Navigating Crises

Application to Private Equity

Understanding Operations

Organizations as Humans

Introduction

Organizations as Humans

Beginning the Lean Transformation

Introduction

Manufacturing Due Dilligence: How to Perform Operations Assessments

Introduction

Performing the Assessment

Operational Data and Cost of Sales

Conclusion

Special Considerations in Private Equity Investments

Private Equity Fund and Portfolio Company Investment

Understanding Investors and the Investment Process

Mezzanine Financing

Private Equity Investment in Distressed Companies

Legal Considerations in Exit Strategi

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