Private Equity Glossary Primer 101

private equity glossary

Hurdle Rate

Not always one document, the “Separation Agreement” refers to the entire package of rights and considerations when an employee amicably leaves a company. In addition to severance pay, separation agreements often include provisions about non-disparagement, non-disclosure, and vesting of equity. A contract that requires one party to transfer the cash proceeds from a liquidation private equity glossary of equity to another party in exchange for cash received prior to the liquidation event. The right of investors to exercise the First Refusal Rights and Come Along Rights of other investors who don’t exercise their own rights. An agreement issued by entrepreneurs to protect the privacy of their ideas when disclosing those ideas to third parties such as investors.

private equity glossary

A huge raft of documents of varying quality attempting to explain your business, it’s market, the opportunities and obstacles. A contract that sets out how the company will be operated and the shareholders’ obligation and rights.

private equity glossary

In truth, much of the heavy diligence is done by the PE firm themselves as their work in deciding whether or not they should invest in you. Then when you’ve accepted an offer in principle, you’ll go into an exclusivity period. Due Diligence is the process private equity glossary by which a PE firm tries to assess the viability of a potential investment and the accuracy and completeness of the information you have provided. The Investment Bank or sell-side advisor gets the biggest cheque – normally a percentage of the price paid.

Straight Line Vestinga Term Used To Describe A Vesting Profile Where Shares

Typically achieved through lean operation and a product that generates revenue early in the companies life cycle. Annual revenue run rate; the revenue for the last month multiplied times 12 months as an estimate of the total revenue rate for the year. First investor in a fund; can be also referred to as the lead investor. A program that provides the mentorship and capital necessary to accelerate the growth private equity glossary and success of young startups. Typically, the program will provide some capital and in exchange will take an equity stake in the startup. An expression of the market value of a company relative to a key statistic driving that value. A tag-along provision provides minority shareholders with the right to sell their shares in conjunction with the majority shareholder in a third-party transaction.

Investment fund which is owned by a larger financial institution or a corporate and is usually consolidated on its private equity glossary balance sheet. You will use the same advisors to do the DD as your PE firm would – they’ll take money from anyone.

Annual Strategy Presentation

Thus a payment of 121 two years from now has an NPV of 100 using a discount rate of 10%. A sale of less than 100% of a company to a financial buyer, coupled with a releveraging of the company with the proceeds of the releveraging and the sale of partial ownership both going to the vendor. An umbrella term to describe development and expansion capital, mainly used to strike a contrast with early stage financing. A secondary offering is usually an offer for sale by an investor rather than the issuer. Accounting term meaning “earnings before interest, tax, depreciation and amortisation”. Broadly equates to the free cash flow of a business and so is often used as the basis for calculation of the total enterprise value of a business.

This is hugely preferable to buyer-DD where you might never see the report and your potential buyer could make a decision based on flawed information or analysis. Due Diligence is something the buyer performs on your business in order to prove or disprove that your business is an asset worth investing in. But if you, the vendor, are confident of completing a sale you can commission the diligence yourself – this is called Vendor Due Diligence. Strategic buyers are revered because they can, and often do, pay more for a business that PE can because they are buying for a strategic reason, rather than a purely financial reason. An advisor will never go so far as to say that an business is a good or bad investment opportunity. Trying to do too many new things at once in an effort to grow the business faster actually makes it go slower. A classic example of this is adding too many new sales people that then consume management resources to recruit and train so sales go backwards not forwards.

Warehousingselling Shares To A Company

  • One common definition of residual value for private equity investment is the value of non-exited investments reported by funds.
  • It is simply the fund’s internal rate of return since its first investment.
  • The realization multiple is also known as the distributions to paid-in multiple.
  • Private equity-sponsored funds tend to report this figure on a quarterly basis.
  • The realization multiple, in conjunction with the investment multiple, gives a potential private equity investor insight into how much of the fund’s return has actually been “realized” or paid out to investors.
  • It is calculated by dividing the cumulative distributions by paid-in capital.

Refers to the priority claim that preferred shareholders hold on the proceeds . These shareholders receive their investment back first before other shareholders participate. A fund’s LPA sets out the general terms and conditions applicable to all participants private equity glossary in a fund, in particular a fund’s GP and LPs. It covers, among other things, their rights and responsibilities related to fundraising, capital calls and distributions, expenses and profit sharing, fund governance and reporting, and fund termination.

Permanent Capital

Next biggest cheques go to financial diligence providers, commercial diligence providers and so on down to the smallest players private equity glossary like insurance diligence. Let’s them tell their LP’s that it’s one of the many ways that they add value to their investments.

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