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2-26 - -Private equity fund raising has grown globally...

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(2/26): ROLE OF PRIVATE EQUITY FUNDS IN M&A READING NOTES - Financial sponsors (PE funds) typically do the following : 1. Raise large pools of equity capital from investors 2. Bid for and acquire operating firms using this equity capital, supplemented by borrowings equal to 3x-4x the equity capital they invest 3. Change the operating company’s management incentive scheme to give the management team a much larger than usual share of any shareholder wealth they successfully create 4. Replace the operating company’s board of directors with the general partners of the PE firm who have a huge stake in the success of the business 5. Manage the acquire firm for optimum cash flow generation 6. Resell the acquired firm, in 3-5 years, hopefully for a large capital gain
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Unformatted text preview: -Private equity fund raising has grown globally, Europe has become a far more significant player in private equity transactions, individual fund pools have grown in size, share of m&a transactions accounted for by financial sponsors (pe fund buyers) vs strategic buyers (operating companies) has rapidly increased across the developed economies of the wordl-PE funds have become far more important fee generators for investment banking firms than these investments banking firms’ largest industrial clients (pe firms accounted for about 18% of total investment banking revenue for major Wall Street firms)...
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