The Private Equity Industry

The private equity industry as we know it today is a relatively new phenomenon --

• In 1970 there were only 12 transactions involving less than $13 mln in direct capital. (The Role of Private Equity in U. S. Capital Markets by Robert Shapiro and Nam Pham sponsored by the Private Equity Council)
• By 1998 it exceeded $50 bln, by 2003 over $100 bln and by 2007 over $700 bln
• PE LBO went from accounting for only 3% of M&A activity in the 1990s to over 10% in most of the past years.
• From 1986 to 2005, IRR averaged 15.2% or 1.2 times the return on the market.

PE firms help rationalize on a global basis as they sell business to its highest and best owner

• Once a PE firm takes over a portfolio company, the clock begins ticking toward an exit, usually within a few years.
• Median debt-to-equity ratio of 1.9 to 1 with valuation of about 9X EV/EBITDA
• PE-owned companies might outperform due to better management (Globalization of Alternative Investments, Working Papers Volume 2, The Global Economic Impact of Private Equity Report 2009, World Economic Forum, Geneva, Committee chaired y Joseph Rice of Clayton Dubilier & Rice, and How Do Private Equity Investors Create Value, A Global Study of 2007 Exits by Ernst & Young)
• Average equity check size at $400-$800 mln
• Managers of most private equity portfolio companies don't have a "careerist" mindset, it's more a tour of duty mindset where one takes on a project for a five-year or so timetable

	Top 20 Private Equity firms by total funds raised
	Firm Name	Total Fund raised between 1999-2009 ($bln)			Fund Established
1	Goldman Sachs Private Equity Group		91.9		1992
2	TPG			49.9	1992
3	Carlyle Group			49.6	1987
4	KKR			46.7	1976
5	Blackstone Group			46	1985
6	Oaktree Capital Management			39	1984
7	Bain Capital			38.2	1984
8	CVC Capital Partners			27.7	1981
9	Apollo Management			33.3	1990
10	Apax Partners			32.4	1972
11	Warburg Pincus			30.8	1966
12	HarbourVest Partners			32.4	1972
13	Permira			23.3	1985
14	Hellman & Friedman			22.9	1984
15	Advent International			20.5	1984
16	Credit Suisse Customized Fund Investment Group			18.5	2000
17	Pantheon Ventures			18.2	1982
18	Thomas H Lee Partners			16.2	1974
19	AXA Private Equity			15.5	1996
20	Madison Dearborn Partners			14.7	1989
	Total			661.6
	Source: Preqin