[管理学]Mckinsey Private Equity Practice Document.ppt

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1、Building world-class processes in private equity,Leo Grepin MTMelissa Ma SFJustin MacCormack TOGerard McDonald TORobert Palter TOJoanna Rotenberg TO,Practice document,June 18,2002,CONFIDENTIAL,This report is solely for the use of client personnel.No part of it may be circulated,quoted,or reproduced

2、for distribution outside the client organization without prior written approval from McKinsey it is not a complete record of the discussion.,1,OBJECTIVE OF THIS DOCUMENT,CSTs can use this document to,An outline of the best practices in private equity fund and direct investing,This document provides,

3、Diagnose the capabilities of their private equity clients(GPs or institutional investors),2,CONTENTS,Best practice processes to execute a direct private equity strategyBest practice processes to execute a fund private equity strategy External relationships to support best practices,3,BEST PRACTICES

4、IN DIRECT INVESTING,Source:McKinsey analysis,Direct investment value chain,Key success factors,Clearly defined investment approach and themes Proactive industry/company identificationExtensive relationship network,Clear and established investment criteria and preliminary screening processFormulated,

5、rigorous due-diligence process,including financial analysis,Established exit strategyAccess to buyers/M&A contactsAdherence to investment philosophy,Ability to recruit key managementBoard influenceIndustry/operating expertiseM&A and alliance relationships,Experienced negotiation skills/tacticsStrong

6、 financial capabilitiesProfessional networkLegalAccountingAlignment of terms and conditions between parties,Opportunistic and structured approach,4,SUCCESSFUL DIRECT INVESTING REQUIRES A PROACTIVE SOURCING STRATEGY TO GENERATE QUALITY DEAL FLOW,Source:Internal interviews;McKinsey analysis,Leverage r

7、elationship network to source attractive deals,Deal sourcing process,Best practice activities,Preliminary top-down(macro)analysis to identify potentially attractive sectorsFocus on specific sub-sectors to be researched after attractive industries identified;align resources across each sub-sectorIden

8、tify specific companies within each sub-sector and review to determine attractiveness in buyout context,Establish relationships within financial communityEstablish connections in specific investee communities identified as most attractive,and market investment capabilities before companies announce

9、capital requirementsProactively source deals with companies identified as attractive,before deals enter auction process,Identify company/industry trends proactively,Deal structur-ing,Due diligence,Value-added monitor-ing,Deal sourcing,Monetiz-ation,5,PENSION FUNDS MUST ESTABLISH AN INVESTMENT THEME,

10、REQUIRING THEM TO UNDERSTAND WHICH SECTORS ARE DESIRABLE,Distinct opportunitiesSelect opportunitiesPossible opportunities,Source:McKinsey analysis,Intrinsics/timing,Value creation,Industry sectors,Overall attractiveness for,PE investments,Attractive financial,intrinsics for PE,Timing industry cycle,

11、Undervalued assets,Regulatory/technological,discontinuities,Distressed debt,opportunities,Consolidation,opportunity,Step-out growth,opportunities,Strategic re-positioning,Restructuring opportunity,Spin-out/Breakup,Opportunities,1,Petroleum/Energy exploration,2,Electric Power/Gas,3,Chemicals,4,Metals

12、 and Mining,5,Pulp,Paper,&Packaging,6,Manufacturing/Conglomerates,7,Travel Airlines,8,Transport,9,Automotive,10,Durables/Apparel,11,Hospitality,12,Restaurant,13,Retail,14,Media and Entertainment,15,Consumer Food/household,16,Consumer Bev./tobacco,17,Payor/Provider,18,Pharma and Medical Products,19,F

13、inancial Institutions,20,Insurance,21,Software,22,Data Comm.Equip,23,Computers/Storage,24,Industrial Electronics,25,Semiconductor,26,Aerospace/Defense,27,Telecom,28,Wireless,29,Commercial Services,30,Real Estate,Deal structur-ing,Due diligence,Value-added monitor-ing,Deal sourcing,Monetiz-ation,6,AN

14、D REQUIRING EXTENSIVE INDUSTRY KNOWLEDGE,Source:Compustat;McKinsey analysis,Investment theme,Rationale,1,2,3,4,Divestments by Tier 1 suppliers and diversified holding companies,Roll-ups of Tier 2 andTier 3 suppliers,Consolidation plays in the automotive aftermarket,Acquisition of companies in bankru

15、ptcy,Companies are selling non-core assets to cut costs,strengthen balance sheets,and improve credit ratingsOffer strong revenue streams,Increase scale through consolidation,reducing overhead and other costsAttractive valuation levels(time-sensitive),Increase buyer power and generate growth by conso

16、lidating highly fragmented industry segmentOpportunity to bring in new management,improve sales through customer trust,Low valuationsPotential for operational turnaround and asset reconfiguration to unlock valueIntroduce new management talent,restructure onerous labor contracts,1990,1992,1996,1998,2

