Which important external or internal factors have to be considered for private equity exit strategy and timing that might adversely affect investment performance?

You are an executive in a private equity firm and you are writing an abridged investment paper making the case to your colleagues to approve the proposed deal. In the paper you will inter alia: describe the business; articulate the growth opportunity (importantly sharing your original thoughts for growth); explain the market context; and then comment on the deal structure, risks and how you will sell the business. The investment paper is regarding JD Wetherspoons assuming the company is a private one. Part 1 will be found in the attachments to help with the answer of Part 2.
Part 2: Consider the transaction you have supported in Part 1 with an academic lens. Identify two aspects of the specific transaction and apply academic thinking to these. Change your perspective to that of an academic finance scholar. Understanding what may lead to challenges or even the failure of the proposed private equity buyout despite the attractive investment model will provide you with an opportunity to develop a differentiated view. Illustrative questions you might want to ask yourselves are: • ▪ “How will value be created or captured based on your paper, and which groups of stakeholders might be affected? Do you believe that management is well incentivized to minimise agency costs?”
• ▪ “Which important external or internal factors have to be considered for private equity exit strategy and timing that might adversely affect investment performance?”.
The question to guide the answer of Part 2 is what are the critical considerations for your proposed buyout to become a successful investment?
The two elements and their potential interrelation mentioned above to base the answer is 1. creation, capture and destruction of value. 2. realisation of value: information asymmetry, market timing and PE exit using academic sources.

 

 

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