Pub Date : 2015-08-31DOI: 10.3905/jpe.2015.18.4.040
J. S. Howe, Samuel W. Jack
Private equity (PE) buyers account for a great deal of merger and acquisition activity involving aerospace, defense, and technology services firms that contract with the U.S. government. This industry is highly regulated, and some of its regulations are complex and counter-intuitive. The article addresses the affiliation issues that can arise from holding government contractor portfolio companies. First is the affiliation among a PE buyer, its portfolio companies, and the acquired company for purposes of the U.S. Small Business Administration rules on small business “set aside” contracts. Second is the affiliation between PE firms and their foreign investors when acquiring a government contractor that holds security clearances. Finally is the affiliation between and among portfolio companies for purposes of contract competitions, including the conflict of interest and suspension/debarment regimes.
在与美国政府签订合同的航空航天、国防和技术服务公司的并购活动中，私募股权(PE)买家占了很大一部分。这个行业受到严格监管，其中一些规定很复杂，而且违反直觉。本文讨论了持有政府承包商投资组合公司可能产生的从属关系问题。首先是私募股权买家、其投资组合公司和被收购公司之间的关系，这是美国小企业管理局(Small Business Administration)关于小企业“搁置”合同的规定。其次是私募股权公司在收购持有安全许可的政府承包商时与其外国投资者之间的关系。最后是投资组合公司之间出于合同竞争目的的从属关系，包括利益冲突和暂停/禁止制度。
{"title":"Defense and Government Contractor M&A—Special Concerns for Private Equity Buyers","authors":"J. S. Howe, Samuel W. Jack","doi":"10.3905/jpe.2015.18.4.040","DOIUrl":"https://doi.org/10.3905/jpe.2015.18.4.040","url":null,"abstract":"Private equity (PE) buyers account for a great deal of merger and acquisition activity involving aerospace, defense, and technology services firms that contract with the U.S. government. This industry is highly regulated, and some of its regulations are complex and counter-intuitive. The article addresses the affiliation issues that can arise from holding government contractor portfolio companies. First is the affiliation among a PE buyer, its portfolio companies, and the acquired company for purposes of the U.S. Small Business Administration rules on small business “set aside” contracts. Second is the affiliation between PE firms and their foreign investors when acquiring a government contractor that holds security clearances. Finally is the affiliation between and among portfolio companies for purposes of contract competitions, including the conflict of interest and suspension/debarment regimes.","PeriodicalId":342515,"journal":{"name":"The Journal of Private Equity","volume":"18 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2015-08-31","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"121025533","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2015-08-31DOI: 10.3905/jpe.2015.18.4.019
H. Gray, Chad Greenway, R. Feeney
The business world teems with myriad opinions regarding the best way to manage salespeople; yet, investors and managers essentially agree that individual agendas are impossible to eliminate in the world of sales management. Often salespeople conduct their business segregated from the core management team, which may result in a focus on accomplishing individual goals rather than on making the company successful. These situations may drive near-term gains but almost always lead to longer-term profit margin erosion. One of the primary culprits for such misalignment is the sales commissions program, which is likely to undermine any sense of unity and common purpose in a business.
{"title":"Portfolio Company Best Practices—Give Salespeople Free Range, but Establish an Outer Perimeter","authors":"H. Gray, Chad Greenway, R. Feeney","doi":"10.3905/jpe.2015.18.4.019","DOIUrl":"https://doi.org/10.3905/jpe.2015.18.4.019","url":null,"abstract":"The business world teems with myriad opinions regarding the best way to manage salespeople; yet, investors and managers essentially agree that individual agendas are impossible to eliminate in the world of sales management. Often salespeople conduct their business segregated from the core management team, which may result in a focus on accomplishing individual goals rather than on making the company successful. These situations may drive near-term gains but almost always lead to longer-term profit margin erosion. One of the primary culprits for such misalignment is the sales commissions program, which is likely to undermine any sense of unity and common purpose in a business.","PeriodicalId":342515,"journal":{"name":"The Journal of Private Equity","volume":"196 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2015-08-31","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"124365495","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2015-06-16DOI: 10.3905/jpe.2015.18.4.008
Luis E. Pereiro
Using a new set of risk benchmarks, the authors estimate the opportunity cost of equity capital for entrepreneurs, limited partners, and general partners of venture capital funds. The figures turn out to be well below the internal rates of return (IRRs) customarily targeted in the private equity industry. Those venture capitalists who keep employing target IRRs to discount cash flows may thus be risking a free fall into a loser’s curse—the systematic bypassing of potentially profitable investments deals.
