Private Equity Finance
Course Number 1440
Professor Paul Gompers
Fall; Q1Q2; 3 credits
This is an advanced corporate finance course that studies deal assessment and due diligence, valuation, deal execution, capital structure, governance, restructuring, and risk management issues through the lens of private equity. The class integrates a range of topics from an investor's prospective. It is intended for students interested in working for a private equity firm, investing in private equity as limited partners, or providing investment banking or consulting services to private equity firms. This course is also appropriate for all students who are interested in a detailed and rigorous exploration of corporate finance.
This course has two objectives. First, the course presents a rigorous approach for analyzing and negotiating investment opportunities and deal structures. Students will develop a deep understanding of the core concepts of corporate finance. The second goal of the course is to provide students with a rigorous understanding of the private equity industry including sources of value creation, institutional features, and market forces that shape the direction of the industry. Case settings will focus not only on North America and Europe, but will also explore how forces in emerging markets affect the opportunity for and strategies employed by private equity organizations. These elements are studied in a variety of contexts including: buyouts of all sizes; private equity funds of all sizes; distressed debt investing and restructuring; as well as growth equity.
Course Content and Organization
The course has 28 sessions followed by a final exam. Class participation and the final exam will each count for 40% of the course grade. A few cases will include short exercises which will count for 20% of the grade.
The course is organized into five modules. Guests will attend many of the classes.
- Module 1: Deal Sourcing
This module will explore various strategies employed in private equity to identify and evaluate investment opportunities. Important tools for evaluating investments including discounted cash flow valuation (with the focus on CCF and APV methods), LBO investment return models, financial statement analysis, and broader due diligence questions will be examined. A variety of private equity settings will be examined including small and large leveraged buyouts, growth equity, distressed debt, and PIPE (private investments in public equity.)
- Module 2: Deal Execution
This module highlights the critical levers utilized by private equity investors in structuring transactions. Capital structure, security choice, and broader capital markets issues will be central to the cases. A detailed exploration of the structure and functioning of credit markets and their central role in private equity transactions will be highlighted.
- Module 3: Deal Management
This module explores the important choices that private equity firms make after completing transactions. In particular, the critical levers that drive value creation will be examined as well as governance and oversight of portfolio companies.
- Module 4: Realizations
The critical mechanisms for realizing value will be highlighted in this module. A variety of realizations will be presented including leveraged recapitalizations, strategic and financial sales of portfolio companies, as well as initial public offerings.
- Module 5: Private Equity Firm Strategic and Management Issues
This module takes a step back from deal-level analyses and looks at the organizational and strategic issues of private equity organizations. The goal is to understand why and which practices are likely to deliver sustained profitability in the future.