Mr Utpal, Rare
PE is happy to share on the "upside"
but sometimes relations get bad during the "downside".
PE is not a winner
Company is the actual winner
He is just a participant in the winner
Target Company Must have a competetive advantage
If you don’t have any of these 4 M’s ŕ
it is a “no show”
Non-linear growth model required
with every 20% inc in Sales,
must have 40%-80% inc in profits
and that is not just financial leaverage
and that is also operating leaverage
Who Creates value ?
( PE or the company )
The speakers gave the example of “WIPRO Limited”.
WIPRO is listed. Mr Azim Premji owns 80%
But his Net Worth is high, since, its shares value is high,
"in the eyes of the stock market" Stock market values its 20% ( Owning
Just 20% ). And helps to increase the net worth of Premji’s 80%
PE helps you create the future value
Mr Uppal commented that
Mentoring by VC
PE provides a different thought process
that is the mentoring , “What company really wants ? “
VC is not venture Capitalist alone, he is also a mentoring
VC helps management think through.
Better decisions, are made.
Even the Managements who are not articulate, traditional,
transform themselves in the long run.
Importance of Long
Ideally, a PE should have a vision for 5 to 7 years
They are usually for shorter period.
Generating 100% in one year is easy
But 40% consistently for 5 year is good, but very difficult.
When we select the PE, we must see the no of years of future
partnership. If there is a long term focus, the promoter and his company is not
IRR focused, quarter to quarter, and instead is having a long term vision.
Other Advantages of the P.E. player
When you are
Trying to convince a Top-Notch target employee
the PE can convince
This is an endorsement effect
helps attract talent
When You Are In an
Trying to convince the Target Public
The PE Can Convince
This Is An Endorsement Effect
Helps Attract Money in an IPO
When you are doing
your own product marketing
Trying to convince the customer
The name of the PE can convince the customer about your
This is an endorsement effect
Helps Attract Customer
Example : A PE arm of a particular Bank having taken a 5%
stake in “Property Builder” BPTP has given a higher credence to it. Both for
allotment of SEZ lands and the sale of towers and flats in its
Composition At P.E.
But, In USA, they are a combination of operating General
That adds even better value.
3 E’s from the Promoters ( What are they ) ?
All these Ego, Emotion and Expectations of the promoter must
Extremities, don’t help the case.
3 E’s from the Private Equity Partner ( What are they ) ?
what PE can give – in form of 3E's
The promoters, usually working on "GUTS". The PE
helps in making this more scientific. How? Due to his wider knowledge.
Whether cash flow is good or not ?
DE is correct or not ?
Risk is ok or not ?
Further expand or not ?
Sometimes the entrepreneur may get carried away - think
fashionable, doing a big amalgamation ŕ
PE may guide, “Listen, this company is going bust, and market is not good in
other parts of the world, so please think again”.
PE gets involved in all Big, and Critical Business decisions.
Already part of the SHA= agreement
Logically, we must not "Plan to divorce, before
Some PE Funds, do not "force an exit clause"
in the agreements.
if the company does well, multiple options will come in
if the company does NOT DO well, all options will be ZERO
Nobody can envisage, what will happen after 5 years / 10
However generally the PE’s keep a Exit option in the
“When we get in, we
understand the company will do well.”
But , in PE, this is a rule, PE has to come out of it, then
and only then, PE manager has made any profit from the PE fund and PE
So, as a rule, PE manager, sees if the company can do an IPO
in 5 years maximum.
And its current & future revenue, profit must be of that
Divorce / exit is sometimes not divorce
This is sometimes, reduction from 20% to 15% or say 5%.
so, take the capital out,
for further market deals
balance continues to grow.