{"title":"The Opportunity Cost of Venture Capital","authors":"Luis E. Pereiro","doi":"10.3905/jpe.2015.18.4.008","DOIUrl":"https://doi.org/10.3905/jpe.2015.18.4.008","url":null,"abstract":"Using a new set of risk benchmarks, the authors estimate the opportunity cost of equity capital for entrepreneurs, limited partners, and general partners of venture capital funds. The figures turn out to be well below the internal rates of return (IRRs) customarily targeted in the private equity industry. Those venture capitalists who keep employing target IRRs to discount cash flows may thus be risking a free fall into a loser’s curse—the systematic bypassing of potentially profitable investments deals.","PeriodicalId":342515,"journal":{"name":"The Journal of Private Equity","volume":"12 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2015-06-16","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"123602826","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2015-05-31DOI: 10.3905/jpe.2015.18.3.079
Eymen Errais, S. B. Miled
After the Tunisian revolution, people were hit by the bitter reality of the Tunisian miracle of Ben Ali’s regime: an unemployment rate of 20% (INS [2013]) and a poverty rate reaching 25%. With no access to loans, low-income people find themselves in a vicious circle of poverty that will lead them to either begging or criminality. Many of the country’s poor people carry heavy life baggage; the stories of their personal life lives could have been ripped from the pages of Les Misérables. Such realities pushed the government to make draconian changes leading to more liberalization of the microfinance sector, in an attempt to alleviate poverty and enhance social inclusion. Among the new players allowed into the market are private equity (PE) firms. The decision to allow PE participation caught the industry by surprise, since the Tunisian microfinance sector had always been restricted to nonprofit associations, far from the reach of PE firms. The change gave rise to numerous questions: Why would a private equity firm invest in the micro-finance sector? Why now? Is the sector profitable? Is it competitive? What is the investment strategy?
{"title":"Investing in Microfinance: The Case of Tunisia","authors":"Eymen Errais, S. B. Miled","doi":"10.3905/jpe.2015.18.3.079","DOIUrl":"https://doi.org/10.3905/jpe.2015.18.3.079","url":null,"abstract":"After the Tunisian revolution, people were hit by the bitter reality of the Tunisian miracle of Ben Ali’s regime: an unemployment rate of 20% (INS [2013]) and a poverty rate reaching 25%. With no access to loans, low-income people find themselves in a vicious circle of poverty that will lead them to either begging or criminality. Many of the country’s poor people carry heavy life baggage; the stories of their personal life lives could have been ripped from the pages of Les Misérables. Such realities pushed the government to make draconian changes leading to more liberalization of the microfinance sector, in an attempt to alleviate poverty and enhance social inclusion. Among the new players allowed into the market are private equity (PE) firms. The decision to allow PE participation caught the industry by surprise, since the Tunisian microfinance sector had always been restricted to nonprofit associations, far from the reach of PE firms. The change gave rise to numerous questions: Why would a private equity firm invest in the micro-finance sector? Why now? Is the sector profitable? Is it competitive? What is the investment strategy?","PeriodicalId":342515,"journal":{"name":"The Journal of Private Equity","volume":"18 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2015-05-31","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"130613120","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2015-05-31DOI: 10.3905/jpe.2015.18.3.055
M.B. Raghupathy, A. Thillairajan
As financial investors in portfolio companies, venture capital (VC) firms are expected to add value through continuous monitoring and sustained involvement. Such an effort is expected to give VC-backed IPO firms (VC IPOs) an edge over those IPO firms not backed by VCs. We examine such value additions use a comparative analysis of operating and stock performance data of VC IPOs against three groups of non-VC POs. We identified a set of 92 VC IPOs and 182 non VC IPOs. The 182 non-VC IPOs were further subdivided into industry and size groups. While Wilcoxon tests were used to compare the medians of operating and stock performance, panel data regression models were used to establish the impact of VC on those differential performances. We find that the medians of VC IPOs on most operating performance parameters are better than non-VC IPO groups. But the relational tests could not attribute the better performance to VC influence. We conclude that this could be indicative of VCs’ superior ability to identify promising ventures and push them toward their maximum potential. This study is one of the pioneering efforts in exploring VC value creation in the Indian context. We also extend the capital market research in accounting to a VC context.
{"title":"Financial Value Creation: A Comparative Study of VC-Backed IPOs and Non-VC-Backed IPOs in India","authors":"M.B. Raghupathy, A. Thillairajan","doi":"10.3905/jpe.2015.18.3.055","DOIUrl":"https://doi.org/10.3905/jpe.2015.18.3.055","url":null,"abstract":"As financial investors in portfolio companies, venture capital (VC) firms are expected to add value through continuous monitoring and sustained involvement. Such an effort is expected to give VC-backed IPO firms (VC IPOs) an edge over those IPO firms not backed by VCs. We examine such value additions use a comparative analysis of operating and stock performance data of VC IPOs against three groups of non-VC POs. We identified a set of 92 VC IPOs and 182 non VC IPOs. The 182 non-VC IPOs were further subdivided into industry and size groups. While Wilcoxon tests were used to compare the medians of operating and stock performance, panel data regression models were used to establish the impact of VC on those differential performances. We find that the medians of VC IPOs on most operating performance parameters are better than non-VC IPO groups. But the relational tests could not attribute the better performance to VC influence. We conclude that this could be indicative of VCs’ superior ability to identify promising ventures and push them toward their maximum potential. This study is one of the pioneering efforts in exploring VC value creation in the Indian context. We also extend the capital market research in accounting to a VC context.","PeriodicalId":342515,"journal":{"name":"The Journal of Private Equity","volume":"92 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2015-05-31","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"132774591","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2015-05-31DOI: 10.3905/jpe.2015.18.3.072
R. Dhankar, Kunjana Malik
This article focuses on the performance of one of the top sectors of private equity investment in India, the banking and financial services (BFSI) sector. We study the majority of PE investments in the BSFI sector, using a logistic regression approach to examine the effect of PE on total assets, return on assets, return on capital employed, growth in profit after tax, asset growth, ratio of debt to total assets, and ratio of equity to total assets.
