Valuation in private equity settings and study of a private equity deal

Abstract

Private equity is a broad term which commonly refers to any type of equity investment in an asset in which the equity is not freely tradeable on a public stock market. Private equity firms invest in assets which are not only in the private domain but also listed on public exchanges. Private equity funds typically control management of the companies in which they invest, and often bring in new management teams that focus on making the company more valuable. As they are not listed on an exchange. a private equity firm owning such securities must find a buyer in the absence of a traditional marketplace such as a stock exchange. 'The "exit" or "selling out" is often achieved by way of an initial public offering (IPO), i.c. floating the company on a stock exchange. trade sale or secondary/tertiary buy-outs (i.r.sale to another private equity house). Nearly $135 billion of private equity was invested globally in 2005, up a fifth on the previous year due to a rise in buyouts as market confidence and trading conditions improved. Buyouts have generated a growing portion of private equity investments by value, in contrast to the share of early stage or venture capital investment which has declined during this period. Private equity fundraising reached new record levels in 2006, with data from Private Equity Intelligence showing that a total of 684 funds worldwide achieved a final close over the course of 2006, raising an aggregate $432 billion in commitments.