17、000,1994,In spite of record sales,current profitability is low,driving P/Es up,1990,1992,1996,1998,2000,1994,Asset valuations presently 30%below historical average,Automotive industry is historically cyclical and currently in a down cycle,TRSPercent,Price/earnings ratioRatio,Market/book value of equ

18、ityRatio,Average:17%,Average:12,Average:1.9,Automotive investment themes,EXAMPLE,Deal structur-ing,Due diligence,Value-added monitor-ing,Deal sourcing,Monetiz-ation,7,TOP PERFORMING GPs DEFINE THEIR VALUE CREATION APPROACH UPFRONT,Possible value creation strategies,Financial engineering,Operational

19、turnaround,Strategic repositioning,Deal structuring,Exit strategies,High leverage,Debt structuring,IPO,Trade sale,LBO,Operating cost reduction,Increased asset utilization,Capex reduction,Investments not permitted by previous owner,Management incentives,Rollups,Industry restructuring plays,Breakups,C

20、ycle timing,Niche-based plays,Create critical mass as a stand-alone,Bundle for sale,Forward/backward integration,Stalled global sliver expansions,Integrated conglomerates,Innovation-driven growth,Privileged asset-driven growth,Discontinuity-driven growth,Business model reinvention,Risk management,Ca

21、pital efficiencyTransfer of assets/risksCreate capital velocity,Source:McKinsey analysis,ILLUSTRATIVE,Deal structur-ing,Due diligence,Value-added monitor-ing,Deal sourcing,Monetiz-ation,8,Descriptions,Private equity firm,Investment,Innovation-driven growth,Under-leveraged privileged assets,Favorable

22、 positioning in changing business system,AND RELY ON NICHE-BASED VALUE-CREATION PLAYS TO DRIVE RETURNS,Source:McKinsey analysis,Deal structur-ing,Due diligence,Value-added monitor-ing,Deal sourcing,Monetiz-ation,9,PENSION FUNDS SHOULD PURSUE SELF-IDENTIFIED DEALS AND REFERRALS WHICH ARE THE MOST VAL

23、UABLE SOURCES OF DEAL FLOW,Source:McKinsey analysis,Comments,Central to successful performance given high competition for other deal flow,Often very reliable source of deal flow usually proprietary in nature,Often leads to lower returns given upward pressure on asset values,Relationships with strate

24、gic partners are often excellent secondary sources of quality deal flows,Despite beliefs in merits of co-investing,co-investments have produced lower returns than lead/co-lead investments,Unclear whether deals syndicated by GPs have been turned down by others or are truly worthy of investment,Unable

25、 to provide steady deal flow,and fees can materially impact overall returns,Deal sourcing options,Self-identified,CEO/executive referrals,Auctions,Intermediaries-investment banks-accountants,Co-investments,GP relationships,Agents,Best practice,Deal structur-ing,Due diligence,Value-added monitor-ing,

26、Deal sourcing,Monetiz-ation,10,PRIVATE EQUITY GROUPS SHOULD DOCUMENT THEIR RELATIONSHIP NETWORKS IN A SHARED DATABASE,Relationship network database,Name,Profession,Coordinates,Primary contact within PEG,Areas of expertise,Previous professional interactions with PEG,Other pertinent external connectio

27、ns,Joe Smith,Managing director,Acme Investment Banking,555 5th Ave.New York,NY10016212-555-5555,Fund group member A,Sourcing M&A opportunities for portfolio companiesFacilitating quick exit,Headed up acquisition of Portfolio Company A by Conglomerate B,Former CEO of portfolio company C,Deal structur

28、-ing,Due diligence,Value-added monitor-ing,Deal sourcing,Monetiz-ation,11,BEST PRACTICE REQUIRES DEALS TO BE SCORED AGAINST CRITERIA TO ACHIEVE OBJECTIVITY AND CONSISTENCY,Individual criteria filter,Sub-filter points,Description of scoring criteria,Management team experience Overall experience of CE

29、OOverall experience of CFOOverall experience of 2nd tier of management,000,Companys growth prospects/industrys attractivenessMarket size/growthCompetitionCompanys place within the market and future prospects,111,222,333,000,111,222,333,Proven leader CEO position at same company or similar corporatio

30、n for at least 5 years5 years of related industry experience at top-tier corporationEducational background directly related to current position,Held top management position at similar company for a number of yearsSeveral years of related industry experience Related educational background,Held 2nd ti

31、er management position at same company or similar company for at least 5 yearsSeveral years of related industry experience Related educational background,Little or no leadership experience Little or no related industry experienceUnrelated educational background,3(excellent),2(very good),1(good),0(po

32、or),CEO overall experience,Source:McKinsey analysis,ProductProprietary technologyOverall brand awarenessClear marketing/implementation schedule,000,111,222,333,Deal structur-ing,Due diligence,Value-added monitor-ing,Deal sourcing,Monetiz-ation,12,Conduct preliminary evaluation(48 hours),BEST PRACTIC

