A THOROUGH UNDERSTANDING OF PRIVATE EQUITY

RETOUR SOMMAIRE

A CACEIS PRODUCT DEVELOPMENT PUBLICATION - 2010

GLOSSARY

Disbursement An investment by a fund in a company. Distressed debt

The bonds of a company that is either in or approaching bankruptcy. Some private equity funds specialise in purchasing such debt at deep discounts with the expectation of exerting influence in the restructuring of the company and then selling the debt once the company has meaningfully recovered.

Drawdown See Capital call Due dilligence This is one of the main processes which takes place before a

transaction is completed. The aim is to ensure that there is nothing which contradicts the financier’s understanding of the current state and potential of the business. The individual elements of due diligence may include commercial due diligence (markets, product and customers), a market report (marketing study), an accountants report (trading record, net asset and taxation position) and legal due diligence (implications of litigation, title to assets and intellectual property issues).

Early-stage Seed and start-up stages of a business. Early-Stage Fund Venture capital funds focused on investing in companies in the early part of their lives. EBITDA Earnings before interest, taxes, depreciation and amortisation – a financial measurement often used in valuing a company (price paid expressed as a multiple of EBITDA). EMPEA Emerging Markets Private Equity Association Equity stake When a company or organisation owns shares in a company. EVCA European Venture Capital Association Exit Liquidation of holdings by a private equity fund. Among the various methods of exiting an investment are: Trade sale; Sale by public offering (including IPO); Write-offs; Repayment of preference shares/loans; Sale to another venture capitalist; Sale to a financial institution. Exit strategy A private equity house or venture capitalist’s plan to end an investment, liquidate holdings and achieve maximum return. Expansion capital Also called development capital. Financing provided for the growth and expansion of a company, which may or may not break even or trade profitably. Capital may be used to finance increased production capacity, market or product development, provide additional working capital. Fair value The price at which an orderly transaction would take place between market participants at the reporting date (measurement date). FCPI “Fonds Commun de Placement dans l’Innovation” French private equity fund dedicated to investments in innovation. FCPR “Fonds Commun de Placement à Risques” French private equity fund. FIP “Fonds d’Investissement de Proximité” French private equity fund dedicated to local or regional investments. Fee income Management fees expressed as a percentage of the funds raised, Escrow account An account in which a GP’s carry is held prior to being recalculated and paid out on a pre-agreed date.

payable to fund managers. The larger the fund, the greater the fee income, although the percentage generally declines from around 2% in smaller funds to 1-1.5% in larger funds.

Financial secondaries A secondary deal involving a funds’ portfolio of companies that are relatively mature (five to seven years old), with some exits already realised, but not all capital drawn down. The main interest for the buyer is to negotiate a potential discount on the fund portfolio. Fund of funds A fund that takes equity positions in other funds. A fund of funds that

primarily invests in new funds is a primary or primaries fund of funds. One that focuses on investing in existing funds is referred to as a secondary fund of funds.

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