About the Author xi Acknowledgements xiii About the Companion Site xv Introduction 1 The Rise of Private Markets (Alternative Assets) in the Investors'' Allocation 2 The Rise of Private Markets as a Favoured Alternative Source of Company Financing 4 Private Equity 6 Private Debt 8 Deal Phases and Book Organisation 10 Chapter 1 Closed End Funds 13 A Close Up on Private Equity and Private Debt Partnerships 13 Cash Flows, J Curve, and Returns 16 Financial Returns 19 References and Further Reading 22 Suggested Cases 22 Chapter 2 Debt Products 23 Introduction 23 Definition and Some Useful Classifications 24 Pure Debt Instruments 29 High-yield Bonds 37 Mezzanine 39 Unitranche 43 A Close Up on Syndicated Lending 50 References and Further Reading 52 Suggested Cases 52 Chapter 3 Equity Products 53 Introduction 53 Ordinary Shares 54 Preference Shares 55 Convertibles 57 Other Equity Instruments 64 References and Further Reading 70 Suggested Cases 70 Chapter 4 Business Due Diligence 71 Introduction 71 Macro Factors 71 Industry Risk Analysis 73 Company Analysis 83 Summary Steps for a Strategic Analysis of a Business Plan 90 References and Further Reading 91 Suggested Cases 91 Chapter 5 Accounting Due Diligence 93 Introduction 93 Quality of Earnings 93 Ratio Analysis 101 Cash Flow Analysis 106 Creative Accounting 115 References and Further Reading 123 Suggested Cases 123 Chapter 6 Business Plan 125 Introduction 125 Pro-forma Financials 125 Profit and Loss Projections 126 Balance Sheet Projections 127 Putting it all Together: Modelling Cash, Short-term Debt, Net Income, and Shareholders'' Equity 128 Sensitivity Analysis 128 Consistency Checks 129 References and Further Reading 133 Suggested Cases 133 Chapter 7 Valuation 135 Introduction 135 Fundamentals #1: Price and Value 135 Fundamentals #2: Enterprise Value and Equity Value 136 Fundamentals #3: Market Values vs. Book Values 140 Discounted Cash Valuation Method 140 Discounted Cash Valuation: WACC Approach 140 Discounted Cash Flow Valuation: Adjuster Present Value Method 144 Comparables Valuation Method 147 References and Further Reading 156 Suggested Cases 156 Chapter 8 Growth Equity 157 Introduction 157 Differences between Venture Capital, Growth Equity, and LBO 157 Instruments 159 Fundamentals #1: Pre-money and Post-money Valuation 160 Fundamentals #2: Capitalisation Table 165 Fundamentals #3: Dilution and Equity Stake Calculation 165 Fundamentals #4: Anti-dilution Provisions 167 Fundamentals #5: Structuring for Exit (Ordinary Shares vs. Other Instruments) 169 Fundamentals #6: Redemption 172 Fundamentals #7: The Growth Capital Method (Adapted from the Venture Capital Method) 173 Fundamentals #8: Calculation of the Price per Share 176 Fundamentals #9: Put and Call Options 176 References and Further Reading 184 Suggested Cases 184 Chapter 9 Leveraged Buyout 185 Introduction 185 LBO: Key Concepts 187 LBO Analysis 199 References and Further Reading 215 Suggested Cases 215 Chapter 10 Management of the Portfolio Companies and Exit 217 Introduction 217 Reporting 217 Monitoring 218 Value Creation 218 Exit 220 IPO 222 Trade Sale 223 Secondary/Tertiary Sale to Financial Buyers 223 Other Exit Routes (Share Buyback, Options, Recap) 224 References and Further Reading 225 Suggested Cases 225 Chapter 11 Private Debt 227 Introduction 227 Structuring a Credit Facility 227 Sanity Checks 240 Structuring a Loan Facility: A Modelling Example 246 References and Further Reading 246 Suggested Cases 246 Chapter 12 Legal Documentation 247 Introduction 247 Private Debt Legal Documentation 249 Private Equity Legal Documentation 256 References and Further Reading 264 Appendix 12.1: Example of an Equity Term Sheet 265 Appendix 12.2: Example of a Debt Term Sheet 277 Chapter 13 Distress Symptoms and Remedies 287 Early Warning Signals 287 Causes 288 Restructuring Options 290 Financing Solutions 291 Legal Alternatives 294 References and Further Reading 297 Suggested Cases 298 Index 299.