Half-Course: Private Equity Finance

Course Number 1445

Professor David S. Scharfstein
Late Winter, 15 session half-course
1.5 credits
Exam

Career Focus

This course is intended for students interested in careers related to private equity. This includes those who want to work for private equity firms, invest in private equity firms as limited partners, or provide investment banking or consulting services to private equity firms. This course is also appropriate for students with more general interests in deal structuring, mergers and acquisitions, and business development.

Educational Objectives

The private equity industry is in flux. Deal volume has fallen dramatically as credit has tightened, and the types of deals that are now being done are very different from those that were done just two years ago. But, even in difficult times, there are opportunities, some outside the realm of traditional buyouts. This course is designed to help students develop the skills to exploit these opportunities.

There are two main goals of this course. First, and foremost, the goal is to develop a rigorous approach to analysis of deal opportunities from both financial and strategic perspectives. Deal sourcing, due diligence, financing, valuation, exit, and fund strategy will be studied. The second goal of the course is to provide students with a broader perspective on the private equity industry. What are the sources of value creation? What works and what does not work? What changes can we anticipate going forward.

These elements are studied in a variety of contexts including: buyouts of all sizes (with a focus on middle market); private equity funds of all sizes; distressed buyouts and restructuring of failed buyouts. We will also study the new sorts of investments that private equity firms are engaging in.

Course Content and Organization

There will be 15 sessions followed by an exam.

The course is organized into three overlapping modules.

Module 1: Deal Sourcing and Due Diligence. We will explore the various ways that private equity firms source deals, and the strengths and weaknesses of these approaches. We will also analyze the due diligence process - how it relates to sourcing, negotiation, and valuation.

Module 2: Deal Financing, Valuation and Exits. We will study the ways that private equity firms finance acquisitions and the financing challenges they now face. We will also develop a variety of tools for valuing acquisitions (including LBO models) and hybrid securities. Finally, this module will analyze the exit decision - both the timing and mode of exit.

Module 3: Fund Strategy. In this module we will take a step back from deal level analysis and look at the organization of private equity funds and their strategies.