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July 17, 2018 No Comments Author: Andy Jones

Private Equity Fees

Private Equity firms with committed capital have a pool of limited partners who invest in a fund controlled by the private equity management team (the general partner). The private equity firm (the GP) is compensated through a management fee plus a performance fee. This arrangement is often called the “2 and 20” fee schedule, as discussed below.

July 12, 2018 No Comments Author: Andy Jones

Value of Cash Conveying in an M&A Transaction

I’ve been asked the following question on several occasions:

If a publicly traded company is being acquired and it has cash in the bank, would the acquirer need to pay more to include the value of the cash?

It’s kind of a technical question, and the answer is somewhat unintuitive initially, but fairly straight forward once explained with a simple analogy.

Short Answer

The calculation for Enterprise Value (EV) – the actual value of the company – subtracts cash.

EV = (market cap) + (debt) + (minority interest) + (preferred shares) – (cash and cash equivalents)

If this seems backwards, keep reading.

July 09, 2018 No Comments Author: Andy Jones

Smaller Private Equity Firms as a Deal Flow Channel

Two instances where a company might have had more than one private equity owner:

  1. A private equity firm sells a portfolio company to another (often larger) private equity firm.
  2. Private equity firms collaborate to purchase a company together as co-owners.

Because of this, some companies have been owned by multiple private equity firms (either simultaneously or in succession). This is not uncommon. In fact,

8,300+ companies in our research database at www.PrivateEquityInfo.com have been a portfolio company under the ownership of more than one private equity firm.

Normally, companies find their way to a strategic exit or IPO long before they have 5+ different private equity owners. However…

July 03, 2018 No Comments Author: Andy Jones

Displaying Integrity Helps Close M&A Deals

Integrity between principles can be considerably more valuable than specific deal points in an M&A transaction.

Late one evening, back in my investment banking days, we were hammering out the final points of an acquisition contract for our client to sell his engineering firm to a much larger corporate buyer. We were in a large conference room at the law office with several representatives from the buy-side (including the CEO), their lawyer, our clients (a majority owner and two minority owners), our client’s lawyer and two bankers – one of which was me.

June 25, 2018 No Comments Author: Andy Jones

Using Humor to Help Close M&A Deals

Humor can be a powerful tool to push through negotiation barriers in M&A transactions. I remember one sell-side deal in particular where humor, brilliantly applied, probably saved the day.

We were negotiating the final points of the acquisition contract. In the conference room that evening were the two owners from the sell-side (our clients), the CEO and CFO from the buy-side and two bankers – one of which was me.