33、E DUE DILIGENCE IS CHARACTERIZED BY THE INSTITUTION OF A FORMALIZED PROCESSES,Preliminary due diligence,Best practice activities,Quickly review companys business and management structureComplete standardized one-pager summarizing investment opportunity within 48 hours,and agree with group to pursue

34、furtherAssign core team to deal(2-3 people),Produce investment memorandum review(1-2 weeks),Complete standardized 5-to 7-page“heads up”memo reviewing key issues,opportunities,and preliminary assessment within 1 weekGet detailed comments from other group members within 2 to 3 daysHold“beat-up”session

35、 with Direct Group and outsiders(e.g.,other groups,legal)to discuss key assumptions,challenge opportunity,and agree on downside scenarios,Conduct first round review with decision-makers(1-2 days),Circulate standardized,revised investment memo to decision-maker for approval to proceed with in-depth d

36、ue diligence,Source:McKinsey analysis,Deal structur-ing,Due diligence,Value-added monitor-ing,Deal sourcing,Monetiz-ation,13,THAT INVOLVE RIGOROUS ANALYSIS AND ARE STANDARDIZED,Detailed due diligence process,Best practice activities,Source:McKinsey analysis,Hold several meetings with management to c

37、reate detailed assessment of experience,capabilities,credibility and other pertinent issues(e.g.,performance incentives,turnover/succession issues,internal controls),Assess management group,Conduct reference checks by contacting several parties(e.g.,customers,suppliers,former employees),Complete ref

38、erence checks,Thoroughly review research and analyst reportsExtensively discuss the opportunity(e.g.,industry attractiveness and future projections,credit expectations,economic forecasts,tax and legal issues)with industry specialistsExamine comparables to assess overall attractiveness,Analyze indust

39、ry/company,Create detailed financial model Key drivers of businessStress testing of management assumptions underlying projections(e.g.,company/industry growth,Capex,or working capital requirements)Rigorous scenario/sensitivity analyses with worst case scenarios,including sensitivity analysis of key

40、inputs(e.g.,commodity prices forecasts,response by competitors)and probabilities associated with scenarios,Conduct valuation and scenario analysis,Prepare memo of up to 50 pages summarizing findings and recommendations,action plan to capture maximum value,and exit strategySyndicate to entire group a

41、nd to investment committee for final feedback and approval decision,Complete memo and syndicate,External discussions with experts,Examine environmental,structural,accounting and legal issues regarding investment,Deal structur-ing,Due diligence,Value-added monitor-ing,Deal sourcing,Monetiz-ation,14,B

42、EST PRACTICE INVESTMENT MONITORING AND VALUE-ADD REQUIRE KEY PARTNERSHIPS AND EXPERTISE,Value-added monitoring levers,Ability to exert significant influence on board to benefit portfolio company and to maximize return on investmentRegular contact with management and solid relationships with key exec

43、utives,Board influence,Ability to recruit key management,Extensive connections to CEO/executive network to attract top talent to portfolio companyConsiderable experience necessary for detecting which managers are best suited to companyInvolvement in management hiring decision-making process,Industry

44、/operating expertise,Several years of industry/operational experience to drive performance improvement with senior managers In-depth strategic knowledge based on previous experience in industry and ability to provide valuable counsel on companys strategic direction(e.g.,geographic expansion)Counsell

45、ing to manage capital allocation decisions,M&A relationships and follow-on financing decision making,Deal flow and business opportunities shared with portfolio companiesConnections to M&A network and ability to provide guidance in transactions(e.g.,JVs,alliances),Proactive pursuit of exit strategies

46、 outlined in investment thesisObjectivity injected into exit decision through systematic process and criteria,Exit strategies,Best practice,Deal structur-ing,Due diligence,Value-added monitor-ing,Deal sourcing,Monetiz-ation,15,Source:Private Equity Group;McKinsey analysis,PRIVATE EQUITY DIRECT GROUP

47、S SHOULD DEVELOP STRICT DISPOSITION POLICIES TO MAXIMIZE RETURNS FROM MONETIZATION,Sell stock in its entirety as soon as possible but gradually enough to avoid depressing value,or outsource securities management to a third,more experienced party,Rationale for cashing out ASAP,if getting stock distri

48、butions,is that few PE managers at pensions have public equity and market experience to time this well,IPOs of private investee companies,If escrowed,Research hedging through derivativesOnce off Board and stock freely trading,sell stock in its entirety as soon as possible but gradually enough to avo

49、id depressing value,or outsource the securities management to a third,more experienced partyIf there are no derivatives or hedges possible on the stock,sell stock in its entirety as soon as possible directly after escrow is releasedAssess options of having a dedicated Public Equity Group trader to e

50、xit positions or of outsourcing to a specialist(e.g.,CalPERS with Thomas Weisel),Following IPOs,peers rely on passive disposition approach regardless of IRR or rely on in-house specialist group or external expert for active approach,Example policies,Rationale,Deal structur-ing,Due diligence,Value-ad