private equity at insead - practitioner lecture by antoine sage
TRANSCRIPT
Private EquityAntoine SAGE, AMP13, Food and Beverage Private Equity (FnB PE)
MAACS course of Pr. Philipp MEYER-DOYLEFeb. 4th 2015, INSEAD, Fontainebleau
39 y.o., married, 2 boys: Louis & Charles
15 years of Private Equity (PE)
2015: launching FnB PE
Independant European PE focused on Food an Beverage | 150€m
2007: co-founding Cerea Capital
Successfully focused on Food and Beverage in France | 130€m
2001: joined Astorg Partner
Successful generalist PE fund | 185€m to 1000€m
10 years of IT: learning companies from inside
fr.linkedin.com/in/antoinesage/en
Who am I ?
FnB PEFood and Beverage Private Equity
Food and Beverage EuropeFnB BusinessPartners
Sustainable in 2015150€m
Involvements
United Nations - Principle for Responsible Investments | Member
MEDEF (employers union) | Supervisory Board for Economy and Finance
AFIC (Private Equity lobby) | Sustainable development Board member
Lectures, coach and Jury at ESSEC Business School, HEC Paris Business School and MIT entrepreneurship
Education
Executive MBA from ESSEC Business School
Valuation from Stern | New York University
Advanced Management Programme from INSEAD
fr.linkedin.com/in/antoinesage/en
Who am I ?
Private Equity fund
Buyout focus
PE vs Trade
QnA
Private Equity Fund
General Partners
(GP)
Limited Partners
(LP)
Fund
feesPrimer
fund parameters
Investment period (years) 5
Fund duration (years) 10
Fund size (in m) 150
Management fees (per year) 2%
Hurdle rate 7%
Carried interest 20%
GP commitment 2.00%
Gross return (x) 2.00
Approach
in m Y0 Y1 Y2 Y3 Y4 Y5 Y6 Y7 Y8 Y9 Y10-Investment (incl GP) 30 30 30 30 30
+Desinvestment 60 60 60 60 60 0Flow gross 0 -30 -30 -30 -30 30 60 60 60 60 0
Internal Return Rate 6% 14% 19% 19%Multiple 1.25 1.75 2.25 2.25
-Management fees 0 3 3 3 3 3 2.4 1.8 1.2 0.6 0Flow net 0 -33 -33 -33 -33 27 57.6 58.2 58.8 59.4 0
Internal Return Rate 2% 10% 16% 16%Multiple 1.08 1.53 1.98 1.98
GP Commitment 0 0.6 0.6 0.6 0.6 0.6 0Carried interest (if hurdle) 0 13.92 11.88 0
GP Flow 0 -0.6 -0.6 -0.6 -0.6 -0.6 0 0 13.92 11.88 0Internal Return Rate 34% 45% 45%
Multiple 4.64 8.60 8.60
Flow net of fees and carried 0 -33 -33 -33 -33 27 57.6 58.2 44.88 47.52 0Internal Return Rate 9% 13% 13%
Multiple 1.42 1.78 1.78
In a spreadsheet…
-160
0
160
Y0 Y1 Y2 Y3 Y4 Y5 Y6 Y7 Y8 Y9 Y10Flow Cumulative
J.curve: invest and sale
Investor’s perspective (cumulative)m
-225
-150
-75
0
75
150
225
300
YearsY0 Y1 Y2 Y3 Y4 Y5 Y6 Y7 Y8 Y9 Y10
Investment Fees Desinvestment Carried Interest
Gross 19% / 2,25x
Post fees 16% / 1,98x
Post carried 13% / 1,78x
net IRR > hurdle ?
“Skin in the game”
20% of value creation
1/2 to 2 yearssalary
trigger at7 to 8%
c. 26m at2x gross
2x salary (or more) within high entrepreneurial risks
Carried interest
Buyout
x - =EBITDA EBITDAmultiple net debt Equity value
Equity value
Turnover Margins Leadership Growth
Innovate Risk
Cash
Leverage
Incentives
Governance
CapEx
3-6 years mindset
Acquire
Value creation
@ acquisition
10%10%
30%5%
45%
@ exit
15%
17%
13%5%5%
45%
PE Equity Management EquityRedeemable debt InFine DebtMezzanine Loan Repaid debt
Leverage effect : IRR 5,4% | 1,3x @5yLeverage
@ post incentive
16%
9%
7%3%
8%
57%
PE Equity Management Equity Redeemable debtInFine Debt Mezzanine Loan Incentive
@ exit
9%7%
3%8%
73%
Management Incentive
if PE performance >3x then Management 9x
Deal flow Initial appetite
Agreementon terms
Sale and Purchase
Agreement
Comiteestage 1
Comiteestage 2
Due diligences
stage 1
Due diligences
stage 2
Transaction completion
Comiteestage 2
3 to 6 weeks
3-5 people within same officewith full mandate
3 months or more (6 months)
Company
Negotiation
PE Fund
Direct or MnA
• Proprietary• MnA• Listed
Acquisition process
PE vs Trade
PE Trade
Goals cash & value creation limited term multiple agendas
Value intrinsic value accounting based including short term (EPS, …)
Financials focus EBITDA and cash GAAP: EPS, PER, … trade offs possible
Risk aggressive risk taking with assets protection muted
Leverage high limited
Pace quick to decide, evaluate and reconsider
prove first, act laterhard to reorganise
Incentives strong value oriented erratic accounting or stock related
Acquire/divest value oriented decision bias: divesture = failure
inspired by The Private Equity Edge Pt 2 Ch.10 fig. 10.1
Further readings
QnA
fr.linkedin.com/in/antoinesage/en
@Antoine_SAGE