{"title":"The Effect of Private Equity on the BFSI Sector in India: A Logistic Panel Data Analysis","authors":"R. Dhankar, Kunjana Malik","doi":"10.3905/jpe.2015.18.3.072","DOIUrl":"https://doi.org/10.3905/jpe.2015.18.3.072","url":null,"abstract":"This article focuses on the performance of one of the top sectors of private equity investment in India, the banking and financial services (BFSI) sector. We study the majority of PE investments in the BSFI sector, using a logistic regression approach to examine the effect of PE on total assets, return on assets, return on capital employed, growth in profit after tax, asset growth, ratio of debt to total assets, and ratio of equity to total assets.","PeriodicalId":342515,"journal":{"name":"The Journal of Private Equity","volume":"27 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2015-05-31","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"125957447","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2015-05-31DOI: 10.3905/jpe.2015.18.3.019
H. Gray, R. Besosa, Lance Wimmer
The process of developing strategy must account for critical resource constraints—capital, talent, and time; at the same time, implementing strategy must take into consideration execution leadership, communication skills, and slippage.
{"title":"Failed Integrations are the Seed Bed for Turnaround Work: The Pitfalls of Corporate M&A Strategy","authors":"H. Gray, R. Besosa, Lance Wimmer","doi":"10.3905/jpe.2015.18.3.019","DOIUrl":"https://doi.org/10.3905/jpe.2015.18.3.019","url":null,"abstract":"The process of developing strategy must account for critical resource constraints—capital, talent, and time; at the same time, implementing strategy must take into consideration execution leadership, communication skills, and slippage.","PeriodicalId":342515,"journal":{"name":"The Journal of Private Equity","volume":"2 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2015-05-31","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"124231100","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2015-05-31DOI: 10.3905/jpe.2015.18.3.021
S. Morrissette, Shamus Hines
The predominance of search fund research is focused on the mechanics of selection or the post mortem analysis of results. Our study seeks to expand on the evaluation of search funds and their role within an investment portfolio from an investor’s perspective. We review the background of search fund investing and then present a model for self-assessment by search fund investors and a general guide to screening, monitoring, and exiting search fund investments. We find that although participants in this study maintain that the search fund model aligns the interests of investors and entrepreneurs, honesty and ethics are still the most important considerations for investing. Most investors care about sales skills and operational experience over financial skills or deal-making ability.
{"title":"An Investor’s Guide to Search Funds","authors":"S. Morrissette, Shamus Hines","doi":"10.3905/jpe.2015.18.3.021","DOIUrl":"https://doi.org/10.3905/jpe.2015.18.3.021","url":null,"abstract":"The predominance of search fund research is focused on the mechanics of selection or the post mortem analysis of results. Our study seeks to expand on the evaluation of search funds and their role within an investment portfolio from an investor’s perspective. We review the background of search fund investing and then present a model for self-assessment by search fund investors and a general guide to screening, monitoring, and exiting search fund investments. We find that although participants in this study maintain that the search fund model aligns the interests of investors and entrepreneurs, honesty and ethics are still the most important considerations for investing. Most investors care about sales skills and operational experience over financial skills or deal-making ability.","PeriodicalId":342515,"journal":{"name":"The Journal of Private Equity","volume":"18 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2015-05-31","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"129148124","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2015-03-19DOI: 10.3905/jpe.2015.18.3.007
Luis E. Pereiro
We introduce a novel method to estimate the risk premium that investors should demand on top of public equity’s return to be properly compensated for the peculiar hazards of investing in venture capital. Unlike existing CAPM-based methods, our benchmarks are based upon direct measures of the factors that affect the value of venture capital portfolios—i.e., illiquidity, hazard of failure and control; being, at the same time, clear of the confounding effects of superior fund management. Our method is an empirically grounded alternative to the rules of thumb employed by institutional investors and fund managers when defining target returns on venture capital.
{"title":"The Venture Capital Premium: A New Approach","authors":"Luis E. Pereiro","doi":"10.3905/jpe.2015.18.3.007","DOIUrl":"https://doi.org/10.3905/jpe.2015.18.3.007","url":null,"abstract":"We introduce a novel method to estimate the risk premium that investors should demand on top of public equity’s return to be properly compensated for the peculiar hazards of investing in venture capital. Unlike existing CAPM-based methods, our benchmarks are based upon direct measures of the factors that affect the value of venture capital portfolios—i.e., illiquidity, hazard of failure and control; being, at the same time, clear of the confounding effects of superior fund management. Our method is an empirically grounded alternative to the rules of thumb employed by institutional investors and fund managers when defining target returns on venture capital.","PeriodicalId":342515,"journal":{"name":"The Journal of Private Equity","volume":"80 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2015-03-19","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"115330379","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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