- 1. What do private equity investors look for?
2. Agenda
- How is private equity different from venture capital
- What private equity investors look for?
- What private equity offers investee companies
- An example transaction e2 train
3. Introduction
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- Experienced private equity provider
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- Investing 1m to 5m in profitable SMEs across the UK
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- Offices in Cardiff and Reading
4. Agenda
- How is private equity different from venture capital
- What do private equity investors look for?
- What private equity offers investee companies
- An example transaction e2train Limited
5. What is private equity?
- Private equity is medium to long-term finance provided in
return for an equity stake in potentially high growth unquoted
companies defined by the BVCA
- Generically (our definition):
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- venture capital (VC) refers only to investments in early stage
and expanding companies (seed expansion)
-
- private equity (PE) refers to investment into established
profitable companies (buy-in, buyout and development capital)
6. What is private equity? 7. How do private equity fund
managers earn returns for their investors?
- Relative source of value creation depends on the type of
fund
- Debt is an increasingly important source of value creation as
transaction size increases
- Venture capital returns typically do not rely of debt
repayment
8. Agenda
- How is private equity different from venture capital
- What do private equity investors look for?
- What private equity offers investee companies
- An example transaction e2train Limited
9. What do private equity investors look for?
- Businesses that they can develop with management to make more
valuable hands on supportive approach
- Typically value creation comes from
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- increase in sale multiple compared to acquisition multiple
- Look to earn an IRR of 30% and 3x money multiple
10. Illustrative business
- Acquire a business for 8m
- Improve its performance over 4 years
- Sell the business in year 4 for a slightly higher multiple
- Use a combination of bank debt and equityto earn a target
returns
000 Year 0 Year 1 Year 2 Year 3 Year 4 Acquisition price 8,000
Profits1,500 1,600 1,900 2,000 2,200 Multiple 5.3x 6.0x Sale price
13,200 11. What do private equity funds look for?
- An identifiable competitive advantage or USP
- A sizeable market for the companies product/service
- Prospects for significant growth within 5 years
- Management ability to exploit the opportunity and control the
company through its growth stage
- Potential reward that justifies the risk
- Potential financial return on the investment that meet their
investment criteria
- More details in the WestBridge Brochure
12. Agenda
- How is private equity different from venture capital
- What do private equity investors look for?
- What private equity offers investee companies
- An example transaction e2train Limited
13. What private equity offers investee companies
- Experience of successfully scaling businesses
- Non Executive Director (s)
- Rigour of review through monthly Board Meetings
- Utilisation of contracts and networks to develop the business
smart money
- Input in to growth planning and creation of milestones for
management to meet
14. Agenda
- How is private equity different from venture capital
- What do private equity investors look for?
- What private equity offers investee companies
- An example transaction e2train Limited
15. e2train Holdings Ltd
- Investment size:c1.25m investment
- Nature of business:e-learning software
- Investment date:October 2009
- Deal team:Valerie Kendall, Sandy Smart, ScottBarham
- Funding source: WestBridge Partners, team and HNWs
16. Deal Timeline & Key Issues
- WestBridge won because of enthusiasm for deal, and contact base
which could deliver the value-add post completion, despite
deliverability uncertainty due to lack of established fund
- WestBridge delivered the deal on the same terms as in the
agreed offer in June 2009.We did not seek to renegotiate the deal
at any point
Date September 2008Deal negotiated between e2train management
and vendors February 2009Introduced to WestBridge by Gambit
Corporate Finance March 2009 e2train acquired a small competitor
June 2009WestBridge won exclusivity with managementOctober 2009
Deal completed 17. Why we liked the opportunity
- Impressive CEO responsible for strong performance to date
- Management team ambitious and focused on growth
opportunity
- Management rolling over all proceeds, and investing
further
- Opportunity to broaden share ownership and align interests
- Opportunity for the CEO to grow the board, and further
professionalise the business
- Significant growth despite economic recession
- We knew a first rate chairman candidate, who had taken a
similar sized software business through next growth phase
- Loyal, blue chip customer base, with no dependency and
excellent retention rates
- Recurring revenue streams, and strong pipeline which
underpinned future growth
- Operating in a growing and increasingly global market
- Modest acquisition price, and opportunity to structure with
minimal external debt
18. Adding value during the holding period
- Introduced John Caines, associate partner, as NXC (experience,
engagement, team dynamic)
- Started process of improving governance through new board
protocols, etc
- Introduced potential customers (Thompson Reuters, Vodafone, VT
Group, O2), directly and through fund investors
- Introduced potential channel partners (HLC, Meta Morphose),
directlyand through fund investors
- Ensuring all board decisions are made with context of future
exit
- Work with board to consider organic and acquisition
opportunities
- Potential further funding
19. Exit Strategies
- Alignment of interest management and WestBridge
- 1) increase earnings during holding period
- 2) increase multiple on exit
- 3) increase cash generation during holding period
- Being pro-active about promoting the business
- Expectation of 3 to 4 years, however, flexibility regarding
timing
- Using the skills of the corporate finance community
- Professional auction process
- Trade sale . or maybe secondary buyout
20. Agenda
- How is private equity different from venture capital
- What do private equity investors look for?
- What private equity offers investee companies
- An example transaction e2train Limited
21. Conclusions?
- Private equity is a relevant source of capital to help scale
SME companies
- Private equity investors are fund managers who have return
targets
- Attractive returns can be earned by managers and investors from
deploying capital in the right type of business
- Good quality investors bring more than money experience and
business contacts
- Alignment of interests between managers and investors is
key
22.