Advanced Introduction to Private Equity PDF
Preview Advanced Introduction to Private Equity
Advanced Introduction to Private Equity Elgar Advanced Introductions are stimulating and thoughtful intro- ductions to major fields in the social sciences, business and law, expertly written by the world’s leading scholars. Designed to be accessible yet rigorous, they offer concise and lucid surveys of the substantive and policy issues associated with discrete subject areas. The aims of the series are two-fold: to pinpoint essential principles of a particular field, and to offer insights that stimulate critical thinking. By distilling the vast and often technical corpus of information on the subject into a concise and meaningful form, the books serve as accessible introductions for undergraduate and graduate students coming to the subject for the first time. Importantly, they also develop well-informed, nuanced critiques of the field that will challenge and extend the under- standing of advanced students, scholars and policy-makers. For a full list of titles in the series please see the back of the book. Recent titles in the series include: Business and Human Rights Megaprojects Peter T. Muchlinski Nathalie Drouin and Rodney Turner Spatial Statistics Daniel A. Griffith and Bin Li Social Capital Karen S. Cook The Sociology of the Self Shanyang Zhao Elections and Voting Ian McAllister Artificial Intelligence in Healthcare Tom Davenport, John Glaser and Youth Studies Elizabeth Gardner Howard Williamson and James E. Côté Central Banks and Monetary Policy Private Equity Jakob de Haan and Christiaan Paul A. Gompers and Steven N. Pattipeilohy Kaplan Advanced Introduction to Private Equity PAUL A. GOMPERS Eugene Holman Professor of Business Administration, Harvard Business School, USA STEVEN N. KAPLAN Neubauer Family Distinguished Service Professor of Entrepreneurship and Finance, Booth School of Business, University of Chicago, USA Elgar Advanced Introductions © Paul A. Gompers and Steven N. Kaplan 2022 All rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical or photocopying, recording, or otherwise without the prior permission of the publisher. Published by Edward Elgar Publishing Limited The Lypiatts 15 Lansdown Road Cheltenham Glos GL50 2JA UK Edward Elgar Publishing, Inc. William Pratt House 9 Dewey Court Northampton Massachusetts 01060 USA A catalogue record for this book is available from the British Library Library of Congress Control Number: 2022939161 ISBN 978 1 80037 217 7 (cased) ISBN 978 1 80037 219 1 (paperback) ISBN 978 1 80037 218 4 (eBook) EEP BoX Contents About the authors vi Preface viii Acknowledgments by Paul A. Gompers x Acknowledgments by Steven N. Kaplan xii 1 Introduction to private equity 1 2 Private equity: performance at the portfolio company 29 3 Private equity performance at the fund level 46 4 Investment decision making 69 5 Financial engineering 97 6 Governance engineering 131 7 Operationalizing operational engineering 148 8 Private equity exits 163 9 Raising a private equity fund 194 10 Managing the private equity firm 211 Index 240 v About the authors Paul A. Gompers is the Eugene Holman Professor of Business Administration at the Harvard Business School and specializes in research on startup, high growth and newly public companies as well as venture cap- ital and private equity investors. He has published six books, dozens of ref- ereed journal articles and more than 100 business case studies. He received his A.B. summa cum laude in biology from Harvard College in 1987. He attended Oxford University on a Marshall Fellowship where he received an M.Sc. in economics. He completed his Ph.D. in Business Economics at Harvard University in 1993. Professor Gompers is co-founder and non-executive director of Spur Capital Partner, a venture capital fund-of- funds. He is also a board member of the Boston Symphony Orchestra, the Beth-Israel Deaconess Hospital and USA Triathlon Foundation. vi AbOUT ThE AUThORS vii Steven N. Kaplan is the Neubauer Family Distinguished Service Professor of Entrepreneurship and Finance at the University of Chicago Booth School of Business. He is a Research Associate at the National Bureau of Economic Research. A Fortune magazine article referred to Professor Kaplan as “probably the foremost private equity scholar in the galaxy.” He co-created the Kaplan-Schoar Public Market Equivalent (PME) private equity benchmarking approach. He also co-created the Lincoln Middle Market Index. BusinessWeek named him one of the top 12 business school teachers and one of the top four entrepreneurship teachers. He is an inves- tor in several private equity funds. Preface This book represents the integration of several streams of professional activities that we have been involved in over the past several decades. Both of us have been active in researching, teaching, advising and investing in the private equity industry for more than 30 years. We’ve often been asked by private equity professionals, MBA students and investors to recommend a book that explains both what private equity does and how to do it. We usually make a couple of recommendations, but reply that there is no one book that integrates the insights from academic research with practical recommendations and examples. The best thing they can do is to take one of our courses. Until now. We decided that it was time to take the material from our courses and turn the material into this book. Over the three-plus decades of our careers, the private equity industry has grown dramatically in assets under management, diversity of investment strategies and breadth of geographies. The number of private equity professionals has similarly exploded. The huge demand for courses addressing these issues from our MBA students is another indication of these changes. The high level of compensation of private equity investors has received a great deal of attention as well, much of it highly politicized. The demand from students, practitioners and academics for actionable insights has grown commensurately. Most top business schools have scholars researching and teaching private equity. Those academics have contributed to a significant body of academic research that describes and evaluates a number of important facets of the private equity industry. That work has explored how PE funds and investments perform, how various stakeholders are affected, the levers that PE firms employ to effect those changes and how PE firms are organized and compensated. viii PREfAcE ix We have organized this book around these major research streams, integrated that research with a large number of detailed examples and attempted to provide useful frameworks and actionable insights. Many of these examples are derived from detailed case studies that are among the many case studies we have written on private equity firms and investments. Other examples come from our relationships with private equity professionals and our own investing experience in private equity. At the end of the day, the business of investing depends on decision mak- ing under uncertainty. No decision can be made with perfect foresight. But investment decisions made that are based upon insights from data, buttressed by well-reasoned examples and logically articulated, have a much better chance to generate attractive returns. We hope that this book can serve as a source of these insights and that everyone who has an interest in private equity – academics, students, young professionals and industry veterans – finds this book to be a useful reference.
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